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Why China Won't Become Super

In a word: demography.  Here's the short version, delivered by Mark Steyn today in The Australian:

"Demography doesn't explain everything but it accounts for a good 90 per cent. The "who" is the best indicator of the what-where-when-and-why. Go on, pick a subject.....Will China be the hyperpower of the 21st century? Answer: No. Its population will get old before it gets rich."

Andy Mukherjee of Bloomberg goes into much more detail:

Qiao's research shows that China's dependency ratio -- the number of people too young and too old to work divided by the working-age population -- will start rising at the end of this decade and approach 50 percent in 2030, from less than 40 percent at present, making China as gray as Japan was last year.

By 2050, every 10 Chinese workers in the age group of 15 to 64 will support a total of seven younger and older people -- a dependency ratio of 70 percent.

An aging society may be an inevitable part of demographic transition, though ``what makes China's case unique is that the sharp rise in dependency ratio will arrive earlier in terms of per capita income level relative to other countries,'' Qiao says in her report.

In 2030, China's annual per capita income will be a little more than $11,000 measured in current prices, compared with almost $36,000 in Japan last year, according to Goldman Sachs's estimates. South Korea's dependency ratio will approach 50 percent in 2025, with its citizens earning $52,000 a year.

Does it matter if China gets old before it gets rich? It does, for a number of reasons. First, economic growth rates taper off with aging: It's difficult for a developing nation to get rich after its population has already grown old.

Second, aging will put further stress on China's underdeveloped pension system as an increasingly smaller cohort of workers gets saddled with the responsibility of sustaining a growing number of retired people.

A third reason is that as European nations and Japan age further, their governments may have to raise tax rates to transfer incomes from the workers to the retirees. That will create a shortage of capital.

A combination of cultural changes and the Communist Government's "one-child policy" implemented in 1979 have helped keep birthrates in China under 2.0% for the last twenty-five years, accounting for a population reduction of roughly 300 million people.

As Mukherjee reports, the result is that for the last 20-plus years, China has had a relatively high number of working-age people relative to its overall population, a major factor contributing to the country's explosive economic growth.  But the "demographic dividend" China has enjoyed is poised to turn into a deficit as the pre-1978 baby boomer generation begins to retire, potentially leaving the country with a very gray, yet still relatively poor population.