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Understanding China’s One-Child Policy Shift: Big Demographic and Economic Changes Ahead

Understanding China’s One-Child Policy Shift: Big Demographic and Economic Changes Ahead

Understanding China’s One-Child Policy Shift: Big Demographic and Economic Changes Ahead

Today, China announced that it is abandoning its 35-year policy of limiting families to only one child. This policy has become a demographic experiment unmatched in the history of the world. Owing to this policy on reproduction, China is experiencing many challenges and risks that were not foreseen when the one-child policy was adopted. At its core, is a challenge to the social composition of China and its economic trajectory within the global economy.

Gender Imbalance will Pose Social Risks

The one-child policy and cultural preferences for boys over girls, has created a horrific gender imbalance. Enabled by ultrasound and gender specific infanticide, China now has more men than women. Some estimates have 116 boys being born for each 100 girls. Over many years, this imbalanced is estimated to result in some 80 million men in Asia without wives by 2040. It is an imbalance that the world has simply not seen before. Will these men demand wives from poorer countries? Probably. Will they succumb to deviant and dangerous behavior? Probably, but hopefully not. 80 million is about the population of Germany. It is about a quarter of the US. The void will be felt for years. Owing to wars, society has overcome lower numbers of men, but lower numbers of women is mostly unseen in our recent human history. It will pose social risks unseen before.

The Rise of Little Emperors

Younger people in China live a different life compared to their parents and grandparents. The one-child policy, exercised over 35 years, means that 4 grandparents, produce 2 parents, and one grandchild. It means a child grows up with 6 adults doting on him or her. It also means that child gets more of what he or she wants. This new psyche is called, “the little emperor.” And understandably, the six adults want the best and most for their only heir. In a country where eldercare has historically been handled at home, it also challenges how the Chinese will age and where they will live. We think of cultural challenges with millenials in the US, but China is dealing with the same issue, too.

Rapid Aging is in the Future for China

Below is a population pyramid of China now and in 2050. The gender imbalance is most obvious in the youngest people. The aging of China is soon upon us. It will have major economic implications to the world.

Impact of China on Global Economics

We often lose sight of the impact that China had on global prosperity. In the 1990s, trade and business with China really opened-up and expanded. It allowed US and European firms to move manufacturing to China in a big way. It provided a reduction in the cost of manufacturing to much of the world. That controlled the cost of making many things. Indirectly, it meant that inflation could be more easily controlled in developed markets. As long as some (and a growing part) of the manufacturing base could be shifted to low-paid Chinese workers, the developed markets could see expansion in product offerings and firms could expand without as much of a concern for inflation. In many ways, the success of Walmart has been tied to its ability to source from China. Walmart brought an increase in lifestyle offerings to the US middle class, built on low-cost labor in China. China has also been a boom for some US firms. Even Starbucks sees its future as tied to growth in China. The ability to add millions of new customers to a business is invaluable. China has offered that to the world market since the 1990s. Expansion in nearly every commodity over the past 40 years has been tied to the growth and increase in prosperity in China. That growth is now under examination.

Questions about China’s Growth Going Forward

Questions about the future growth in China are increasing. With economic growth recently coming in below expectations, these concerns are becoming more poignant. Trade is flat with China. Even internal consumption, like electricity use is more or less flat. The concern is that China is not growing as projected. Few people trust the economic numbers published by the Chinese government. Maybe China has reached a plateau in economic growth. The future does have some challenges for China. The one-child policy has left an aging China. Before 2050, China will be a smaller country than it is today. It is hard to believe. It will be an older country, too. Smaller and older counties have less productivity and consume less (unless then make large investments in technology to boost productivity and keep older workers working). The imminent aging of China is bad news for businesses that have grown to rely on China as a labor source or demand source.

It is interesting to think that we have spent the last 40 years in the US and developed markets defeating inflation. In many ways, China helped us control inflation, by providing a low cost labor source. China and our economic partnerships with China now pose new risks to the global market going forward. As China ages, its labor offerings will become less valuable. Might global labor costs increase – stimulating inflation? Might demand from China tail off – driving deflation? It really depends on what happens in other parts of the world For international firms, it will require pivots away from China. Here are some things to consider with the demographic shift at work in China.

China and the World will Age

The one-child policy and demographic experiment is over. China has seen the problem that is looming and is hoping to correct it, but the next 20-35 years are in the books already. China will be an older country. How does your business work with the elderly? There will be great expansion in products and services that help the elderly. Healthcare and housing will require major investments. Technology that serves the elderly will be a prerequisite.

Leverage Automation

If your business is built on low-cost labor in China, look for opportunities to further remove the labor through automation. Any expansion from more young workers in China is decades away, at best. The next few decades suggest that China will not be the workhorse that it was over the last few decades.

Look for Labor and Growth In India and Africa

The population boom is alive and well in India and Africa, however. The state of the economies in these parts of the world still involves pulling people out of abject poverty. In spite of that, fundamental investments in infrastructure, people, and products will occur. Map a path to capture this growth.

Some Thoughts and Observations on Growth

For companies and investors looking for growth in the world, I offer a few major trends. The world will have massive expansion in the warmest climates. Warm climates demand air conditioning, refrigeration, and such comforts go a long way in changing the satisfaction of the population. With rare exception do people ever give up such comfort. Also, the growth of these populations (especially in India) will correspond to higher per capita GDP. As people move out of the depths of poverty and into the so-called “global middle class” they adopt a richer diet that is based more on animal protein. This will require more soybean production for the raising of animals and put new pressures on sustainable animal husbandry as meat consumes not just soy beans, but large amounts of water and energy. These people will need transportation and communications. The development of low cost automobiles and the expansion of mopeds will bring these growing populations access to combustible engines and the continued environmental challenges posed by them. On the flip side, the U.S., Europe, Japan and China will need solutions for an aging population. Obviously healthcare is a focus. But these aging populations will consume services. Some of this can be met by immigration, but automation and even robots will, and already are answering the call.

Build your plan for the future. Take note; China has and does not like what it sees.

About Russell Walker, Ph.D.

Dr. Walker is Clinical Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University.

Professor Walker has developed and taught executive programs on Enterprise Risk, Operational Risk, Corporate Governance, Analytics and Big Data, and Global Leadership. He founded and teaches the Analytical Consulting Lab, Risk Lab, Global Lab, and Digital Lab – all very popular experiential learning classes at the Kellogg School of Management, which bring Kellogg MBA students together with corporate opportunities focused on data and strategy. He also teaches courses in risk management, analytics, and on strategies in globalization.His most recent book From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the book Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies. He has also authored many business cases and published multiple Kellogg case studies through Harvard Business School Publishing. His cases have been highlighted by the Harvard Business School Publishing, the Aspen Institute, PRMIA, and the Bank of England for excellence in teaching risk management.

He serves on the Scientific and Technical Council for the Menus of Change, an initiative led by the Harvard School of Public Health and the Culinary Institute of America, to develop healthier and more environmentally friendly food choices. He was formerly on the board of the Education and Technology Committee to the Morton Arboretum. He was a board member of the Virginia Hispanic Chamber of Commerce, where he developed support programs for Hispanic entrepreneurs and worked with US senators on US Latino matters.

He is at @RussWalker1492 and russellwalkerphd.com.

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