There more you start poking around online, the more you turn up reasons why China is screwed.
The first installment in this series was popular. Well, there’s a lot more reasons why China is screwed.
It’s screwed all the way down.
First up: Demographics:
Takeaways:
Remember all that talk of an “Asian Century?” Yeah, not so much.
“China will soon run out of people.”
China’s population pyramid is about to shift from a huge bulge of people in their prime earning years to one where that bulge is disproportionately elderly.
“Everything that made China what it is today has relied on a large, young, and productive workforce. Now, that workforce is about to succumb to biology just as every other generation has in every other country, ever.” Their demographic dividend is running out.
“China’s working-age cohort grew from 58% of the country in 1978 to 74% in 2010. But in less than twenty years, the UN predicts that number will be roughly back where it was in ‘78. By then, China will have twice as many seniors as children under 15.”
“Per capita wealth remains low, on the level of Mexico, the Maldives, and Kazakhstan. That means this mass of retirees won’t just contribute less to the economy, but will also require immense financial support — the kind China’s fractured pension and healthcare system isn’t remotely prepared for.”
“Unfortunately for China, the One-Child Policy has set the cultural expectation firmly at one.”
Replacement fertility: 2.1 children per woman. China’s official fertility rate: 1.6. “Yi Fuxian, a scientist at the University of Wisconsin-Madison [estimates] the true number at 1.18.”
“China’s preference for male babies means that between 2020 and 2060, there will be roughly 3 single men for every 2 single women.”
“China’s 2020 Census, [tallied] 14.65 million births the previous year — the lowest level since 1961.”
Japan, which is also aging, provides a best case scenario. “With a median age of 48.6, Japan is the 2nd oldest place on earth. Today, its share of the world’s manufacturing exports has fallen from 12.5% to just 5.2. Japan did not fade into global irrelevance. It’s still a great power. But it never fulfilled what once seemed certain: its rise to rival the U.S. as a superpower. And it never will.”
That’s part 1. Part 2 focuses on China’s out of control property market:
It starts off talking about the ghost cities, especially Ordos.
“Ordos does have an interesting story to tell. Just, not the one you might expect. The missing context, at the time, was far stranger than what the unimaginative pessimists concocted: Nearly all of these half-finished homes have owners — the vast majority of which have no intention of ever moving in.”
“All over China are millions of empty, some unfinished, but almost universally sold homes — not just in far-flung corners but also in Beijing, Shanghai, and Shenzhen. Over one-fifth of all urban homes — 65 million in all — sit vacant.”
China relied on “a surplus of cheap labor, which means, by definition, wages are low. You can only compete with the entire rest of the world for so long — and neither do you want to. Low-value manufacturing has long since moved South, to places like Vietnam, Laos, and Bangladesh.”
All the long-hanging fruits of infrastructure spending have already been built.
“Individually, Chinese consumers really don’t spend very much — just 32% of GDP — less than half that of the US, and far below countries like Japan and Germany. Worse, this number has actually been decreasing over time.”
“Chinese consumers are spending, but only on one thing, something not considered ‘consumption’: houses!”
China’s home ownership rate “is among the highest in the world — 90% — to much of the developed world’s mid-60s. It gets much weirder, still. If you can believe it, the majority of recent purchases have been 2nd and 3rd homes. In 2018, for instance, 87% of new home buyers already owned at least one.”
“Because the government tightly controls how much cash is allowed to leave the country, Chinese people simply don’t have a lot of options, and of them, housing is seen as the only sure thing.”
Also, given the sex imbalance mentioned above, for men, home ownership = marriage.
“For all of these reasons, prices have risen to extreme levels. In Shenzhen, Beijing, and Shanghai, it takes 40 years of the average income to afford a home.”
Most are bought before construction even begins.
And here’s where the demographics above provide a double whammy. “The majority of homebuyers, meanwhile, are aged between 20-50 — precisely the segment China will soon lose.”
One huge reason for the bubble: Local governments using their control of land to balance their budgets:
They created what are basically state-owned shell companies called “Local Government Financing Vehicles”. They gave these LGFVs free valuable land, which they then used to take out loans that local governments themselves couldn’t. The trick is that because their debt is hidden, local governments appear far healthier than they really are, while at the same time, meeting the quotas set by Beijing. Following the 2008 crisis, LGFVs transformed from a little quirk of its financial system to the backbone of local economies. If these ‘financing vehicles’ default on their loans, or if housing prices fall too steeply, local governments now have just as much to lose as homeowners. If a local government stops taking out loans, it instantly loses over a third of its revenue, causing a different kind of doomsday. So while the central government may direct local officials to control their debt, the best they can really do is feign cooperation.
Flu Manchu only temporarily halted home price rises, and they’re still soaring.
“Solutions are far too costly to assume their implementation.”
There are a lot more videos of China suckage, but I’ll have to split this up and get to those another time.
“China’s preference for male babies means that between 2020 and 2060, there will be roughly 3 single men for every 2 single women.”
That’s millions, upon millions, of young Chinese men who will never touch something soft. That’s a tsunami of anger. To avoid a revolt, Beijing is gonna start a war.
But China cannot start a war. Old men don’t fight wars. Young men do. If China starts a war, their “working man population” demographics craters even faster than it already has.
Yes, a war kills of the angry young man contingent, but at the cost of killing off the young working man contingent. Which leaves them with a hole in the earning population age demographic that cannot be papered over. They need a war that kills predominately old people, while leaving the buildings and industry intact. That’s not possible.
There is no way out of the demographic hole they have built.
I said early on, 2 years ago, that I didn’t find it odd that a “flu” that disproportionally kills 90% or so of those above age 65 who catch might come out of China. We have no idea, really, of how many elderly Chine have died of Covid, and many of those jumping out of windows or starving in Shanghai are elderly. That’s one way to solve a problem.
The other thing about those younger men is this: They represent their parent’s retirement plan. That’s why the preference for males–Daughters are not expected to support Mom and Dad, but Mom-in-law and Dad-in-law. So, it’s a “prisoner’s dilemma” when it comes to picking the sex of your one child, and most opt for the son.
The implication of this is that the CCP simply cannot follow its usual manpower-wasteful methodology when it comes to making war. You screw up and get that one kid that’s the sole support for those parents he’s leaving behind, what exactly are you going to tell them, in order to keep them aligned with your continued service as lord and master of China? D’ya think it’s a good idea to create a whole lot of people with nothing to lose, and hatred in their hearts for your inept leadership?
I really doubt that China is going to go after Taiwan. They’re going to try for a “peaceful reunion”, more than likely, and leave off with the risky business of a military conquest. I could be wrong, but I’ll point out that gerontocracies are classically cautious, and for good reason.
ADVchina on YouTube has episodes looking into the actual construction quality of Chinese buildings. In a word it is appalling. I have seen this myself: Brand new, spectacular looking hotels with a very ordinary interior full of dodgy wiring and shoddy materials. These buildings don’t last. There is cost cutting and cheating at every stage. Not a good investment.
That’s millions, upon millions, of young Chinese men who will never touch something soft. That’s a tsunami of anger. To avoid a revolt, Beijing is gonna start a war.
In 20 years, I wouldn’t be surprised by accidental escape of a virus in China that is mostly fatal to people over 60.
But China cannot start a war. Old men don’t fight wars. Young men do. If China starts a war, their “working man population” demographics craters even faster than it already has.
Yes, a war kills of the angry young man contingent, but at the cost of killing off the young working man contingent. Which leaves them with a hole in the earning population age demographic that cannot be papered over. They need a war that kills predominately old people, while leaving the buildings and industry intact. That’s not possible.
There is no way out of the demographic hole they have built.
I said early on, 2 years ago, that I didn’t find it odd that a “flu” that disproportionally kills 90% or so of those above age 65 who catch might come out of China. We have no idea, really, of how many elderly Chine have died of Covid, and many of those jumping out of windows or starving in Shanghai are elderly. That’s one way to solve a problem.
“…there will be roughly 3 single men for every 2 single women.”
Sounds like an opportunity to build the world’s biggest chain of self-service massage parlors. 😎
This seems relevant:
The other thing about those younger men is this: They represent their parent’s retirement plan. That’s why the preference for males–Daughters are not expected to support Mom and Dad, but Mom-in-law and Dad-in-law. So, it’s a “prisoner’s dilemma” when it comes to picking the sex of your one child, and most opt for the son.
The implication of this is that the CCP simply cannot follow its usual manpower-wasteful methodology when it comes to making war. You screw up and get that one kid that’s the sole support for those parents he’s leaving behind, what exactly are you going to tell them, in order to keep them aligned with your continued service as lord and master of China? D’ya think it’s a good idea to create a whole lot of people with nothing to lose, and hatred in their hearts for your inept leadership?
I really doubt that China is going to go after Taiwan. They’re going to try for a “peaceful reunion”, more than likely, and leave off with the risky business of a military conquest. I could be wrong, but I’ll point out that gerontocracies are classically cautious, and for good reason.
ADVchina on YouTube has episodes looking into the actual construction quality of Chinese buildings. In a word it is appalling. I have seen this myself: Brand new, spectacular looking hotels with a very ordinary interior full of dodgy wiring and shoddy materials. These buildings don’t last. There is cost cutting and cheating at every stage. Not a good investment.
That’s millions, upon millions, of young Chinese men who will never touch something soft.
They can take matters into their own hands…the Toobin way!