What Does Population Aging Mean for Growth and Investments?
Comment of the Day

February 27 2018

Commentary by Eoin Treacy

What Does Population Aging Mean for Growth and Investments?

Thanks to a subscriber for highlighting this article by Henry McVey at KKR which appeared in the Macro Morsels report on the 23rd. Here is a section on China: 

Eoin Treacy's view

Here is a link to the full report and here is a section:

China’s working-age population peaked in 2014, but unlike most advanced economies, which are small open economies, China cannot solve its labour shortage by inward migration as it accounts for 19% of world population. 

China also accounts for a third of global growth and it already accounts for 10% of global private consumption. The larger and older it grows, the less it can rely on exports or migration to solve its demographic headwind.  As such, it is imperative that China continue on the path of  productivity enhancing measures to maintain growth at a reasonable pace.  That said the big offset to its shrinking labour force is urbanization and its growing middle-income consumer, which should dampen the deceleration in growth for now until urbanization gets closer to 75%.

Healthcare: Access to affordable healthcare and higher quality services will expand as the middle class grows and poverty declines. In 2016 the government announced the “Healthy China 2030” plan, which pledged to promote initiatives geared toward diet, exercise, and access to healthcare services.


Productivity-Enhancing Tech • As manufacturing transitions from heavy industry and low-end manufacturing economy to a more tech-oriented and service economy, robotics and other efficiency enhancing technologies will play an important role amongst the aging and millennials.  Urbanization-wise, there are still over 200 million people in agriculture, so there is a lot of room for productivity and income growth as these people migrate and move up the GDP-per-capita curve. (ISDN SP)


Education • Rise in GDP-per-capita also fuels demand for access to better education. Currently, the college completion rate, which is a key government priority, for China is at 22%, behind India at 27% and Brazil at 43%. At the October 19th Party Congress this year, President Xi Jinping said that priority should be given to education in China to speed up its modernization and to develop education that satisfies  people, and the Education Minister hopes China will play a leading role in worldwide education and become a study destination for students worldwide. (Mapleleaf Education 1317 HK)

China has successfully developed a domestic demand driven digital economy out of nothing less than a decade ago. The introduction of social media, ecommerce, online banking, payments and saving are all contributing to the upskilling of the population.

However, a college completion rate of 22% is decidedly mediocre for a country that has aspirations of being a globally significant power. That suggests education is likely to continue to be one of the primary growth drivers for the Chinese stock market. The fact that respect for education and hard work have long been part of Chinese, and indeed Asian culture generally, suggests there is no cultural impediment to this growth. On the other hand substantial improvements in standards of governance will be required to deliver the quality of education required to thrive in a more advanced economy. 

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