Why an ageing China will never overtake the US as the world’s biggest economy

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By Yi Fuxian

SOUTH CHINA MORNING POST

02 April, 2019

Forecasts that China will dethrone the United States as the world’s biggest economy neglect the country’s ageing population and its drag on growth, says the author.

In 2010, China replaced Japan as the world's second-largest economy. Many economists believe it is just a matter of time before China dethrones the United States as the world’s biggest economy – some have argued that it could happen before 2030.

They have cited the history of other Asian economies as evidence to back the claim. The nominal per capita gross domestic product of China was just a sixth of America’s in 2018 – a level similar to Japan in 1960, Taiwan in 1978 and South Korea in 1986.

In the following two decades, the three Asian economies achieved annual growth rates of between 7 per cent and 8 per cent.

As such, economists including Justin Lin Yifu, the former World Bank chief economist, have argued that China would go through a similar trajectory and the nation would be able to achieve a 6 per cent annual growth rate from now until the 2030s.

I beg to differ, however. These optimistic forecasts of China’s economic future neglect the country’s ageing population and its drag on growth.

The younger an economy’s population structure, the stronger its vitality for economic innovation. As the median age rises and the proportion of the population aged 65 and over increases, so the economic growth rate could plummet.

In 1950, the median age was 22 in Japan and 30 in the US.

Japan was younger than the US and had higher economic growth. However, the average total fertility rate from 1951-2017 was 1.77 births per woman in Japan and 2.33 births in the US, which led to a population ageing faster in Japan than in the US.

Japan’s median age and the proportion aged over 65 surpassed the US’ in 1967 and 1992 respectively. Japan’s GDP growth has been lower than America’s since 1992 (excepting 2010).

The size of Japan's nominal GDP rose from 8 per cent of the US’ GDP in 1960 to 71 per cent in 1995, and then fell to 24 per cent in 2018.

Taiwan and South Korea had similar experiences. In 1960, the median age was 20 in South Korea and 17 in Taiwan, versus 30 in the US.

However, in 2018, it was four and three years older than the US’ respectively. The nominal GDP of Taiwan and South Korea was only 0.3 per cent and 0.7 per cent of the US GDP in 1960.

It increased to 3.1 per cent for Taiwan and 7.8 per cent for South Korea in 2011, then faltered, and may gradually decrease in the future.

In 1980, China’s median age was 22, eight years younger than the US’.

From 1980 to 2011, China's annual GDP growth averaged 10 per cent, faster than the US’ 2.7 per cent. The size of China's nominal GDP rose from 7 per cent of US GDP in 1980 to 49 per cent in 2011.

However, China's GDP growth slowed from 9.5 per cent in 2011 to 6.6 per cent in 2018.

The slowdown can be blamed on a variety of factors. The first and probably the most important factor is that China is getting older, partly thanks to Beijing’s ruthless one-child policy.

In 2014, China’s median age had increased to 38, surpassing that of the US.

According to the United Nations World Population Prospects, the US population will increase from 328 million in 2018 to 370 million in 2050.

The cultural traditions of mainland China are similar to those of Taiwan and South Korea. Average fertility rates from 2001 to 2018 were 1.14 in Taiwan and 1.18 in South Korea.

If China is fortunate enough to stabilise its total fertility rate at 1.2, the total population will fall from 1.28 billion in 2018 to 1.08 billion in 2050.

This decline will be accompanied by an ageing population structure. The proportion aged over 65 will rise from 12 per cent in 2018 to 22 per cent in 2033, and 33 per cent by 2050.

In comparison, the proportion of those 65 and over in the US will rise from 16 per cent in 2018 to 21 per cent in 2033 and 23 per cent in 2050.

China’s median age is forecast to increase to 47 by 2033 and 56 in 2050. In the US, the median age will be 41 in 2033 and 44 in 2050.

China’s working-age population aged 20-64 began to shrink in 2017, while the US working-age population will not reach its peak until 2050.

From the above, we can conclude that China's GDP growth may start to fall below the US’ in around 2033, when the proportion aged over 65 begins to exceed that of the US.

Assuming that China and the US will have GDP growth rates of 6.3 per cent and 3 per cent in 2019, and then fall to 2.2 per cent in 2033, the size of China's GDP, which was 66 per cent of the US GDP in 2018, will peak at 84 per cent in 2033.

Thus, it’s clear China's economy cannot exceed that of the US.


ABOUT THE AUTHOR:

Yi Fuxian is a senior scientist at the University of Wisconsin-Madison and author of Big Country with an Empty Nest.

[On FaceBook, this news article had a lot of Sinophile-Chauvinists vehemently defending the Rise of China, factlessly, fecklessly, and tribally. 

I have my doubts about the impartiality of the writer, as he is from the University of Wisconsin-Madison. And he has a book to shill.

But then again, he does present some compelling evidence (which the Sinophile-Chauvinists are mostly unable to muster for their position).

But still, China is 1.3 billion people. Even if their per capita GDP is just 1/4 of the US, they would overtake the US. Currently, it is 1/6 of the US, and their population (1.3billion) is almost 5 times that of the US (330m).

But population decline means eventually (or sometime in 2050), the US will have 370 million people, and China will dwindle to 1.08 billion. Less than 3 times that of the US. Which means to surpass the US, China's per capita GDP will have to be at least 1/3 that of the US.

Unless of course all the "facts" provided are inaccurate or false.

But I have no reason to doubt those facts.

But here's a separate report by the BBC:  "China's ageing population, low birth rate to cause 'unstoppable' population decline, experts say"

Excerpts:

China's population is set to peak at 1.44 billion people in 2029 — but it then faces a long period of "unstoppable" decline, government scholars have warned.

China's population is expected to fall back to 1.36 billion by the middle of the century, which could mean a decline in the workforce of as many as 200 million people.

If fertility rates remain unchanged, the population could fall to 1.17 billion by 2065.

Of course, to the Sinophile-Chauvinist, BBC is not independent of the University of Wisconsin-Madison, because they are both Western institutions. So of course they would collude to spread "fake news" about China. Much better to believe the CCP and their mouthpiece CGTN.

Speaking of which...

"China is aging more rapidly than almost any country in recent history, shifting attention to the dangers of low fertility, population decline, and rapid aging. "

So even CGTN admits there is a demographic issue and concern.But, that's not going to stop the Sinophile-Chauvinists, Huaqiao wannabes.]