The superpower is reaching a tipping point with both its population and economy. Does this spell the end for China as we know it?
Have we reached peak China?
Its population has reached a tipping point. Its economy is set to follow. And Beijing may soon be desperate to distract an increasingly disgruntled public.
The number of births across China reportedly fell 20 per cent to about 10 million in 2021.
The number of deaths is expected to have been significantly higher.
“That means the size of China’s population has peaked much earlier than previously expected,” demographer James Liang told the Hong Kong-based South China Morning Post.
The implications are enormous.
China implemented a one-child per family policy in 1980 in a desperate bid to curb its explosive population growth. Forty years later, its long-anticipated impact is being felt.
The cycle of life is slowing down.
The population’s average age is rising rapidly. The active labour force is shrinking. Young women are putting off pregnancy to pursue careers in the modernised economy.
But, like most capitalist economies, it needs growth to remain stable.
Even those with Chinese characteristics.
That’s been Chairman Xi Jinping’s driving goal for 2021.
He’s sought to rein in excessively successful companies and replace their quest for rampant growth with his mantra of “common prosperity”.
But it may have come too late.
Unregulated property investors have been derailed. Megacorporations such as Evergrande are on the brink of collapse. And anxiety is spilling over into bond markets.
Now international analysts are worried China’s economy may be in for a hard landing.
By the numbers
In 2020, 12 million babies were born in China. In 2019, the number was 14.7 million.
Combined with 2021’s anticipated 10 million, that represents a birthrate of just 8.5 for every thousand people.
Fewer babies mean fewer consumers. And a weakening of China’s traditional family-based aged care expectations.
Beijing this year responded to the problem.
The Chinese Communist Party (CCP) is scrambling to formulate new policies to encourage procreation.
In 2016, the one-child policy was amended to allow two.
In May, it was changed again. Now three is the magic number.
Despite this, the actual birthrate remains stubbornly low at 1.3.
As with the West, which is also experiencing a child drought, the reasons vary.
Chief among them are the high costs of accommodation, education and health.
And women are now active participants in the workforce, both through educated choice and economic necessity. Few single-income households can afford to buy a house, be it in Beijing, Sydney or Washington. And what they can buy is rarely suited to raising children.
Turning the tide
Some Chinese provinces are seeking to support couples with young families. Shaanxi province is considering 12 months of paid maternity leave. Others are proposing changes to schooling and child care.
But the central government in Beijing has adopted a much more drastic approach.
In May, it attempted to cut child-associated costs by outlawing personal tuition.
Parents obsessed with the success of their sole child had found themselves trapped in an expensive education race, paying enormous sums for out-of-hours lessons.
But the clampdown has itself come at an enormous cost.
In Beijing alone, some 90,000 tutors suddenly found themselves out of work.
Online computer games were also targeted.
Blamed as an unproductive and uneducational distraction for Chinese children, the CCP imposed strict new time limits. Any child under 18 is now only permitted one hour of multiplayer screen time on Fridays, weekends and public holidays.
This has hit China’s enormous online gaming industry.
Lay-offs have been significant. Game development has been slowed or cancelled.
And they’re not the only businesses suddenly having to adapt or perish.
“The nation’s growth strategy rests on four pillars,” says Professor Kent Matthews.
“Three are frequently talked about – infrastructure, exports and consumers – while the fourth is only whispered in official circles – and that is the property sector.”
And that’s in crisis.
Major property speculators such as Evergrande found themselves out on a limb after Beijing suddenly imposed limitations on borrowing. Cash flows in the construction sector and real estate markets suddenly dried up as overexposed investors struggled to meet repayments.
Now the People’s Bank of China is encouraging banks to lend more and cut reserves to encourage home buyers back into the market.
Xi’s economic revolution
In July, Beijing began a crackdown on its biggest tech companies.
They were dynamic. They were successful. They were popular.
“But that led to two problems,” argues Asia analyst Daniel Rosen.
“First, the market power of tech companies created fortunes for some but contributed to growing income and wealth gaps.
“Second, and arguably more compelling, the growing influence of these private firms was having the effect of reducing the power of the state and the CCP.”
So Beijing embarked on a new policy.
From now on, companies can only float on international markets with CCP approval.
Foreign investment in Chinese companies will be strictly regulated.
And national security considerations will override profits.
“Whether justified or not, the manner in which the CCP changed the regulatory landscape for e-commerce, ridesharing, gaming, and many other sectors lopped an estimated $US1.5 trillion to $US3.0 trillion off the combined stock valuations of firms,” says Rosen.
But China’s economy has been shaky for a while, says Professor Matthews.
“Growth in China was, in fact, declining well before the pandemic struck: From a peak of 15 per cent in the second quarter of 2007 to 6 per cent in the first three months of 2019.”
China’s GDP growth in the third quarter this year was 4.9 per cent.
Have we reached peak China?
“Under the guise of ‘common prosperity’, the government is signalling that the private sector is to be brought into the orbit of state control,” says Professor Matthews.
“For some time, China has been talking about re-balancing away from exports and towards domestic growth.”
How China adapts to Chairman Xi’s economic thoughts is yet to be seen.
“These economic disruptions are fueling a general wariness about China’s outlook,” says Rosen.
“(But) financial analysts are self-censoring their research for fear of offending officials by telling a truthful but pessimistic story; this has led to mistrust and uncertainty in markets.”
And Beijing’s desire for strict centralised regulation has already begun to prove problematic.
Electricity companies had been ordered to offer customers fixed prices. But those companies themselves had to pay variable costs for gas, coal and renewable sources.
So, when weather-induced shortages inflated prices in September, the market found itself in crisis. Widespread blackouts ensued.
“Energy shortages cut industrial production, even in the thriving export industries that are the main bright spot in the Chinese economy today, including manufacturers of smartphones and automobiles,” Rosen concludes.
The rebalancing of the tech, property and financial markets has only begun. Its success or failure is yet to be seen.
“The CCP’s moves in the past few months consisted of political campaigns rather than acknowledgments of the financial and technical reform the country needs to restore economic efficiency,” says Rosen.
“The promise of ‘nonmarket’ solutions is ringing hollow, again.”
Beijing must now put up or shut up, says Rosen:
“The CCP’s hard-won credibility on economic policy is being eroded under this drumbeat of negative economic news.”