Peru's president tries to bow out early

Vizcarra’s early election proposal heightens uncertainty as the economy suffers

Gideon Long in Lima

Peru's President Martin Vizcarra waves during the closing ceremony of the Pan American Games at the National stadium in Lima, Peru, Sunday, Aug. 11, 2019. (AP Photo/Rodrigo Abd)
Martin Vizcarra has called early elections, pledging a 'new era' in the corruption-tainted country © AP


In a region where presidents often cling to power as long as they can, Martín Vizcarra has a different idea.

Mr Vizcarra, who has been in office for a year and a half, announced last month that he would seek to end his term a year early, taking Congress with him. He said Peruvians deserved the chance to renew their corruption-tainted political class and embark on “a new era”.

In a country with a history of endemic corruption and three ex-presidents under investigation for alleged graft, the president’s move went down well with voters. It could lead to polls in April to choose a new leader and a new Congress.

“This way he can bow out to the applause of the crowd,” said Alicia del Aguila, a political scientist at Lima’s Pontifical Catholic University. “And maybe he’s also thinking ‘If I go out on a high now then I can seek re-election in five years’ time’.”

Mr Vizcarra is likely to put his proposal to Congress in the coming weeks. If approved, it will go to a referendum, where Peruvians would almost certainly back it. One recent opinion poll suggested that this is what three-quarters of voters want.

If his proposal is rejected, Mr Vizcarra might request a vote of confidence in his government, which could lead to the dissolution of Congress. Alternatively, his opponents might seek to impeach him to save themselves. Some have already urged him to resign over his role in the granting of a licence for a large copper project in southern Peru.

Since becoming an unlikely president in March 2018 when his predecessor Pedro Pablo Kuczynski was forced to quit, Mr Vizcarra, a relative outsider in Lima, has made the fight against corruption his top policy. It has gone down well with the public: the president’s approval ratings are at 60 per cent and jump each time he fires another broadside at Congress and the judiciary.

Mr Vizcarra’s supporters say he is genuinely convinced that Peru needs to overhaul its corruption-ridden institutions — “even if it means we all have to go”, as he says. Under rules that he drew up last year, neither he nor members of congress can seek immediate re-election.

Mr Vizcarra’s move may also reflect the fact that his political power is limited. He has no political party, and Congress seeks to block him at every turn. “His level of public support is very high — an approval rating of more than 60 per cent,” said Rodolfo Rojas, a partner at Sequoia, a political advisory in Lima. “Unfortunately for him that doesn’t translate into votes in Congress.”

Faced with that reality, Mr Vizcarra may have calculated that it is best to quit now rather than limp to the end of his mandate in 2021, analysts said.

The early election move comes as the fallout from the Odebrecht corruption scandal in Peru continues. The country’s last four presidents — Mr Kuczynski, Ollanta Humala, Alan García and Alejandro Toledo — have all been investigated for alleged links to the disgraced Brazilian construction company, which has admitted paying huge bribes throughout Latin America.

The main opposition leader, Keiko Fujimori, is in preventive custody, accused of taking bribes from Odebrecht, while her father Alberto Fujimori, the country’s authoritarian president from the 1990s, is in prison serving a sentence for corruption and human rights abuses.

With Mr Vizcarra barred from running and his main rival behind bars, the electoral field is wide open if Peru does go to the polls next year.

The president has yet to indicate who he would support.

For years, Peru’s political turmoil had little impact on the economy, which averaged annual growth of 4.4 per cent for the past decade.

But with Mr Vizcarra unable to push through reforms, the economy is starting to suffer.

The central bank has cut its growth forecast for this year by 0.6 percentage points to 3.4 per cent and brought interest rates down to the lowest level in nine years to boost the economy. “Peru’s intractable political infighting is costing investor sentiment,” said Eileen Gavin, senior Americas analyst at Verisk Maplecroft.



Braced for the global downturn

Well-meaning central bankers cannot offset the impact of an erratic US president on the real economy

Rana Foroohar


                                                                                                                                       © Matt Kenyon


It’s the calm before the storm. Last week’s market volatility was ostensibly triggered by the US-China trade conflict turning into a full-blown currency war. But at heart, it’s about the inability of the Federal Reserve to convince us that its July rate cut was merely “insurance” to protect against a future downturn. As any number of indicators now show — from weak purchasing managers' indices in the US, Spain, Italy, France and Germany, to rising corporate bankruptcies and a spike in US lay-offs — the global downturn has already begun.

Asset prices will undoubtedly begin to reflect this, and possibly quite soon. China may have temporarily calmed markets by stabilising the renminbi. But we are in for what Ulf Lindahl, chief executive of AG Bisset Associates currency research, calls “a summer of fear.” He expects the mean-reversion in the Dow that started in January 2018 to turn into a bear market that lasts a decade.

It’s an opinion based on data, not on emotion. There have been only 20 months since 1906 when the Dow’s deviation from its trend line has been 130 per cent or more, as it is today. Those periods cluster rather frighteningly around the years 1929, 1999 and 2018. “US equities are at the second most expensive period in 150 years,” says Mr Lindahl. “Prices must fall.”

I don’t think it’s a question of whether we’ll see a crash — the question is why we haven’t seen one yet. After all, there are plenty of worried market participants, as best evidenced by the $14tn horde of negative-yielding bonds around the world. When this many are willing to pay for the “security” of losing only a little bit of money as a hedge against losing quite a lot, you know there’s something deeply wrong in the world (full disclosure — most of my own net worth is now in cash, short term fixed-income assets and real estate).

My answer to the question of why we haven’t yet seen a deeper and more lasting correction is that, until last week, the market had been wilfully blind to three things. First, the fact that there will be no trade deal between the US and China. Both sides are desperate for one but China will only do a deal between equals. Donald Trump is psychologically incapable of accepting this — his entire history demonstrates his need to feel that he has crushed the other side. It’s a pathology that will only increase as the market goes down.

We’ve all known this for some time. But I think fear of what Mr Trump might do has been masked in part by algorithmic trading programs that buy on every dip that results from his erratic actions. This has diminished any lasting signal about the unsustainable current market paradigm.

Now, by allowing the renminbi to slide briefly after Mr Trump labelled Beijing a currency manipulator, China has shown that if the US president tries to play tough rather than play fair, it will take down the US markets and suffer whatever pain may ensue. It’s a new reality hard for anyone to ignore.

In short, the Thucydides Trap is for real. In lieu of some big shift in US foreign policy post 2020 (one that none of the major Democratic candidates has yet articulated) the US and China are now in a multi-decade cold war that will reshape the global economy and politics.

Meanwhile, the Fed’s decade-long Plan A — blanket the economy with money, and hope for normalisation — has failed. There is no Plan B. That’s why gold is in demand, some hedge funds are putting up cash-out barriers, traders are shorting some investment grade bonds deep in negative yield territory, and we are poised to see the reversal of the last 10 years of capital inflows into US equities and the dollar. Mr Lindahl believes the US currency is now 25 per cent overvalued against the euro.

The Fed will undoubtedly try to paper over all this with more rate cuts. But as another savvy strategist, Dave Rosenberg of Gluskin Sheff, has pointed out, “the private sector in the US is choking on so much debt that lowering the cost of credit . . . won’t cause much of a demand reaction.” As he wrote recently, the term “pushing on a string” was first coined by Fed chairman Marriner Eccles in March 1935 to describe the bank’s inability to create demand via easier monetary policy.

It didn’t work then, and it won’t work now. You cannot solve the problems of debt with more debt. And central bankers, well-meaning and desperate as they might be to offset the damage caused by an erratic US president, can’t create real growth; they can only move money around.

At some point, the markets and the real economy must converge.

I think that point is now. Capital expenditure plans are being shelved. Existing home sales are dropping, despite lower mortgage rates. And perhaps most tellingly, American consumers are cutting both credit card balances and their usage of motor fuel, as Gluskin Sheff points out — two things that are uncommon at any time, let alone in the middle of the vacation season. A summer of fear indeed.


US yield curve sends most dire signal since 2007

Bond market indicator of recession flashes warning as fears grow about US-China trade war

Colby Smith and Joe Rennison in New York


Investors are sceptical that Donald Trump’s more conciliatory rhetoric in recent days will lead to a swift resolution of the trade dispute © Reuters


A widely watched indicator of recession sent its most dire signal since the early days of the financial crisis on Tuesday, reflecting increasing gloom in the US bond markets about the economic consequences of Washington’s trade war with Beijing.

Yields on two-year Treasury notes were 5.3 basis points higher than those on the 10-year government bond — the largest gap since March 2007. This kind of inversion of the yield curve — in which shorter-term rates are higher than longer-term ones — has preceded every US recession of the past half century.

At the same time, another closely followed portion of the yield curve — reflecting the difference between the yields on three-month and 10-year Treasury securities — blew past its recent lows, settling at minus 51.4bp.

“It’s the ultimate flashing red light,” said Tom di Galoma, a managing director at Seaport Global Holdings, who forecasts a recession within 12 to 18 months. “What is taking place today is that bond investors are realising that lower rates are upon us.”

The growing inversion of the yield curve reflected investor scepticism that Donald Trump’s more conciliatory rhetoric in recent days would lead to a swift resolution of the trade dispute between Washington and Beijing, analysts said.

The US president on Friday said he would increase tariffs on Chinese goods after Beijing said it was preparing to slap new levies on $75bn of US imports.





Market expectations for the Federal Reserve to cut interest rates have risen in recent weeks. According to futures prices compiled by Bloomberg, traders are pricing in a 91 per cent chance the central bank will cut rates by a quarter-point in September. They see a 9 per cent chance the Fed will move ahead with a more aggressive half-point cut.

Should the Fed not ease accordingly at its next meeting, some investors warned that the inversion of the yield curve could become even more extreme.

“At the minimum, it tells you the market believes Fed policy is too tight,” said Kathy Jones, the chief fixed-income strategist at Charles Schwab. Moreover, she added, the risk of recession are “rising and it’s something we need to be cognisant of”.

Germany is already on the brink of a recession, according to the central bank in Europe’s largest economy, while Goldman Sachs recently slashed its growth forecasts for the so-called “Asian Tigers” — Hong Kong, Singapore, South Korea and Taiwan — given their exposure to a trade-related slowdown.

The planned tariffs by Mr Trump could push the US economy along a similar path, according to analysts at Bank of America Merrill Lynch, given that China is the dominant supplier for most of the goods set to be hit with tariffs later this year.

Economists also have been worried by recent US data, despite measures of consumer confidence being rosier than expected and the labour market remaining robust.

While the headline figure of durable goods orders came in above expectations this week, Lydia Boussour, the senior US economist at Oxford Economics, said, “The underlying trend remains firmly negative.”

When a 44 per cent surge in aircraft and parts was stripped out, core capital goods orders fell 0.3 per cent on a year-over-year basis — the slowest pace since November 2016.

The data came less than a week after a gauge of US manufacturing activity contracted for the first time since 2009.

Free Exchange

A meeting of economists and central bankers was overshadowed by President Donald Trump

But in some ways, he brought them together




AS THE ANNUAL meeting of central bankers and economists at Jackson Hole, a mountain resort in Wyoming, began on August 23, two participants made a bet. Would President Donald Trump tweet about the opening remarks of Jerome Powell, the chairman of the Federal Reserve, within 45 minutes of their publication? In the event, it took the president 57 minutes.
That night the victor enjoyed his winnings—a glass of whiskey—in the bar.

Mr Trump’s words made the conference theme, “challenges for monetary policy”, uncomfortably timely. He called Mr Powell an “enemy” and promised to ramp up trade tensions with China further. Later that day he announced increases in tariff rates on over $500bn of Chinese imports. But even as stockmarkets reeled, the conference continued serenely. Indeed, Mr Trump even brought the participants together.

Most obviously, they were united in grumbling about the effects of his trade policy on the global economy. Philip Lowe, the governor of the Reserve Bank of Australia, said that business uncertainty was turning political shocks into economic ones. Mark Carney, the governor of the Bank of England, said that trade tensions had raised risk premiums, tightening financial conditions.

The president’s twitter tirade could lead to greater policy convergence, too. Though Mr Powell kept mum about the future path of American interest rates, he said that the Fed’s doveish shift had helped secure a positive outlook for inflation and employment. As recently as December it was raising rates away from those set by other central banks; now it is moving downwards with them.

Participants seemed united in their scepticism that monetary policy could entirely offset the trade war’s ill effects. Although monetary policy could help with consumer and business confidence, said Mr Powell, it could not provide a “settled rulebook for international trade”. Mr Lowe questioned how much modest cuts in interest rates would stimulate investment, and noted that countries could not all pep up their economies with currency depreciation, as “we trade with one another, not with Mars”.

As the academic presentations started, a second uniting factor became apparent. Mr Trump is a powerful force outside the Fed’s control—one it cannot fully offset. In claiming to put America first, he complicates the country’s monetary policymaker’s task of keeping the domestic economy on an even keel. That difficulty is paralleled by how the Fed, in turn, complicates monetary policy in the rest of the world.

Mr Trump’s power is expressed via social media. The Fed’s is exerted via the dollar, which has become more important globally in the decade since the financial crisis. America accounts for just 15% of global GDP and 10% of global trade, yet the greenback is used for half of global trade invoicing, two-thirds of emerging-market external debt and two-thirds of official foreign-exchange reserves.

Fed policy can thus have far-reaching effects. Participants in Jackson Hole mentioned the work of Gita Gopinath of the IMF, which showed that the dollar’s dominance in trade invoicing may mean economies cannot adjust to external shocks by as much as traditional models suggest. And they heard about the findings of Arvind Krishnamurthy and Hanno Lustig of Stanford University, showing that when the Fed raises interest rates, the premium for buying the world’s safest asset—dollar-denominated American government debt—rises too. That, they think, is because the Fed is, in effect, signalling that a reduction in supply is imminent. Wenxin Du of the University of Chicago suggested that the premium could also reflect limits on global banks’ ability to lend in dollars, and that tighter Fed policy could exacerbate those constraints.

That discussion built on earlier work by another participant, Hélène Rey of London Business School, who has argued that Fed policy is an important driver of global financial cycles, and that when it raises interest rates financial conditions tighten in the rest of the world. Şebnem Kalemli-Özcan of the University of Maryland explained how emerging markets could be hit particularly badly as, when the Fed raises rates, some money moves from riskier emerging markets towards America. Investors then worry that emerging markets might run into problems, or that they are riskier bets, which worsens capital flight. Central banks, she added, would be unable to shield their economies fully from the results. In theory they could lean against the wind, raising rates to encourage investors to stay. But the rise in perceived risk tends to be so great that the tightening would need to be extreme enough to throttle the domestic economy. Though allowing the exchange rate to adjust instead also brings pain, it is the less bad option.

The assembled central bankers raised their voices in a chorus of complaints about the powerful forces making their lives harder. Amir Yaron, the governor of the Bank of Israel, spoke of the struggles of the past three years, during which it kept interest rates very low but still saw foreign capital slosh in as the Fed tightened, because investors saw it as an emerging-market safe haven. The Fed’s policy shift was only partially offset by Israel’s monetary policy, he said.

The discontent extended to participants from advanced economies, too: Mr Carney called the dollar “domineering”.

Sauce for the central banker

In some ways, then, the Fed’s struggles to cope with the consequences of Mr Trump’s words and deeds echo the experiences of its counterparts in other countries, for whom it is the Fed itself that is the unruly, unbiddable external force. But in other ways the comparison is unfair. The Fed is, after all, seeking to fulfil a mandate set by Congress and to create the conditions for America’s economy to thrive. The more it succeeds, the better for the rest of the world. On occasion it even takes the spillover effects of its actions on other countries into account. Its decision in July to cut interest rates, for example, was motivated in part by concerns over “weak global growth”. The Fed does create problems for the world’s monetary policymakers. But, unlike Mr Trump, it is not trying to.

The Good News Behind China’s Dreadful Economic Numbers

Any sign that China is weaning itself off unsustainable credit booms deserves some celebration

By Mike Bird


The knee-jerk impulse to flood China’s economy with credit and goose business activity clearly isn’t as strong as it once was. Above, a worker at a pencil factory in China's eastern Jiangsu province. Photo: str/Agence France-Presse/Getty Images


If China is opening the financial floodgates to counter a domestic slowdown and escalating trade tensions, there’s no sign of it in July’s feeble data.

Industrial production rose 4.8% year-over-year last month, the weakest rate in 17 years. Retail sales and fixed-asset investment grew 5.7% and 7.6%, respectively, both below analyst expectations.

The knee-jerk impulse to flood the economy with credit and goose business activity clearly isn’t as strong as it once was. Banks issued 1.06 trillion yuan ($150 billion) in new loans in July, also lower than forecast.


In the short term, the figures will exacerbate concerns about the global economy, but there’s a thick silver lining. In the long term, Beijing must break its pattern of repeated stimulus—a shift that would be beneficial for China and the wider world. It can no longer afford to buy its way out of trouble, as it did in the global financial crisis, and again in 2015-2016.

The efficiency of new borrowing has already declined dramatically. In 2008, China needed around 6.5 trillion yuan in loans to raise nominal GDP by around 5 trillion yuan a year, according to International Monetary Fund research published last year. By 2016, it needed 20 trillion yuan of extra lending to generate the same expansion.

Policymakers have expressed concern that cheaper and more plentiful credit might find its way into the already overheated housing market, as has happened repeatedly in the past. Household debts have surpassed 50% of GDP, a lofty level for a country still as poor as China, if it aspires to follow the path of developmental success stories like South Korea and Japan.

Earlier in the year, it was reasonable to be skeptical. The government has insisted it will balance stimulus with reducing a worrying debt load, but had erred on the side of propping up growth. This time, they appear to mean it more seriously.

America’s Superpower Panic

History suggests that a global superpower in relative decline should aim for a soft landing, so that it still has a comfortable place in the world once its dominance fades. By contrast, US President Donald Trump's incoherent, confrontational approach toward China could seriously damage America’s long-term interests.

J. Bradford DeLong

delong212_Pete MarovichGetty Images_trump


BERKELEY – Global superpowers have always found it painful to acknowledge their relative decline and deal with fast-rising challengers. Today, the United States finds itself in this situation with regard to China. A century and a half ago, imperial Britain faced a similar competitive threat from America. And in the seventeenth century, the Dutch Republic was the superpower and England the challenger.

History suggests that the global superpower should aim for a soft landing, including by engaging with its likely successor, so that it still has a comfortable place in the world once its dominance fades. Sadly, US President Donald Trump is no historian. And his incoherent, confrontational approach to China could seriously damage America’s long-term interests.

Like Britain and the Dutch Republic before it, America is the world’s dominant military power, and its reach is global. It has some of the world’s most productive industries, and dominates global trade and finance.

But, also like its predecessors, America now faces a rising power – a confident, ambitious country that has a larger population, is hungry for wealth and global preeminence, and believes it has a manifest destiny to supplant the current hegemon. And, unless something goes badly wrong, the challenger’s continued rise is all but assured.

Inevitably, conflicts will arise. The up-and-coming superpower wants more access to markets and to intellectual property than the incumbent wishes to provide. And what the incumbent does not willingly give, its challenger will seek to take. Moreover, the rising superpower wants a degree of influence in international bodies commensurate to what its fundamental power will be a generation from now, and not to what it is today.

These are all legitimate disagreements, and the two powers need to manage them by advancing and defending their respective interests. But these tensions do not outweigh the two countries’ common interest in peace and prosperity.

What, then, should the incumbent hegemon do?

In the Anglo-Dutch case, a series of trade skirmishes and naval wars in the 1600s led to a remarkably large number of derogatory expressions entering the English language, such as Dutch book, Dutch concert, Dutch courage, Dutch leave, Dutch metal, Dutch nightingale, and Dutch reckoning. In the long run, though, Britain’s fundamental strengths proved decisive, and the country became a global power. Yet the Dutch created a world in which they were largely comfortable long after their predominance ended.

The Dutch shift from opposing Britain to engaging with it was a crucial factor in this transition. On October 24, 1688, a change in wind direction allowed the Dutch fleet to leave harbor in support of the aristocratic Whig faction in England, thereby ending the would-be absolutist Stuart dynasty. Thereafter, the two powers’ joint interests in limited government, mercantile prosperity, and anti-Catholicism formed the basis of a durable alliance in which the Dutch were the junior partner. Or, as a viral slogan of the 1700s more bluntly put it, there would be “no popery or wooden shoes!” – the latter being a contemporary symbol of French poverty. And with British backing, the Dutch remained independent, rather than falling involuntarily under French control.

More than a century later, imperial Britain eventually adopted a similar strategy of engagement and cooperation with America. This culminated, as Harold Macmillan unwisely (because too publicly) put it when he was seconded to General Eisenhower’s staff in North Africa during World War II, in Britain playing Greece to America’s Rome. As a result, the US became Britain’s staunchest geopolitical ally of the twentieth century.

Today, US policymakers could learn much by studying the actions of the Dutch Republic and Britain when they were global hyperpowers pursuing soft landings. In addition, they should read “The Sources of Soviet Conduct,” the 1947 article by US diplomat George F. Kennan that advocated a US policy of containment toward the Soviet Union.

Three of Kennan’s points stand out. First, he wrote, US policymakers should not panic, but recognize what the long game is and play it. Second, America should not try to contain the Soviet Union unilaterally, but rather assemble broad alliances to confront, resist, and sanction it. Third, America should become its best self, because as long as the struggle between the US and Soviet systems remained peaceful, liberty and prosperity would ultimately be decisive.

But since taking office in January 2017, Trump has steadfastly ignored such advice. Instead of forming alliances to contain China, Trump withdrew the US from the proposed Trans-Pacific Partnership trade deal. And he continues to make random, incoherent demands – such as immediately eliminating the bilateral US-China trade deficit.

Rather than carefully playing the long game with regard to China, Trump seems to be panicking. And, increasingly, China and the world know it.


J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

The silver lining of ageing populations in emerging markets

China offers lessons in how to prepare for getting old before getting rich

Lauren Johnston


A public park in Shanghai. Chinese policymakers have been looking ahead for more than three decades to their country’s own ageing-related economic challenge © Bloomberg


The year 2018 marked an epochal demographic turning point: Earth became home to more people aged 65 years and over than children under five, for the first time ever.

In this newly grey world, rich countries are generally richest in senior citizenry — but this won’t last. In recent decades the fertility rate has typically also fallen in developing countries, and at increasingly lower per capita incomes. Life expectancy has been increasing similarly.

Middle-income developing countries — including G20 members Argentina, Brazil, China, Russia and Turkey — are closing in on the rich world’s senior citizen population share. Thailand, Tunisia and Sri Lanka are among dozens more that will join them in future decades as the silver tsunami spreads.

Realising the investor gold and avoiding the pitfalls of this ageing process requires some nuance. One area requires understanding the remarkably different lives of representative retirees across different countries. Failure to do so may, moreover, even contribute to economic stagnation.

Masaaki Shirakawa, former governor of the Bank of Japan, almost remorsefully noted recently that failure to have appreciated earlier the nature of his own country’s demographic challenge is likely to have contributed to both a downward economic and demographic spiral over the past quarter of a century — arresting which is now even more difficult.
 True to stereotype, Chinese policymakers have, however, been looking ahead for more than three decades to China’s own ageing-related economic challenge. After opting to implement the draconian One Child Policy in 1980, it fell on the shoulders of China’s policymakers to forecast and plan ahead for the consequences, positive and negative.

Most prominently, as far back as the 1980s, Renmin University demographer Wu Cangping, now in his own ninth decade, realised that with given fertility and life expectancy forecasts there was no feasible growth rate that would prevent China getting old before it could hope to get rich.

The associated phrase in Chinese, wei-fu-xian-lao, was adopted to convey the risks and help Chinese economic policymakers go all out to best ensure that China’s “premature” ageing future — now its present reality — would not derail its economic modernisation agenda.

Hence, from the 1980s, it seems China not only implemented an experimental economic development strategy, the “opening and reform” agenda, but something closer to a long-run economic demography transition strategy. That is, an agenda that would see a sustained development over time not only of the economy but also of weighted demographic resources and productivity potential.

Examples of China’s longer-term “premature” ageing strategy include, first, that Beijing made sure to extract the maximum benefit from the temporary demographic dividend window provided by low wage-driven export growth and low construction costs.

Second, government officials made only modest pension promises even to the large, relatively lowly remunerated cohort born in the 1950s and 1960s.

Third, with an eye on the then horizon, when China would have to rely on fewer workers, it sought to ensure that a sizeable share of its rising income was invested in scaling up the next generation’s human capital via intensified education, a process made easier by the reduced number of children per household.

Finally, with an eye on future international growth, China’s policymakers have also deepened political and economic ties, of late via the Belt and Road Initiative, with “young” and “poor” countries likely to reap future demographic dividends that boast emerging consumer markets.

As a result of this perhaps under-appreciated strategy, China’s human capital is now heavily biased in favour of its younger working-age cohort. As a consequence, and as a result of China’s growth itself, this cohort also enjoys employment conditions and wages far better than those enjoyed by their parents and grandparents.

In comparison, the same structural shift in human capital is less evident — if not reversed — in Japan, which got old after it got rich. Hence, its millions of retirees represent a larger loss to the economy. In turn, it would be expected that population ageing itself weighs differently on the economies of China and Japan.

The investment opportunities, similarly, will also be unique. For example, where cruises may form part of a sensible silver tourism marketing strategy in OECD countries, where the older cohort tend to have higher levels of disposable income and be time-rich, in “poor-old” China, the average globally mobile tourist is more likely to be younger and looking for adventure.

In the meantime, investors who can offer pragmatic and affordable solutions to help make China’s poor-old masses more comfortable might expect a significant return. Similarly, investors offering means through which Japan’s prime-aged workers and youth can more easily realise the same, if not higher, living standards as those enjoyed by their parents and grandparents, or means of helping them to support their super-ageing elders, are also likely to find a ripe market.

For other emerging markets, it may be too late to recreate China’s long-run approach and may not be feasible, or even sensible to try.

For the poorest and youngest countries, however, most of which are in sub-Saharan Africa, the approach offers a factor to consider in attempting to forge a period of sustained development. For all countries, even those that are already high income, a continuous balancing, not only of the economy, but of economic demography, appears to be imperative. In an era of epochal demographic change, this may also be the approach favoured by long-run-focused investors.

Despite the process of adjusting to ageing beginning more than three decades ago, even China faces a precipitous economic tightrope as its workforce declines as a share of population and its elderly population share rises rapidly.

At the forefront is the backdrop of an increasingly complex global geopolitical whirlwind around its ascent up the technological value chain. It is, at least, relatively well prepared for that challenge.

Compared with Japan and other longstanding high-income countries that are ageing rapidly, China may also enjoy some structural dividends, such as the noted favourable skewing of education in favour of the smaller prime-age cohort, and relatively “cheap” pensioners.

To that end, upper-middle income may not yet be “rich”, but it appears China has reached one frontier. That frontier, something of a spin-off from the draconian One Child Policy, is how well both its government and populous are ready for the vast and intensifying implications of ageing.

In that regard at least, it is Japan playing catch up to China. “Younger” countries should ensure they do not waste their youth.


Lauren A Johnston is a research associate at the China Institute, School of Oriental and African Studies, University of London, and founding director of New South Economics, an economic research and strategy consultancy