DISCOUTING CHINA´S DEMOGRAPHIC DIVIDEND
China's population will reach an inflection point in 2011: The increase in retirees will start to outpace that in the labor pool. The relative price of labor will rise, the household savings rate will begin to decline and Chinese investment will decelerate. Over time, this should help to rebalance the economy toward private consumption while reducing China’s current account surplus and reliance on exports and investment for growth.
However, there is a risk that instead of the anticipated gradual reduction in the demographic dividend, China may be facing a more drastic labor force fallout. In "What Happens When China’s Demographic Dividend Stops Paying Out?," available exclusively to clients, we examine evidence that official data have underestimated Chinese urbanization and income growth—factors typically associated with delayed childbearing and fewer births per woman—which may mean fertility rates have been falling more sharply than the consensus estimate. If the national census in November finds that fertility rates in the early 2000s were lower than assumed, China’s rebalancing may be more drastic, costly and sudden than is commonly expected.
Currently, the most detailed picture of China’s past, present and future population comes from the U.S. Census Bureau’s December 2009 update to the International Data Base. The bureau assumes that China’s total fertility rate (TFR) fell below the replacement rate of about 2.2 in 1991 and stabilized at 1.5 in 2001. In line with this estimate, the bureau projects that the population of 15- to 29-year-olds will peak at 328.96 million in 2011 and contract to 322.63 million in 2012 before falling to 262.25 million in 2020. The consistent growth of this demographic has provided China with an abundant source of cheap labor, which particularly has benefited China’s manufacturing centers along the coast.
As the supply of youthful workers shrinks, wages should rise and imports of labor-saving technologies should accelerate—both positives for domestic and global rebalancing. Higher wages should translate into higher rates of consumption and the shift of some production offshore, which should contribute to a smaller trade surplus.
But if China's urbanization and income growth since 2000 have been more rapid than the government data reflect, the fertility rate may not have been as steady as the U.S. Census Bureau estimates. Government coercion in the 1970s and ‘80s—especially the latter, after the official adoption of the one-child policy—certainly pushed down the TFR. In the 1990s, though, fertility in urban areas fell well below the rates that a strict enforcement of the policy would have implied. Rapid urbanization and income improvement since 2000—even according to government data that use a narrow definition of "urban" and overlook unofficial income—suggest the TFR may not have remained stable outside of China’s main urban centers either.
Partly due to the demographic transition, China’s potential growth rate is likely to decline over the next decade. RGE projects that the rising cost of labor should translate into a higher trend inflation rate (4% rather than 2%), which in turn will push up the cost of capital. As investment gradually decelerates, the trend GDP growth rate should decline by about two percentage points over the next five years, with potential growth down to about 8% in 2015. If China’s TFR did continue to decline in the early 2000s, however, the potential growth rate could falter even more after this point.
A shift in government policies could lessen the impact of China’s coming demographic turning point.
A reform of the household registration system, hukou, to which social services and land ownership are tied, could increase labor flexibility and unlock more of the surplus labor in China’s rural areas. To mitigate the effects of a contracting labor force, the Five-Year Plan to be introduced in March 2011 will need to involve more dramatic reforms than the incremental steps the coastal export centers and Tier 2 and 3 cities in the interior have taken. Given the government’s reaction to editorials published in March 2010 that advocated greater hukou reform, the Five-Year Plan looks bound to disappoint on this issue.
0 comments:
Publicar un comentario