The real problem for China is far more entrenched: the country’s demographics have been a ticking timebomb for decades. The one-child policy meant that at some point in the future, the country would have an aging population that could not be replaced in the workforce.China doesn't handle immigration well culturally. So enter the robots and outsourcing to the emerging economies, especially of Asia, which has the added advantage of pulling more developing nations' economies into China's orbit of influence. China is likely to utilize Latin American and Africa, too, at least eventually.
Unfortunately these demographic headwinds are now in full gear now and they are hitting China at the worst possible time. The size of China’s working population is set to begin declining.
Tuesday, August 11, 2015
Jeff Desjardins — The Chinese Growth Engine is Sputtering
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7 comments:
A shrinking workforce is not a bad thing for a country that still has hundreds of millions of people who have yet to be lifted out of poverty. China will become less export oriented as rising real wages make them less competitive and increase domestic consumption.
For one thing, China plans on reducing the agricultural workforce drastically through mechanization, just as the developed world did. China's view is that development = urbanization.
Their goal is a large and prosperous middle class to which just about everyone belongs.
They are not just leaving this to the market to organize "spontaneously" either, although they are liberalizing enough to encourage innovation and efficiency through market forces.
Tom, what is chance of China introducing a Job Guarantee?
They may be the first to figure it out. The primary job of government is good order, and the Chinese government knows this.
Good order is threatened by a lot of discontented people, especially jobless people at the bottom with little hope. They realize that liberalization involves this as well as financial and economic volatility.
The Chinese leadership also knows that it has to address this, so its model will be quite different from Western liberal models even though China has introduced markets and is committed to further liberalizing.
They describe their model as market socialism with Chinese characteristics. So I think that a JG is almost a given at some point.
There will be plenty to do in China for a long time to come. So I don't see them adopting welfare payments for those able and willing to work without recipients making some contribution to society that the recipients can take pride in.
Under socialism, people are indoctrinated into social responsibility and social contribution, as well as the importance of the social fabric from earliest eduction as part of the socialization process. Very different from the US, where individualism rules, and being unruly is seen as a virtue. Different cultural mindsets.
I'm not buying the demographics argument. Yes, capitalism sorta depends on growth, but that's merely an argument against the long term viability of capitalism.
If a country makes enough stuff to provide for all its people, then mission accomplished, providing the stuff is distributed to all its people.
China is not experiencing a shortage of stuff. The problem is a lack of aggregate demand, not a lack of production.
Right, Dan. Consumption there is ~ 35-40% of GDP. Developed economies are at about 70%.
China has been focused on investment until recently. Now they are into "rebalancing." This is what the actual challenge China is facing is about. Michael Pettis has written a lot on this. We'll see how they do at handling it — soft landing or hard landing.
But there are also production issues in China owing to the technology lag with developed countries. China is playing catch up and still has a way to go. They are following the Japanese and South Korean models here. Both countries successfully ramped up technology quickly and moved on to innovation, too, to become economic powerhouses.
I think the Job Guarantee is a good bet to increase consumption (at the people who need it most), along with tax cuts?
China should also let the currency float and use forex reserves to buy needed imports IMV.
Does China have universal healthcare?
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