Demographics: They matter.
For all kinds of reasons, not least of which is that if your entitlement scheme entails taxing the working-age population to fund a “dignified” sunset for seniors, you need to sustain birthrates such that there’s enough money coming in to keep the whole thing solvent otherwise… well, otherwise you have to engineer higher rates of return on invested contributions, print money, borrow it or, as a last resort, cut benefits for already-crotchety retirees.
That’s one reason demographics matter, and it’s certainly the most politically-charged demographic debate in America. It’s also relevant in China where, if couples don’t start having more babies, Xi Jinping might have to make the optional state pension plan mandatory to ensure young workers unconvinced of the merits don’t simply refuse, en masse, to participate.
China on Friday acknowledged that the population shrank a third consecutive year in 2024. That, despite an uptick in births. All in all, the number of living Chinese slipped by nearly 1.4 million to “just” 1.41 billion last year, the NBS said.
Remember: The Party’s implicit social contract with China’s teeming masses revolves around a tradeoff between freedom and quality-of-life gains. Chinese accept one-party rule and limits to individual liberties in exchange for assurances that the Party will continue to facilitate uninterrupted economic progress such that each generation’s better off than the last. If the Party fails to deliver on its end of that bargain, the populace could become restive. Nothing terrifies the CCP quite like the prospect of social unrest.
This could pretty easily become a self-fulfilling prophecy in China, and indeed it probably already is. If you’re terrified of the future, there are basically two ways to deal with that angst: YOLO or retrenchment. For some, the scarier things get, the stronger the argument for living (read: spending) in the moment, because tomorrow’s even less certain than it always is. For others, uncertainly begets caution, which in the macro context generally manifests as saving and risk aversion, neither of which are conducive to economic dynamism.
As the figure above, from SocGen’s Michelle Lam, shows, Chinese households are indeed saving at a higher rate versus pre-pandemic levels “due to weak confidence and income expectations,” as she put it Friday.
With all of that in mind, I wanted to highlight the color, below, from Deutsche Bank. It’s a kind of 30,000-foot view of the demographic debate. It’s edited for clarity, truncated and presented without further comment.
From Deutsche Bank:
[China’s population] decline is set to continue as far as the eye can see. According to the UN, there will be just under 150 million fewer people in China in 2050 than today. At that point, India’s population will be a third bigger. Moreover, India’s working age population is expected to be 50% larger.
Interestingly, it’s hard to find examples of large countries who’ve seen population falls over, say, a 25-year period. Examples may not go beyond Russia and Japan. Five out of 24 DM economies saw their working age population decline between 2000-2024 [and] this tends to be the precursor to population declines. [Those] five saw the lowest GDP growth rate in that period.
How do you combat the effect of demographics on economic growth? There are three big picture ways: 1) Expand the workforce from the existing population (e.g. increase retirement ages); 2) increase immigration, which might be a zero-sum solution globally but could help the high-income economies with deteriorating demographics; or 3) perhaps AI will arrive at the right time, making existing workers more productive, even as the overall number of workers start to fall.
So, by 2050 will robots be our savior?
The same demographic arguments have been relentlessly made about Japan starting 40 years ago. As were less dire predictions about the USA. Less dire because we smughly pointed out that we welcomed immigration to top up our workforce whereas Japan has been very reluctant to do so. “How stupid are they!!!” Uh …
“So, by 2050 will robots be our savior?” Perhaps for the production of goods and the delivery of some services here in the USA. But just as AI is an evolutionary rather than revolutionary development, robotics & automation have already been upending the post-war path from agraian to industrial/urbanbized economies which lifted Japan, South Korea and China. Using abundant cheap labor to produce goods at low cost as the first step up the economic ladder. HK also climbed that ladder, starting from sweat shop textile manufacturing to becoming a vibrant financial hub. You rarely see a “made in HK” label, except, perhaps, on some items that our Dear Leader favors.
I’ve long mused that robotics and automation is going to pull that ladder away. Bangladesh, Maruitius and some Central American nations have stepped in the replace higher cost Chinese production of goods where only cheap labor and low levels of technology are required. But what is their next rung up on the ladder now? Thanks to robotics, even US specialty textile producers have been becoming cost competitive.
In services, AI will hasten the exodus of call center work from India and the Philippines back to the US. And coding work oursourced to Bangalore. (I find it baffling that the legion of bulls on India are overlooking the obvious threat AI poses to their only top tier economic sectors. What other industries will provide decent jobs and careers to their burgeoning population?).
So robots may “save” us here in the US, but will increasingly slam the door to upward development in the rest of the world. That should help keep global political stability in check, right?
Yes, the manufacturing export-led economic Yellow Brick Road followed by Japan, China, Taiwan, etc is probably being closed off to the next cohort of developing nations, by automation and by China still sitting on and thoroughly blocking that road.
A few countries lucky enough to be right next to US and EU can still make some headway (Mexico, eastern Europe).
Maybe when/if China’s population ages out of production and into consumption, the road might get unblocked, but that’s a generation away.
LatAm will remain a resource export economy, it is increasingly trying to protect domestic mfg from China but that is not the same as building a mfg export economy.
I guess the idea with India is if China gets shoved off the road by Western trade barriers, India can get into the road. It needs better (literal) roads and everything else, but when the base is so low, presumably there’s lots of low-hanging fruit.
No idea how countries like Bangladesh, etc are supposed to develop. Perhaps they never will.
H-Man, robots may not be a savior but definitely in the high priest/shaman category
You mean a savior to the world’s richest individuals? Globalization is dead. I predicted this 20 years ago when asked to launch a marketing strategy to highlight the advantages of investing overseas. We know how that has played out so far…