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China’s Shrinking Economic Base

Commentary
China’s latest statistical release seems to have caused quite a stir. Beijing has announced that the nation’s population has declined outright—by some 850,000—since the last census.
More impressive still, United Nations demographers see continued shrinking from a population of 1.4 billion presently to 1.3 billion in 2050, to 800 million or so by the end of the century. Surely, media outlets mused, this remarkable trend would have a negative impact on the country’s economic prospects.
This musing is correct. The nation’s demographic reality will have ill effects on China’s economy. But the economic significance lies less in overall population figures than in the relative size of China’s working population. It is declining faster than the overall population, which will severely constrain the nation’s growth prospects—not immediately but with growing intensity over the coming years. These demographic trends will compound the ill economic effects by raising debt levels in this already debt-heavy economy. Moreover, there is little Beijing can do to mitigate these unwelcome implications….

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