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Monday, August 10, 2015

Chang And No Hope

One of the most prolific commentators on China and especially the Chinese economy is Gordon Chang.  You can sum up Chang's views in just a few words:  things are bad and getting worse.  He has been warning of the impending collapse of the Chinese economy for more than ten years.  So far, he hasn't gotten it right, but he never gives up trying.  Today I noticed that Chang is now updating his prediction to include the impending "demographic disaster" facing the Chinese.  The one child rule is going to stop Chinese population growth and cause a rapid decline in the Chinese population according to Chang.  By 2050, China will "only" have just over a billion people.  What a disaster!

There is no question that Chinese population growth is about to end.  The one child rule has been in place for over three decades, so China is now entering a period when the number of women of child bearing years is dropping rapidly.  China will soon lose a big chunk of its labor force with no prospect of replacing those workers.  On the other hand, the Chinese will also be able to focus the gains in income on fewer people, thus leading to a larger middle class.  No one can know for sure how the population trends will affect the economy.

China's problem is not that it lacks people for its workforce.  Its problem is that for too long it focused its investments on projects that were unnecessary and even unusable.  When the Chinese economy slows, it will be due to this waste of investment capital, not population trends.




 

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