Wednesday, February 14, 2018

Termination of China's "One Child" Policy...Much Ado About Next to Nothing

In late 2015, the Chinese government formally changed its 3+ decade "one child" policy to allow married couples in China to have two children.  The Chinese government and many pundits anticipated a subsequent "baby boom".

This policy change came after the Chinese child bearing population (those aged 15-40, which peaked in 2005 at 580 million) had already declined by over 80 million (a 16% decline).  Regardless the impact of the change in policy, China's child bearing population will fall another 15% over the next 15 years before any possible uptick from the policy change could begin to show up in the child bearing cohort.

The chart below shows annual change in million persons (red line) and total child bearing population (blue columns).  From 2018 through 2033, China (with net emigration, to boot) will see an average annual decline of nearly 6 million Chinese capable of creating more Chinese (or the equivalent of losing the population of a Missouri, Wisconsin, or Maryland every year for at least the next decade and a half).

The government stated it expected the lifting of the "one child" policy to increase births above and beyond the existing 2015 births (16.56 million in 2015) by 3 million per year and this would carry on for at least 5 years.  This would represent an 18% annual increase from the 2015 basis.  Talk about pent up demand.

First, a look at China's births since 1950...the columns in the chart below show total births per five year periods and the average births per those periods is highlighted in the boxes.  From 2000 to 2005, total births were essentially half of the peak period from 1965 to 1970.  However, a small uptick since births bottomed is visible from 2010 to 2015.  Also included are the UN high, medium, and low estimates through 2035.
So without further ado, we now have two years worth of results available (HERE), let's take a look:  

2015 - 16.55 million births
2016 - Est. 19.5 m births (+3m)...Actual 17.86 (+1.31 million)
2017 - Est. 19.5 m births (+3m)...Actual 17.23 (+0.68 million)

Again, China anticipated removing this governmentally imposed restriction would be a "game changer" and produce somewhere around 19.5 million births annually.  Instead it looks like the air is already out of the balloon but this should not have been a surprise as according to China's own family planning commission's survey of existing families, 75% said they were unwilling to have a second child because of "economic reasons".  I would expect most of those who were restricted and wanted multiple children have already gotten the deed done or will do so in 2018.  As of 2019, I'd expect to see births back in the 2015 neighborhood and continuing down from there as the fast declining child bearing population and "economic reasons" only push births lower, as the UN medium to low variants anticipate.

This seems to indicate the collapse of China's working age population (chart below, those aged 16-60 years old) already underway will continue to accelerate indefinitely.  Over just the next decade, China will see an average of seven million fewer potential workers every year, seven million fewer potential home buyers, seven million fewer potential car buyers.  Compare that to the turn of the century when China was adding up to fifteen million annually.

And China, (like Japan, Germany, and so much of the "developed world" in the midst of an accelerating collapse in working age population), is being overwhelmed by an onslaught of geriatrics (chart below) with gravely underfunded pensions.

As noted previously (HERE), something has to and will give as the chart above is simply nonviable.

Here's the punch line... China's plan since 2008 has been (and still is) to effectively force Chinese corporations to take trillions in credit to build massive new capacity, housing, infrastructure, etc. to promote "growth" and achieve artificial GDP targets (much if not most of the new investment unprofitable and ultimately unable to service the debt).  The chart below shows total annual population change as a % broken down by age groupings.  All this physical build out for a fast declining and depopulating consumer base that will only progressively consume less leaving all the mal-investment high and dry.

The final chart below is fast decelerating (now declining) annual under 65yr/old population change (columns), GDP (black line), and the substitution of far faster rising total debt (red line) for the lack of organic growth.  Building massive new debt fueled capacity for a collapsing consumer base...what could go wrong?