Ever since China’s economy began to slow from last decade’s double-digit pace, investors have quarreled over the country’s growth prospects. At various times in the past several years, bulls and bears have each glimpsed apparent victory, only for a reversal of China’s credit cycle to hand narrative momentum to the other side. The long-term outlook remains unsettled, and the debate continues.
Dan Rohr, director of basic-materials equity research, aims to look beyond prevailing trends and recent headlines that tend to dominate the discussion, is publishing a series on “China’s next 10 years”. You can watch our take on the growth debate in the video below.
Dan Rohr: Amid the daily barrage of news and the stock market's ups and downs--it's easy to overlook slower moving developments that can have a more important and longer-lasting impact on economies and markets.
Demographic change is a good example. The influence of demography is imperceptible quarter to quarter or year-to-year…but in the long-term, it can prove decisive.
In the case of China's economy, demographic change is likely to take the economic narrative of the past 30 years and turn it on its head. The seemingly limitless supply of "surplus" rural labor, which fueled rapid urbanization and productivity gains, will dry up.
The working-age population, after expanding by over 400 million in the past 30 years, will contract, just as the senior population surges.
China's unusually high support ratio—the number of working-age adults for each child and senior—will fall, draining the pool of savings that funds outsize construction spending.
A reversal of prior demographic trends informs a great deal of our long-term economic outlook for China. It's a big reason why we expect Chinese GDP to grow about 4%, on average, over the next 10 years and why we expect construction spending to stall.
The ramifications will be felt far beyond China's borders and will impact a variety of industries globally, from healthcare to materials to consumer.
Long-term investors would do well to take a break from the firehose of daily news flow to consider what demographic change in the world's largest country will mean for their portfolio.
Demographic change may not be important for the quarter to come, but in the long-term, there is some truth to the phrase "demography is destiny."
