China’s first quarter GDP grew at 7.7% in the first quarter, according to figures released by China’s National Bureau of Statistics. It’s a solid, respectable result that would be the envy of any developed nation. But it’s a far cry from the 10% plus growth that China achieved from its stimulus efforts in 2009 and 2010.
What could explain China’s lower average quarterly growth over the last four years? Is it a global recession? Are China’s new central planners failing to engineer the previously required rate of 8% annual growth? Or is there a simpler explanation?
The most obvious explanation is that 2010 was three years ago. China’s population, like the whole world’s, is three years older too. For a country that was already old in 2009, getting old has important effects socially and demographically. Check out the population pyramid below and you’ll see what we mean.
China’s population pyramid doesn’t really look like a pyramid. It looks like a pagoda, or a house whose walls are bulging in the middle due to water damage from a flood. Why does that matter? A younger country has a broader base in its population pyramid. The broad base indicated that there are more young people than older people.
A young, growing, resource-demanding country will have a broad base. This is why, back in 1978, Deng Xiao Ping and China’s first generation of economic reformers required such high rates of GDP growth. For one, they were coming off a small base. Double digit growth was easier to achieve. But there was more to it.
When you have a lot of young people in your society, you’d better get them jobs, or else. The ‘or else’ is social unrest. To paraphrase the science fiction writer Robert Heinlein, ‘The most dangerous animal in the world is a 19-year old single male.’ Countries with surplus young men who can’t find wives and jobs tend to have a lot of violence, or export those men in the form of armies.
As a younger country, China needed high growth to absorb young men into the work force. The ‘great urbanisation’, where hundreds of millions of farmers moved to cities, also required jobs. But China’s population pyramid shows that the huge ‘bulge’ of older workers will begin leaving the work force. That means China no longer needs double-digit rates of economic growth to absorb the unemployed into the work force.
This is what happens to developing economies; they develop. And as they do their growth slows. For Australian resource investors, this means that the big demographic trends that underpinned China’s resource demand for the last twenty years — urbanisation and the political imperative for full employment (which led to productive over-capacity) may have reached their maturity as well.
So what? Well, good question. So what? If investors are hoping for a huge recovery in Australian resource stocks because of a big investment splurge from China’s new political leadership, they may be sorely disappointed. More on that tomorrow.
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