Trade War
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Welcome to the 68th edition of Trade War.
China has released its latest population census numbers; they show an alarming drop in births and a fast aging population sure to bring new challenges to its economy.
Civil service jobs are growing in popularity amongst young Chinese as geopolitical tensions make foreign firms less attractive. Meanwhile, U.S. companies report they face discrimination from local government officials in China. And industrial policy keeps growing in both China and the U.S., as well as around the world.
China’s got 1.41 billion people but too few young ones
China’s latest population census is finally out and the numbers are sobering, reports New York Times reporter Sui-Lee Wee. (Here is the official release from the National Bureau of Statistics.)
China’s population is now 1.41 billion, up by 72 million since the previous census, in 2010. And while the increase in people is larger than the total population of Britain or France, the average annual growth rate over the decade was only 0.53 percent, down from 0.57 percent from 2000 to 2010 and the smallest increase since China’s first census in 1953.
That of course has everything to do with China’s lackluster birth rate. With only 12 million babies born last year, the country registered its fourth consecutive year of falling births, and the lowest number since China’s great famine in 1961.
Meanwhile, China’s people keep getting older. The census reveals that 13.5 percent of Chinese are now over the age of 65, up from 8.9 percent in 2010. “As the population gets older, it will also impose tremendous pressure on the country’s overwhelmed hospitals and underfunded pension system,” Wee writes.
“China is facing a unique demographic challenge that is the most urgent and severe in the world,” Liang Jianzhang, a research professor of applied economics at Peking University and a demography expert told the New York Times. “This is a long-term time bomb.”
China’s social welfare costs could exceed tax take
Faced with the likelihood of a population peak in the next few years, China must quickly shift to a new growth model to keep the economy from slowing too rapidly, reports Bloomberg News.
“Beijing will need to undertake a challenging shift in its growth model, rapidly increasing spending on pensions and health care while maintaining a high-level of corporate and state investment in order to upgrade its vast industrial sector,” the financial new service reports.
It certainly won’t be easy. The cost of China increasing pension, health care and education to the level reached by developed countries a decade ago, will run to 20 percent of GDP by 2030, estimates Wang Feng, a demographer at the University of California Irvine. That’s more than the 17 percent of GDP the government currently takes in through taxes, writes Bloomberg.
“A successful transition would mean China becomes the world’s largest economy, continuing to propel global demand for commodities in the coming decades, while its gray consumers become a vast market for multinationals,” according to Bloomberg. “A failed response could mean China never eclipses the U.S., or does so only fleetingly.”
Outmigration from China’s ‘son of the revolution’ Northeast
While the census shows the challenge nationally of a slowing population growth rate, not surprisingly the impact is not spread evenly. China’s northeast has been hit particularly hard, writes Gavekal Dragonomics research director Andrew Batson.
The three northeastern provinces of Liaoning, Jilin, and Heilongjiang have seen their combined population fall by 11 million people, or roughly 10%, since 2010. And everything from its long, cold winters to its history as a key industrial base have contributed to the outmigration.
“The Northeast has always been the most socialist part of the country–officials still call it “the eldest son of the revolution”–and some of its problems are a payback for the distortions of socialism. The disastrously low birth rate as a result of the authoritarian intervention in families’ childbearing plans is one example,” Batson writes.
“So is the scale of the out-migration, which is large (sic) partly because too much of China’s population was located in the Northeast to begin with. Socialist China located a lot of industry in remote places for strategic and ideological reasons, much as the Soviet Union did with developing Siberia.”
Just 700 million in China in 2100?
With a total fertility rate of just 1.3, China falls at the bottom of the range for its level of per capita income, writes Bert Hofman, the former head of the World Bank in China, in a tweet thread. (That’s well below the replacement rate of 2.1)
China's fertility rate “implies a population of less than 700 million by 2100,” according to a UN projection, Hofman writes, well below the one billion population projection for that year that would have accompanied a 1.7 fertility rate.
Chinese want gov’t jobs or to shang an - “land ashore”
Geopolitical tensions have made securing a job with a foreign business less attractive for China’s young people. And growing concerns about rising inequality have led to a burst of propaganda against unrestrained capitalism. The result: more Chinese are now vying for government jobs, reports the Economist’s David Rennie.
Last year 1.6 million people passed background checks for the national civil-service exams, 140,000 more than in 2019. About a million people eventually took the exam, vying for just 25,700 jobs. Many others took tests to become local officials.
“Aware of public anger about inequality, Chinese propaganda has taken a populist turn, presenting the party as an ally against rapacious capitalism," writes Rennie.
Some young people now view a government job - in contrast to one in the private sector - as an idealistic choice for employment. And despite much lower salaries, the lure of subsidized housing, health insurance and a pension, makes civil service positions attractive.
US firms hurt at local level in China
U.S. businesses are suffering discriminatory treatment by officials from local governments, according to the American Chamber of Commerce in China, reports Bloomberg News.
“We feel that local officials are reacting to the levels of tension in the relationship and just taking the safer path, which is to offer preference to domestic industry,” AmCham China Chairman Greg Gilligan said at a briefing launching an annual white paper.
“We never target any company or country or make restrictions on them unlike some countries that take a protectionist approach,” Foreign Ministry spokeswoman Hua Chunying said in Beijing, adding that the Chinese government does all procurement according to law. (What about Australia, the Philippines, Norway, and South Korea, tweets CSIS scholar Scott Kennedy.)
Industrial policy and the logic of an arms race
Industrial policy is back in fashion around the world, with the U.S.-China rivalry putting market economics on the back burner, writes the Financial Times Gideon Rachman.
“Governments all over the world, from Washington to Beijing and New Delhi to London, are rediscovering the joy of subsidies and singing the praises of economic self-reliance and “strategic” investment,” writes Rachman.
The new trend has everything to do with geopolitics. After the cold war with global tensions at a low, governments aimed to “attract investment rather than to dominate territory.”
Not any more - just look at Washington and Beijing: “As trust declines between the US and China, so each has begun to see reliance on the other for any vital commodity — whether semiconductors or rare-earth minerals — as a dangerous vulnerability. Domestic production and security of supply are the new watchwords.”
“The logic of an arms race is setting in, as each side justifies its moves towards protectionism as a response to actions by the other side,” Rachman writes.
The war on historical nihilism
China’s internet regulator says more than 2 million posts containing “harmful” discussion of history have been deleted online, as China prepares to celebrate the centenary of the founding of the Chinese Communist Party on July 1st, reports the South China Morning Post.
“For a while, some people have disseminated harmful information with historical nihilism on the internet, under the guise of reflection and declassification,” a division director at the Cybersecurity Administration of China said during a press conference in Beijing.
Historical nihilism, now a frequently used term by the Chinese government, refers to any “discussion or research that challenges its official version of history,” explains the Hong Kong paper.
Notable/In Depth
China’s rising property aren’t just a financial risk but also “catalyst for a slew of development and social issues such as the lack of entrepreneurs, negative attitudes to work, and even falling birth rates,” writes Guangzhou-based scholar Han Heyuan.
Outspoken Chinese entrepreneur Sun Dawu could face 25 years in prison if convicted on multiple charges including provoking trouble and disturbing public order, encroaching on state farmland, and illegal mining, reports the South China Morning Post.
There are now 248 Chinese companies listed on major U.S. stock exchanges with a total market capitalization of $2.1 trillion, according to the U.S.-China Economic and Security Review Commission.
China’s government has embarked on a propaganda push to show it is concerned about poor working conditions even while it continues its crackdown on grassroots labor organizers, reports The Christian Science Monitor.
Book review
Thanks to Wang Dan for his kind review of the Chinese edition of my book: "The Myth of Chinese Capitalism" /王丹热邮：好书推介：《低端中国》
Bear territory
And look who showed up while I was trying to write the other day.
