By Stephen Perry & Chris Devonshire-Ellis
Global media headlines the past couple of days have focused on China’s population, with headlines such as the New York Times’ ‘Demographic Crisis’ being picked up and distributed around the world. It’s not the first time the NYT has covered this; in a regular spot of China misunderstanding, they wrote a similar report two years ago – on that occasion suggesting China ‘would soon enter a period of negative growth’. The Guardian has suggested that these figures indicate a delay to COVID economic recovery, while Reuters suggest that the findings show that it will test China’s ability to pay and care for an aging nation.
How accurate are such predictions?
The subject is important as continuing Chinese consumer growth is considered to be a major driver for global, not just China’s growth, and countless businesses worldwide are counting on China’s development to facilitate that. McKinsey, for example, are predicting China’s middle class consumer market to be the wealthiest and largest in the world by 2024. How accurate then are the portrayers of doom when it comes to assessing China’s population demographics and what they actually mean?
As pointed out in the recent articles ‘Who Manages China’s Belt & Road Initiative’ and ‘Political Scientists vs. Engineers’, China’s State planning is rigorously and scientifically thought out.
It is almost inconceivable that before beginning the ‘One Child policy’, they would not have projected several scenarios a long way in advance.
We are also entering a period where the world will be redistributing its population due to the fallout of climate change and as shortages start to materialize. This is one reason why Russia recently joined the global, yet little known International Organization for Migration (IOM), which studies the issue and helps plan in advance.
The Belt & Road Initiative, with its thousands of infrastructure and development projects, is in part a response to the expected population transformation, while Africa’s emergence as the world’s workshop also caters to the same. Did the New York Times consider the number of Chinese workers overseas in the working part of their ratio? The IOM estimates that 10 million mainland Chinese work overseas, while one million non-Chinese migrants work in China. (Usually seasonal, to China’s West, servicing harvest as China urbanizes and loses basic agricultural labor.)
A.I. will be another major factor altering ratios of worker/dependents on a global basis.
In China, the population actually grew last year – it didn’t decline – and is now estimated to be 1.41 billion. Our view is that the 15 planned regions of China will all have planned population demographic ratios.
As mentioned, China’s middle class will become the biggest class in China with an expected headcount of some 560 million, or about one third of the total population. They will invest ahead in their retirement plans and will be expected to be self-sufficient and not dependent upon the State.
The mechanisms to achieve this are already being put in place. Hong Kong is being repositioned to offer mainland Chinese access to private wealth funds investing overseas. Over time, we can expect to see this becoming a semi obligatory mechanism to manage overseas investing for the Chinese middle classes as part of their total savings for retirement.
For the working class, China’s increasingly significant state-owned enterprise wealth will fund pensions for its employees, and the poor and vulnerable.
The latter category, the poor and vulnerable, are already provided for, in terms of health benefits and pensions, by specific funds that hold shares transferred from State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and avoid needing taxes to provide for them.
This means that future Chinese health and welfare will be provided for the nation from three roughly equal sources.
One third would be the middle class who would provide for themselves.
One third would be employees, their families, and their retirees whose pensions and welfare would be contributed to mainly by their employers from specific employee funds who will own shares in the employing company.
The last third would be the poor and vulnerable funded by dividend income from shares held in SOE’s and major private sector companies. A redistribution of wealth using shares and dividends instead of taxation.
This plan takes out about 20-30 percent of China’s western state budgets and transfers provision to insurance-based methods.
This complete picture is operated by the government and monitored and adjusted by the CPC, who conceived it. This is the scientific method in operation, which was alluded to in the article concerning Chinese political academia in the ‘Political Science vs. Engineers’ article linked to earlier.
This plan was based on intensive research covering over 50 years of developed nations of capitalism’s experience. From this, a socialist plan was developed that took redistribution and provision out of the state budget.
It is not the ratio of worker to dependents that is key. It is the extent, form, and constant supervision of provision that is key. That is a key aspect of the scientific method.
The smaller state is achieved in socialist China and is likely to be used later in capitalist nations. The main inspiration came from the Lutheran Northern European nations. They used taxation more than dividends as a redistribution tool, however the principle of redistribution is found there.
This scientific method originates with Marx analyzing capitalism. China has spent 70 years taking that approach to a whole new level. China’s population demographics are not a signal for a national crisis or a demise of China. Joining the dots in China and fully understanding the whole picture instead points to a well-managed, well planned, and well executed national development strategy, that foreign investors can also participate in.
Stephen Perry is the Chairman of the 48 Group and a renowned China academic. Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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