China’s policy was based on the assumption of a young and emerging East and an aging and therefore declining West. But the country is already past its peak, argues Yi Fuxian in an opinion piece Project union.
The gap between its declining demographic and economic power and its growing strategic ambitions represents a major geopolitical risk, according to the scientist.
Demographic shortages – China is already shrinking
If the major powers on the world stage are wise, they will use their current influence to work together for a lasting world order before their power is gone.
In January, China acknowledged that its population had started to decline last year. That’s about nine years earlier than predicted by demographers. The consequences of this can be major. This means that all of China’s economic, foreign and defense policy is based on incorrect demographic data.
Aging Puts Pressure on Economic Growth: Just Look at Japan
Population aging will continue to affect the Chinese economy. The old-age dependency ratio (the number over 64 divided by the number 15-64) has a strong negative correlation with GDP growth. Japan is an example.
Thanks to a lower average age, Japan enjoyed rapid economic growth for many years. In 1992, Japan’s median age was 5.5 years older than that of the United States, and its old-age dependency ratio began to exceed that of the United States.
Since then, Japanese GDP growth has lagged that of the United States. Japan’s GDP per capita rose from 16% of the US level in 1960 to 154% in 1995. But by 2022, that figure has fallen to 46% and is expected to fall below 35% in the future.
Also in Taiwan and South Korea
Fuxian sees the same trend in Taiwan and South Korea. After more than five decades of rapid economic growth, thanks to a young population, both economies subsequently stagnated due to shrinking labor force and, with it, GDP per capita.
If we look at China this way, the same scenario is evident. In 1980, the average age there was 21, eight years younger than in America, and from 1979 to 2011, GDP grew by an average of 10% per year. But the labor force in the prime working age group (15-59) started to shrink in 2012, and by 2015 China’s GDP growth had slowed to 7% and 3% in 2022.
India has already overtaken China, will China fall to 3rd place?
As birth rates fall in China, Chinese manufacturing will continue to decline, generating further inflationary pressures in the United States and elsewhere. Although China’s population was 1.5 times larger than India’s in 1975, Chinese government figures show it was smaller last year (1.411 billion compared to 1.417 billion).
In fact, India’s population overtook China a decade ago and will be nearly 1.5 times that of China by 2050, with an average age of 39 or even an entire generation younger than from China (57).
China is aging faster than the United States. By 2030, the median age in China will already be 5.5 years older than that of the United States, and by 2033 the old-age dependency ratio will begin to exceed that of the United States. GDP growth will be lower than that of the United States in 2031-2035. If the United States is passed as the world’s largest economy, it will be passed by India, not China.
This can have major geopolitical consequences
These erroneous forecasts could have a geopolitical domino effect that could ultimately destroy the existing world order. The Chinese authorities have based their policy on their long-standing belief in a young and emerging East and a declining influence from the West.
Putin assumed it too. He assumed that if he had stable relations with an emerging China, the West could not hold him responsible for his aggression against Ukraine.
Is Xi heading in the same direction as Putin as China’s dream shatters?
China’s decline is gradual. It will remain the second or third largest economy in the world for decades to come. But the gap between its waning demographic and economic strength and its growing political ambitions could leave the country vulnerable to strategic mistakes.
Memories of past glory or fear of losing status can lead the country down the same dangerous path as Russia did in Ukraine. Chinese leaders should therefore learn from Putin’s failure and wake up from their unrealistic dream of national rejuvenation.
The West can also learn from it
The United States can also learn from its inability to manage a declining Russia. The United States and its allies, including Canada, the United Kingdom, Australia, New Zealand, the European Union, Japan and South Korea, will also face population aging and declining resulting economy.
Their combined share in the global economy has already increased from 77% in 2002 to 56% in 2021, and this trend will continue. The geopolitical consequences should be obvious. If the great powers are wise, they will work together to establish a lasting world order before they lose power.
Read also: “China will become the world center of electric vehicles”
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