China running low on Factory Workers and Farmers as an Aging Population threatens Future Growth

Posted by PITHOCRATES - February 3rd, 2013

Week in Review

During the Eighties those in America who favored large government incursions into the private market liked to point to Japan.  Whose economy was booming during the Eighties.  Thanks to a lot of government partnering with business.  And low interest rates.  The Japanese were buying up landmark American properties.  Some feared that they would take a controlling interest in the United States.  And those on the Left said that we were fools for not doing what the Japanese were doing.  They still believe this.  Despite what happened in the Nineties in Japan.  It turned out that a lot of that economic growth wasn’t real.  It was a bubble.  And they blew that bubble up so much that it took a decade and more to deflate it.  Japan’s Lost Decade.  Which is closer to two decades.  And counting.

Now China is the new Japan.  Where government partners with business.  And keeps interest rates low.  Once again those on the Left point to this model.  Urging that the U.S. adopt it, too.  So the U.S. can have a strong manufacturing sector.  And a booming export market.  But there’s more to the economy than exports (see UPDATE 3-China to speed up rural land reform, ensure food supply by David Stanway and Kevin Yao posted 1/31/2013 on Reuters).

The central government said in its “number one document” for 2013, focusing on modernising agriculture, it would grant more subsidies to large-scale landholders, family farms and rural cooperatives as it tries to provide more incentives to bring economies of scale to the fragmented countryside…

It listed grain security and farm product supply as top priorities, with China seeking to boost production as it urbanises and industrialises. The relocation to the cities of more than 200 million migrant workers has slashed the rural workforce and boosted food demand, leading to a growing dependence on imports.

So the Chinese traded food for exports.  To get cheap workers to fill their export factories they just pulled people from agriculture.  Leading to food shortages that they have to make up with food imports.  A country no stranger to food shortages.  Or trying to bring economies of scale to agriculture.  The last time they tried it was during the Great Leap Forward.  With forced collectivization of their farms.  Which was such a failure that tens of millions starved to death in the famine this forced collectivization caused.  But famine is not the only way to cause a population decline (see China’s looming worker shortage threatens economy by AFP posted 1/30/2013 on France 24).

China’s demographic timebomb is ticking much louder with the first fall in its labour pool for decades, analysts say, highlighting the risk that the country grows old before it grows rich.

The abundant supply of cheap workers in the world’s most populous nation has created unprecedented cost efficiencies that underpinned its blistering economic expansion over the past 35 years, propelling the global economy forward.

But now the inexorable consequences of the one-child policy imposed in the late 1970s are beginning to appear, and threaten to impact its future growth.

China’s working-age population, defined as 15-59, fell 3.45 million last year, official data showed earlier this month — the first decline since 1963, after tens of millions died in a famine caused by the Great Leap Forward…

“The population is aging so fast that we are running short of time to deal with it,” said Li Jun, also of CASS, adding the family planning policy had exacerbated the problem…

An ageing population not only means fewer people available to employ and higher labour costs, but investment — a key driver of China’s growth — will be harder to maintain as families spend their savings on health care, she said…

At the same time…the country was woefully underprepared to meet the burden of caring for the elderly…

By around 2060, every three Chinese workers will have to support two people above 60, compared with a ratio of five to one now…

Analysts said the medical services are increasingly expensive and hard to access, while the country’s flagship public pension plans are crippled by problems including insolvency risks, difficulties in expanding coverage and mismanagement.

Over a billion people in China and it’s not enough.  They’re short of both factory workers and farmers.  Because of an aging population.  The problem all advanced economies have.  Only China is having it before they are even an advanced economy.  And their problems of trying to take care of their aging population are going to make the problem of saving Social Security and Medicare seem like child’s play.  Because of that one-child policy.

In the advanced economies parents are having barely enough children to replace them.  While China’s one-child policy guarantees a shrinking population.  Which means fewer mouths to feed.  But it will also mean fewer people to farm their land and to work in their factories.  Just as more people leave the workforce.  Which means the future isn’t looking very good for China.  Who may soon experience their own Lost Decade.  A lesson for the U.S.  That having government partner with business and low interest rates does not make a sound economy.  It only creates bubbles.  Not real sustained economic activity.  Which all can come crashing down when overwhelmed by the crushing weight of an aging population.

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