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Will Demographic Change Slow Down China's Medium Term Growth?

Thursday, November 17, 2016 8:47
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(Before It's News)

Prof. Wang Feng of UC Irvine has written an important piece about demographics and China's medium term economic growth.  He argues that Taiwan's recent history provides a preview of China's likely future dynamics.  He stresses that Taiwan's urbanites choose to be consumers rather than savers.

Permit me to approach Prof. Feng's core question from the standpoint of economics.  First, here is a recent NBER paper using state level data arguing that aging lowers economic growth.

Consider an alternative narrative.  Population aging has a predictable component and thus this creates investment opportunities.  Chinese factories that anticipate that labor will grow more expensive as the effective labor supply in the nation contracts will have an incentive to substitute to robots and mechanization. This labor to capital transition could facilitate investment and modernization and accelerate growth.

China is wrestling with the challenge of what jobs there are for its low skilled population. Home service sector nurses will be in huge demand to take care of the aging population.  

Given that the nation has good airports and bullet trains, China's  current “ghost cities” could be transitioned to serving senior citizens. These individuals do not work and thus do not need access to “productive places”. They do want access to their friends, family and good health care. If the CCP could figure out how to deliver such services in the current “ghost cities” then the seniors could play a key role in stabilizing the housing market as they would sell their apartments in Shanghai to young productive workers and move to these “senior cities” (think of Miami as a retirement place for NYC residents).   Such migration of seniors to these cities, would reduce the worry that developers will declare bankruptcy and there will be a real estate based asset price collapse (and thus a collateral crisis) in China.

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