Monday, March 10, 2008

China's One Child Policy A Demographic Disaster

Well, they really screwed themselves.
The world's most populous nation, which has built its economic strength on seemingly endless supplies of cheap labor, China may soon face manpower shortages. An aging population also poses difficult political issues for the Communist government, which first encouraged a population explosion in the 1950's and then reversed course and introduced the so-called one-child policy a few years after the death of Mao in 1976.

That measure has spared the country an estimated 390 million births but may ultimately prove to be another monumental demographic mistake. With China's breathtaking rise toward affluence, most people live longer and have fewer children, mirroring trends seen around the world.

Those trends and the extraordinarily low birth rate have combined to create a stark imbalance between young and old. That threatens the nation's rickety pension system, which already runs large deficits even with the 4-to-1 ratio of workers to retirees that it was designed for...
As workers become scarcer and more expensive in the increasingly affluent cities along China's eastern seaboard, the country will face growing economic pressures to move out of assembly work and other labor-intensive manufacturing, which will be taken up by poorer economies in Asia and beyond, and into service and information-based industries.

"For the last two decades China has enjoyed the advantage of having a high ratio of working-age people in the population, but that situation is about to change," said Zuo Xuejin, vice president of the Shanghai Academy of Social Sciences. "With the working-age population decreasing, our labor costs will become less competitive, and industries in places like Vietnam and Bangladesh will start becoming more attractive."

India, the world's other emerging giant, also stands to benefit, with low wages and a far younger population than China.
I was listening to Brad Davis (WDRC Radio) interview Ken Gronbach (author of Common Census) and he spoke about this issue and even blogged about it. He said that the United States was in a great place - demographically speaking - and that we would be seeing a return of manufacturing coming back to this country because of it. The reason being that we will have a larger labor pool and the cost of young labor will be cheaper here than say, in China. (especially when you tack on energy and transportation costs to the price of manufactured goods)

It led me to this post at New Economist which offered some snippets like this from the Financial Times:
Because of China’s one-child policy there will be fewer new workers under its so-called “4,2,1” population structure – four grandparents, two parents and one child. This is a demographic transition that many countries go through. But a process that is taking a century in the west will take 40 years there. The desperate rush for economic growth is fueled by fears that China could grow old before it grows rich.
From Ken's blog
Here's what the US looks like:

It's certainly an interesting subject to study.

I've got a solution to China's problem though.... send them all of our illegal aliens! :)