China fact of the day

Last year, for the first time, the working-age population declined, a trend set to continue for the next two decades. Unless the country can keep lifting the labour force participation rate (for example by getting more women into the workforce or persuading older people not to retire), China will struggle to expand its labour force by even 1 per cent per year. To sustain economic growth of more than 7 per cent, productivity would need to grow by 6-7 per cent a year across the entire economy.

That is from Prasenjit Basu at the FT.

Comments

Open Borders can help China too!

Yes, in fact, China could and should open its internal borders, which are currently a huge barrier to internal migration.

Indeed and external ones. I often hear complaints from the left about the lack of manufacturing jobs in the US. China currently has a very large concentration of manufacturing facilities open borders would allow US workers who wanted to work in manufacturing the chance to do so. It's truly a Win-Win-Win policy.

And the suicide nets would help keep their spirits up during those long shifts.

"Gee, the company really _cares_ about me! (sniff, sniff)"

the country still has plenty of rural people to mobilize into cities.

Also, for productivity growth I bet they have lots of low hanging fruit. Those productivity increase rates are not all fantasy.

Agreed. Talking about an expansion or decline of the working age population is kind of irrelevant to where China is today. Rapid urbanization is where their growth can come from, turning low productivity farmers into higher productivity factory workers, or whatever.

It is only when urbanization stalls that the working age population will come into play.

@The Engineer- "Rapid urbanization is where their growth can come from, turning low productivity farmers into higher productivity factory workers, or whatever "

Whatever. I hear the US off-shoring of manufacturing to China has run its course, with a lot of work now going to Mexico, and indeed the low-hanging China fruit has been plucked. I agree with the article in that China, like Japan, needs more workers in the form of women who traditionally stay out of official GDP figures by staying at home. The Chinese don't do cutting edge stuff so their total factor productivity is low. Their strength is to simply throw more bodies at the low-tech problems they have. Like in the 20th century wars, the Asians (and Russians) like to simply throw bodies at a problem ("human wave attack"). It's good for low-productivity work, and it gets the job done at a huge cost to manpower but they still have plenty of that (if they let their women work). BTW the next low-total-factor-productivity country in this model should be India, with a younger population and soon to surpass China with warm bodies eager to work.

"The Chinese don’t do cutting edge stuff so their total factor productivity is low"

The biggest problem here is their atrocious corruption, poor rule of law and lack of property rights. High TFP industries are usually capital-intensive and require large fixed investments. Investors will do low-tech assembly in China because the ROE is high enough to justify the risk of the Communist Party deciding to arbitrarily re-negotiate the terms of your contract. But no one's going to shell out the kind of money needed for advanced semiconductor fab or pharma research facilities with that kind of risk.

Ray

I think your view of China being large armies of low paid slave labor is out of date, living in the Philippines it is not far for you to get to China and see for yourself. And the idea that China growth is all driven by low wages is false. The lowest wages in the world are in central Africa and they are not taking jobs from the Chinese. The last 20 years or so were about liberalizing the Chinese economy and moving away from socialism. Initially that was seen in exports as the domestic demand was not there, now it is more targeted to domestic demand, there is enormous growth for instance in cars ownership in China. Also, US offshoring moving to Mexico from China would be an example of manufacturing moving from a low income country to a fairly high income country (Mexican GDP per head is $9,000 vs China $6,000) hardly in agreement with your low wages drives growth hypothesis. Finally India will not grow due to its low wages, it will grow when it liberalizes and deregulates its economy. I have tried to do business in India and compared with China, it seems like they are looking for reasons to prevent you from investing. That will have to change, but I am not optimistic.

It is way easier to make a child jump from farming background to factory job than an adult, people call it education. Try it in adults.

And it is even harder to get them from factory jobs to do something even more productive. This is where I expect China to fail, despite their effort to rapidly educate their younger generations on Western universities all around the world. China will need a clear and sustainable vision for its growth, pure manufacturing is not enough. They have already polluted their cities to the level that thousands of people are literally dying of respiratory problems. They will have to deal with it and it will cost them money, which will be a great opportunity for Western companies once again. My bet would be renewable energy, especially solar panels. that are getting better and more efficient every day.

uh, the reason that solar panels are so cheap is that China itself has created massive overcapacity in their manufacture.

Ever hear of Suntech? http://www.smh.com.au/business/carbon-economy/suntech-deal-probe-may-delay-restructuring-of-former-solar-pv-giant-20131212-2z745.html

And THIS industry is your candidate for 're-shoring' to America?

Put your money where your mouth is ;)

"China’s working-age population – people between the ages of 15 and 59"
Since when did 59 become the retirement age? If Japan's men can retire at 70, then so can China's. But only if the right incentives are in place.

When you push papers you can retire at 80, when you work with a shovel things are different.

Of vourse if you work yourself to death, it can really save on pension costs.

Unless these women sit around doing nothing right now I don't know what them entering the official labour force necessarily has to do with economic growth. Or is productivity only real once it gets measured in a concept like GDP?

Suppose a woman buys, or is given some home appliance and other conveniences which free up some of her time and energy. Suppose she uses that do paid work. Measured GDP goes up, and why? Because the work she does as home has become more productive.

@Adrian--that still does not answer TomP's question, but you are correct in your hypothetical. I can also construct a hypothetical where GDP goes up because a mom sends her kids to day-care and then goes to work at some low-paying job, but gets paid less than what she would make by staying at home and being a good mom. But her contribution to GDP is counted, though her kids turn into retards and delinquents at the day-care due to inadequate care. By analogy, that sort of accounting sleight of hand was popularized by the Republicans with their "borrow-and-spend" philosophy in the 1980s and 2000s, all the while claiming to be downsizing government.

The notion that stay at home moms raising multiple children were doing something irreplaceable is inconceivable to those who measure-and thus run-the world.

The evidence is strongly in favor of there being little impact on children's character and intelligence by attending day care versus being raised at home by their mum. In fact some people are claiming that there is a positive effect. I am all in favor of people making their own choices on this matter, but surely some of the mothers in China would benefit being able to continue their careers while their children are young, rather than being forced to stay at home. So I would welcome policies by the Chinese government that would give more mothers this choice.

Can't reply directly to ChrisA's post, but here:
1) His post actually reinforces my claim -- that those who measure can not conceive that there's something important that they are missing.
2) For the record, that which they do measure does not back ChrisA's sweeping dismissive claim of little impact on character and intelligence. Of course, the summaries are hopelessly politicized- just look at the websites that pop-up when you do a search. But here's someone on the usually-leftist Huffington Post on day-care in Sweden: http://www.huffingtonpost.ca/jonas-himmelstrand-/effects-of-daycare_b_4220857.html
3) SAHM have more kids than Moms who work full-time, leading to higher GNP down the road. That point was missed in the discussion about day-care.

AB - Jayman has a recent good summary of current thinking on the strength of genes versus environment for character and intelligence, spoiler alert - genes win.

http://jaymans.wordpress.com/2014/04/15/more-behavioral-genetic-facts/

On whether STAH mums have more children that career women, surely that is self selection at work. STAH moms perhaps favor more children and want to STAH rather than work for the same reasons, that they are more interested in motherhood than a career. I totally respect that decision, as well as the decision by other moms to go to work and have less children. What I would not want is to have a policy that forced moms to become STAH moms "because of the kids".

STAH mums or SAHM (are you British?) having more children than career women is indeed self-selection. However, that self-selection is occurring in a particular environment. Other environments will have more or fewer women having multiple children. Those environments include law, tax policies, economic strength, culture, home size, religion, etc... China *forced* women to limit themselves to one child, which *encouraged* them to join the workforce. Right now, many sectors within American culture *encourages* women to work through many years of fertility, *discouraging* them from having multiple children. But there are sub-cultures which-- though living under the same exact laws --- encourage member women to have multiple children, and thus be SAHM. Their kids turn out differently in at least one measurable aspect-- they themselves are more likely to have multiple children.

As far as genes vs. environment: I'm not going to continue the quote my favorite article backing me up game-- I cited one and I'm done.

AB - anyone arguing against the power of genes versus environment in determining character or IQ at this stage is just being willfully ignorant at this stage. Huffington Post is not a good source, you should look beyond journalism to the experts. Here is a good quote from Greg Chochran (http://westhunt.wordpress.com) on why many people resist or gag when presented with this hypothesis: "As far as I can see, that gag reflex was entirely due to dislike of the implications of a strong genetic influence on human behavior, rather than any compelling argument or solid counter-evidence."

If you think about this some more, you will realize that evolution would work to make children resilient to the environmental effects, after all, what makes children survive and reproduce is their genes, not the particular environment (within reason). In other words, children need to be able to survive bad parents if they can reproduce. For instance IQ, its no good having genetically good IQ to improve your reproductive fitness if your childhood environment then goes ahead and easily destroys that IQ advantage. So over time evolution works to minimize environmental effects by weeding out those genes that didn't work well in bad environments.

Of course really bad environments, such as chaining the child up in a dark cellar for the first 16 years, are going to have a significant effect. But attending day care just isn't in that league.

On STAHM children having more children, that is exactly what the genetic hypothesis would predict!

I think many people are conflating Korea or Japan with China. Chinese female labor participation rate is 64 percent, higher than every European country except Iceland

http://data.worldbank.org/indicator/SL.TLF.CACT.FE.ZS?order=wbapi_data_value_2012+wbapi_data_value+wbapi_data_value-last&sort=desc

China's long term economic plan of Fast-Fowarding straight into the Japanese lost decades is going better than planned. I still believe the global baby bust might just solve Piketty capital versus wages issue.

"I still believe the global baby bust might just solve Piketty capital versus wages issue."

A demographic slowdown is one of the defining features of Piketty's low growth scenario, so I'm baffled how you think the "baby bust" is a solution.

Baby bust = less labor supply = higher wages for labor?

China could also abolish it's one child policy.

It might be too late for this, however, but if they are going to do it, they need to do it soon.

My impression was that they'd done this already. Like two years ago or something.

I think that even the Chinese powers-that-be are going to find out that some things are easier to decree than un-decree.

The previous policy was in place for 30 years. The whole structure of society has changed to reflect it.

But folks were always gaming it. Plenty of pent up demand.

"As of 2007, 35.9% of the population were subject to a strict one-child limit. 52.9% were permitted to have a second child if their first was a daughter; 9.6% of Chinese couples were permitted two children regardless of their sex; and 1.6%—mainly Tibetans—had no limit at all.

The social fostering or maintenance fee, sometimes called a "family planning fine" in the West, is collected as a fraction of either the annual disposable income of city dwellers or of the annual cash income of peasants, in the year of the child's birth."

http://en.wikipedia.org/wiki/One-child_policy

It's important to keep in mind that the Chinese have restrictions on greater than two children also and since family size isn't homogeneous, there is still a lot of downward pressure on population growth, particularly at the low age ranges.

China already has. Did you read the news a months back? Chinese got around the one child policy which is why it is being lifted. Chinese have no problem making babies, so there is no need to worry.

No, they have not abolished it. I work with people who have had to terminate pregnancies because they cannot afford the fees for having a second child.

Those that do have second children mostly do so secretly, giving birth at home or at a hospital, where they have to pay huge bribes to make the child "legal".

What was the United States' productivity growth rate through the 19th and 20th centuries? I don't ever remember seeing any country with productivity growth at a level above about 3% for more than a couple of years- ever.

I wouldn't doubt that retirement ages will start to rise when this starts to be more of a problem.

I imagine that China's industries have a considerable opportunity to automate production. I think productivity growth can be robust for the forseeable future. Think about Japan - shrinking labor force (and overall population) but high and ever-increasing levels of automation. Necessity is the mother of invention.

China is pushing its population to move overseas to get jobs and settle. China doesn't have the capacity to provide jobs for over 1.3 billion people. China also wants connection overseas for its growing economic empire.

There is no real story here. China will experience slowing growth due to demographic factors and due to the fact that unsustainably high productivity growth can be sustained forever. So what? Where is the crisis, as the FT article implies? If China's real GDP grows at 3-4% pa as opposed to 7% pa this is a crisis? That's the biggest problem with the Chinese bears. Sure growth will slow eventually as catchup occurs and as China runs out of dollar a day farmers to convert into $10/day factory workers. It's hard to say when exactly growth slows, but it will slow. But so what? There's nothing wrong with public policy that achieves super high growth for a long time followed by normal growth. And unless you have a compelling argument that less than super high growth will translate into negative growth, you don't have an argument.

Excellent blog here! Also your site loads up very fast!
What host are you using? Can I get your affiliate link to your host?
I wish my web site loaded up as fast as yours lol

Comments for this post are closed