My Blog

March 13, 2008

A friend of mine sent me the following table.  It comes from a paper presented at the September 2007 International Conference on the CCP's 17th Congress by Daniel Xu and Ning Ding ("Distortion of Population Growth and Pressure on Employment") and shows the number of people, in millions, entering the job market in China every year from 2006 to 2020.  I assume this means the number of people turning 18.

This numbers at first were very surprising to me, but they are at least visually consistent with a graph derived from UN data of population by age cohort, which shows a significant bulge in children born in 1985-1990 and then a rather sharp falling off until 2005.  Thereafter, give or take a few surges and retreats, births are expected to decline by just under one-half percent annually until 2050. 

Before anyone blasts these projections as meaningless because it cannot be possible to project that far out into the future, let me say that my understanding is that immigration rates are tough to project (which is why it is hard to make projections about US population growth), but birth rates are much less difficult.  In 1954, for example, the UN predicted that world population in 2000 would be 6.3 billion.  In fact it was 6.1 billion – so they were able to project 46 years into the future with only a 3% error (and in fact much of their “error” came from their failure to predict that China would implement a one-child policy in the 1970s – a fairly unique factor that would have been hard to predict).

As I read these numbers, from 2006 to 2010 the number of young people joining the job market has grown or is projected to grow by 6.6% a year on average. From 2010 to 2020 the number of new job seekers is expected to decline on average by 5.8% a year.  Remember that this is the growth rate of one part of the marginal change in the working population (the other part is the number of retirees), not the growth rate of the total working population, which will necessarily be lower in absolute terms. 

These numbers seem plausible.  I vaguely remember that last year a government report said that there would be 24 million people entering the job market and, I think, 4 million retiring.  If we net out people of retirement age (I am using 65 as a proxy for retirement), the change in the positive growth of new entrants into the job market is less dramatic until 2009-2010, and then the negative growth rate is more dramatic thereafter.  China still has a young population and so the number of retirees is currently small but is growing very dramatically every year, until roughly 2050, after which the number of people entering retirement is very high.  Today about 7% of the population is 65 or older, but in 2050 about 23% will be over 65 (332 million people – by the way much more than the combined retired population of Europe, North America and Japan). 

Until the 1960s China was among the youngest countries in the world, with a median age of 20.  Today the median age is 33, and the UN projects it to be 45 by the middle of the century.  By comparison the median age in the US is around 34, and is projected to be 41 by the year 2050, or a couple of years lower if we assume current immigration rates.

It is incredibly complicated to think about the economic implications of such dramatic demographic changes, but I think there are a couple of points that can be made:

¨          China currently needs extremely high growth rates – I think I agree with Xinxin Li’s suggestion of 10% annually – in order to keep the urban unemployment rate from rising, but this pressure will abate soon.  After 2010 the number of young people joining the job market will begin to drop quickly, while the number of retirees will continue growing rapidly.  The combination will reduce the need for job creation on the order of 1 million jobs or more a year for several years.

¨          In the short term this will be a good thing because it will allow China a little more room to maneuver on the jobs front and will create less pressure for breakneck growth.  In the longer term of course it means that there will be a sharp drop in the number of people working – much sharper than the drop in overall population.  That means workers will need higher levels of productivity to generate the same amount of per capita income.

¨          The rapid reduction in the number of young people and the rise in the number of older people are probably good for political stability.

Before ending this entry I wanted to throw in a few more numbers – not related to demographics, however.  Yesterday I said that new loans had grown by a relatively low 15.7% in February year on year.  Total new loans in February were RMB 243 billion.  This compares with the huge RMB 804 billion net growth in new loans in January.  It seems to me that there must have been some anticipation of February loans in the January numbers, although remember that every January we get a big number (though not this big) because of some left-over demand from the previous year.

Total new loans for the first two months of the year, then, amounted to RMB 1,047 billion.  This is 83% of the first quarter quota of RMB 1.26 trillion and 29% of the total 2008 quota of RMB 3.60 trillion.  I don’t think these quotas are going to last very long.

One last thing: I saw that according to the New York Times the CEO of Blackstone received $350 million in compensation in 2007.  I hope that doesn’t become too widely known in China.

Comments (5) for "Some numbers on Chinese demo...

cyclical downturn is invading china faster than many expteted: Jan-Feb export 16.8%, vs. 26.7% in 2007 or 21.7% in Dec 07 Import surged 30% on surging commodities price, Trade balance dropped 30% y-y to only US$28b vs. 39.6b in Jan-Feb 07 Industrial production slowed 2ppt to 15.4% vs. 18.5% pace of 2007 Non residential FAI slowed 3ppt to 21.4% vs. 24.4% in 2007 A share market rout turn nasty, now down 35% from peak in October One third cities property price dropped or stalled All the while inflation are surging through roof and Rmb is stressed to keep pace with plunging dollar/surging commodities. scary, scary, I would say black swan risk are aslo on the rise in both public health and politics. Where is refuge? Gold maybe By isaac - 3/13/2008 5:33 PM

Hallo A. My calculation goes the way "pi * thumb": 1. 1'400mio : 70years = 20mio per age group 2. pot. workin-people per age group 3/4 = 15mio 3. I read somewhere ('seriouse') the number: 10mio 4. Total: (15mio + 10mio)/2 = 13mio Your numbers are much more differenciated: - in/out - different volume in different age groups So I take your numbers (as a lot of other things you present daily from CN), because they are much more plausible. globumedes By globumedes - 3/14/2008 5:36 PM

Hi, Interesting post. I put something up on a not unrelated aspect on the Demography Matters blog last Friday. I used the data from the US Census Bureau database. According to their numbers the 15 to 19 age group is peaking around now (see chart I put up on the post). The thing is we have very little historical record to go by to date on what this might mean for ,macro economic dynamics. Most of the societies who have seen significant reductions in their labour market entry-level cohorts have been already developed economies (Italy, Germany, Japan etc), and evidently haven't been going for double digit growth, indeed they are lucky to get between 1 and 2% annually. My basic feeling is that this issue very rapidly leads to very hard to handle inflation , and this will then put a huge break on China's growth rate. So.. "China currently needs extremely high growth rates – I think I agree with Xinxin Li’s suggestion of 10% annually – in order to keep the urban unemployment rate from rising" My feeling is that this view is now rather behind the curve. The issue will be to find a "capacity level" non-inflation generating growth rate. I don't know what this number will be, but my guess is well below the current 10% or so annual growth rates. The only evidence I have found useful so far has been to look at what is happening in Eastern Europe, starting with the Baltics, but then moving on to Romania, Ukraine and Russia. Labour shortages present severe difficulties for labour-intensive low value dominated economic growth. So maybe pretty soon China will have to live largely from productivity growth for the GDP growth it gets, and there is obviously plenty of this available, but it will mean nothing like the speed we have been used to in recent years, and in the meantime the question has to be will we get a hard or a soft landing during the adjustment process? Following Eastern Europe closely should pay dividends here. I mean really what I am saying is that I find the recent evolution in the Chinese CPI very hard to understand if some underlying process like the one I am talking about isn't at work. We will soon know anyway, since if the sudden torniquet on entry level cohorts is the problem they won't be able to resolve it easily, if at all in the short term. By Edward Hugh - 3/16/2008 2:33 AM

it may not be right but i always think that the housing market boom is essentially a delayed result of baby booms (seems to be true for the US and Japan cases). currently, the Chinese real-estate price is rocketing high because the 70s-80s baby boom babies are now old enough and buying their own homes. so if these demographical numbers you set out make sense, the overall housing market will probably continue to stay hot for another couple of years (no matter what administrative cooling policies the government puts in place) and start to cool down dramatically in 2010 (again irrelavant of whatever policies the government puts in place) . probably most assets prices will be like that. By megatone - 3/18/2008 11:07 AM

Hi megatone, "it may not be right but i always think that the housing market boom is essentially a delayed result of baby booms " Well look, it may not be quite that simple, since you can have a wealth effect, and so people might want two or three houses (or much bigger ones) as has happened here in Spain during the recent boom, and this may offset the process somewhat. Of course this urge to have several houses as a way of saving can also itself unwind. However Robert Martin from the international finance division of the federal reserve did have a paper a couple of years back where he showed just what you are suggesting. The paper title is : The Baby Boom: Predictability in House Prices and Interest Rates and I guess you can find it with a quick Google. Here is the abstract: This paper explores the baby boom's impact on U.S. house prices and interest rates in the post-war 20th century and beyond. Using a simple Lucas asset pricing model, I quantitatively account for the increase in real house prices, the path of real interest rates, and the timing of low-frequency fluctuations in real house prices. The model predicts that the primary force underlying the evolution of real house prices is the systematic and predictable changes in the working age population driven by the baby boom. The model is calibrated to U.S. data and tested on international data. One surprising success of the model is its ability to predict the boom and bust in Japanese real estate markets around 1974 and 1990. While I'm mentioning abstracts, and thinking about why there is such a large inflow of population into the cities where jobs are apparently scarcer (but wages evidently better), I did come across some recent research in thte February 2008 Issue of the journal China and the World Economy by Fang Cai (Director of the Institute of Population and Labor Economics, Beijing) and Meiyan Wang entitled A Counterfactual Analysis on Unlimited Surplus Labor in Rural China. Here is the abstract. Using a counterfactual analysis approach, the present paper examines a host of conventional wisdoms relating to issues of farmer, the countryside and agriculture, which are believed to be all originated from the existence of mass surplus laborers in China. When analyzing various sources of statistics, evidence shows that there is no longer a large pool of surplus laborers in rural China as most people believe. Based on this counterfactual result, all related events, such as the direction of agricultural technological changes, the level of comparative productivity of agricultural labor, and the degree of rural-urban income gap must be reconsidered. What I feel is that if all this is right we shouldn't be treating increasing food prices as a temporary blip in inflation, since the shortage of rural population (and the low productivity of Chinese agriculture given the labour quality of what is left) and the increasing living standards of the urban population is going to put an upward pressure on prices for some time to come. Add to this labour shortage generated pressures on wages and you are into all sorts of problems. Evidently, given they will continue to need to increase the volume of food imports, letting the yuan rise can ease the internal inflationary pressure, but this will only result in exporting Chinese inflation out into global food prices for the rest of us. So really, you could say you are going to see the direct impact of thirty years of one child per family on your dinner plate. Also as Michael is pointing out they can raise interest rates, and once they get over the initial rocket upwards that this will give them in the current desperate search for yield environment (and the subsequent downside) they will finally have to accept that they cannot grow at the sort of rates we have been seeing, since their labour supply issues simply will not let them. Evidently we will then - as growth falls back - see the apparently counter-intuitive result of rising unemployment (and perhaps even out migration - I mean I do think people should be watching what happens next in the Baltics and Bulgaria/Romania here) in a country which is basically short of labour. Meantime what we will be treated to I suspect is a very complicated juggling act. By Edward Hugh - 3/18/2008 4:13 PM