China’s demographic crisis

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A historic shift is taking place in China that is set to have long-term impacts for both the domestic and global economy. According to the National Bureau of Statistics, the nation’s total population fell by 850K in 2022 to 1.412B, marking the first decline since 1961. In the near term, things may even escalate quicker than expected as deaths outstrip births. COVID-related fatalities are quickly spreading through the population – and could lead to a toll in the millions – as the country gives up on its strict zero-COVID policy.

Snapshot: China has long been a key source of labor and demand, but its birth rate has continued to decline as couples delay or decide against having children. That’s despite the lifting of the government’s one-child policy in 2015, and incentives rolled out in 2021 that encouraged people to have more babies (tax deductions, housing subsidies and longer maternity leave). Sky-high education costs have also led to one of the lowest fertility rates in the world, as well as a trend towards rapid urbanization in a country that had traditionally been rural.

Baby-related Chinese stocks sold off sharply following the latest announcement. Kidswant Children Products and incubator maker Ningbo David Medical Device tumbled around 8%, while baby formula manufacturer China Feihe (OTCPK:CFEIY) fell as much as 3% in Hong Kong. Adding to the fears overnight was the latest economic figures, which slumped to one of their worst levels in nearly half a century. China’s GDP growth expanded by only 3% in 2022, missing the official target of “around 5.5%” and slowing sharply from the 8.4% growth recorded in 2021.

Outlook: The demographic trend calls into question whether China will get old before it gets rich. The United Nations also projects that in 2023, China will lose its status as the world’s most populous country to India, whose estimated 1.4B population is still growing. On that note, SA contributor Macrotips Trading points to the iShares MSCI India ETF (INDA) for boosting exposure to large- and mid-cap Indian equities as the country revs its growth engine. In the short term, India is benefiting from access to discounted Russian oil – which has allowed the economy to grow rapidly with relatively less inflation than others – and in the long term, India is forecast to have the largest working-age population, setting it up to be the world’s manufacturing hub.