Saturday 2 April 2011

China: The Beginning Of The End Of The Growth Story

The buzz word of the last decade must be BRIC.  It was all about the story of the amazing growth of Brazil, Russia, India, and China.

The financial crisis of 2008 has accelerated the "shift" of global economic powerhouse.  True, emerging economies have been leading the global growth for sometime, and now the destroy to the developed economies makes emerging economies like China looks much stronger than it was, economically and politically.

There was a saying that China will become the next world power after the British Empire and the United States.  It was said that the 21st century belongs to China, and China will become the greatest country in the world.  True, the growth was spectacular over the last 30 years also, and if that course continue, the country will overtake the United States very soon.  But that doesn't mean anything.

People are still very much disillusioned about Chinese growth.  Many are still expecting a high growth China to persist for another 20 years or so.  Unfortunately, that is most likely not going to happen.

The population is ageing.  Just like Japan and the United States, the population is ageing, and it is ageing really fast in China.  Ageing will create one great problem: labour shortage.  In the past, China could get goods produced at really low prices partly because it is really a labour resource rich country.  Because of the one-child policy, the dependency ratio for the generation which came into the work force since 1970s was declining, and the working population as the percentage of total population increased steadily.

But soon that's going to be changed.  One-child policy has lowered the birth rate, which was good for the previous generation because less people depended on them.  But as these people start to retire, the work force will shrink at an astonishing rate.  Wages will go up, and the export-led model will fail.

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