China’s Demographic Nightmare

Largely due to China’s one-child policy the world’s largest country and 2nd largest economy is facing the specter of a shrinking labor force beginning in two years and lasting for more than two decades:

 

Labor_Force_Growth

This phenomenon along with many other factors has China facing a tremendous challenge in maintaining economic growth. Notice the labor force spike that occurred between 2002-2007 as China’s economy boomed and a large chunk of rural population moved into the cities. We have seen a steady decline in the labor force growth rate since the Global Financial Crisis took hold in 2008 and according to this chart China’s labor force will begin to shrink in 2017 and continue to shrink for a long time to come. The double-digit growth rates of the 2000s are very much in the rear-view mirror and it is difficult to envision how China will pull itself out of a downward spiral when so much of the wealth created during the 2000s was a result of rapid economic growth.

 

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