China’s woes: Aiming for a big global role as its economy falters is tough
- A domestic slowdown has pushed Beijing to work on its foreign ties in the face of geopolitical headwinds.
China is ageing. It’s median age at 38.4 is 12 years more than young India’s. As demography is destiny for large countries, China faces a major reckoning. An economic slowdown is inevitable. China cannot grow at 10% or even 8% anymore. Its supply of school/college educated workers is declining. This signals the end of the ‘Arthur Lewis phenomenon,’ which gave China an almost unlimited supply of industrial labour for three decades. For that long and golden period, real wages stayed low and mostly constant, industrial employment flourished, and the lion’s share of the gains of rapid growth mostly went to investment, undertaken by large state-owned enter-prises. Its investment-to-GDP ratio stayed very high, but the share of consumption stayed stuck below 40% of GDP, helped by wage and financial repression. China’s GDP has risen to five times that of India, but its consumer market is still relatively under-developed for its size. In contrast, India’s share of consumption is 65%. China’s past growth was investment and export driven. Whether future growth will be consumption driven is uncertain, but it will be much lower for sure, even as labour scarcity begins to bite and wages start rising faster. China will age before it can get as rich as the Japanese. But it might still escape the zero-growth trap that Japan is in.