Bernardo M. Villegas
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published: Aug 13, 2019






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Will China Be Number One? (Part 2)

          China’s dream to be Number One economy in the world will most probably not be fulfilled for the same reason that Japan in the last century did not become Number One:  demographic suicide.  It is important for emerging markets today, including the Philippines, that still are enjoying a demographic dividend—in Southeast Asia and Africa— to learn this important lesson from China:  it is not possible to reverse fertility decline once a state-sponsored birth control program has instilled a contraceptive mentality among the married couples, especially among the women.  Despite the decision of the Chinese government to reverse its one-child policy in 2013, as Tom Hancock and Wang Hueqiao reported recently in the Financial Times, “China’s women spurn call to have more children.”  They cite the example of Chen Xianglin, a 26-year-old accountant in Shanghai.  When urged by her husband, parents and parents-in-law to have a second child, Chen responded negatively: “I value my daughter’s all-round education and development and the importance of spending time together.  When I think about having to work, and the economic pressure, I think having one child is enough.”

         Because an increasing number of women in China are making the same choice, the most optimistic estimate of the Government is that the Chinese population will peak in 2029 at about 1.44 million, before declining.  Together with an overall population decline, an ageing population will intensify the shrinking of China’s workforce.  The number of people aged over 60 will reach 479 million or about one-third of the population in 2050, up from about 16 percent today.  Population trends will reduce GDP growth by 0.5 per cent annually over the next few decades.  In no time at all, China—still burdened with a large population of low-income households—will not be able to grow beyond 2 to 3 percent in GDP annually, approximating the growth rates today of the developed economies.  The good news is that Chinese workers still have relatively low productivity which is calculated as GDP per hour worked.  This gives the country more room to increase the economic output of its workforce as the population ages.  China also has room to boost output by raising the retirement age from the current 60 years for men and 55 for women.

         There will be a limit, however, to these measures to prop up economic growth through productivity measures and increasing the working age. Ren Yuan, a demographics expert at Fudan University in Shanghai, has remarked that “the experience of East Asian societies shows that when the total fertility rate drops to a very low level, it seems that regardless of the measures taken, the fertility level decreases.”  It is important, therefore, that the pro-birth mentality that is still widespread in the Philippines be preserved by the right kind of education, especially among the middle-income households which now constitute some 80 per cent of the Philippine population.  As of now, in the majority of Philippine households children are still appreciated for their inherent worth and value to the happiness of the parents and other members of the family, whatever costs may be incurred in having them.  Potential mothers should be especially encouraged to think beyond pure economic calculus in deciding on the number of children that they should have.  There will be natural causes that will lead to smaller family sizes, i.e. delayed marriages, increasing participation of women in the work force, increased urbanization making housing more expensive, the higher costs of education and health care, etc.  Responsible parenthood programs should set as an average for middle-income families three children per fertile woman.  That would prevent the fertility rate from precipitously falling below the replacement rate of 2.1 babies per woman.

         If we prevent a similar ageing in the Philippines in the next few decades, the demographic crisis of China could actually prove an opportunity for the Philippines, not only to be one of the countries to provide workers for the Chinese population of 1.4 billion but to benefit from the very large number of Chinese tourists who can come to the Philippines; the demand of the Chinese population for high-value agribusiness products such as fruits and vegetables; the swelling number of Chinese retirees who could be attracted to retirement villages in many of our islands, especially in some of the 2,000 islands that make up Palawan; and the migration of factories from China to Southeast Asia because of labor shortages in China.  Even if China is not Number One in per capita income, it could easily be Number One in such  technologies as Artificial Intelligence, robotics and other products of the fourth industrial revolution.  Philippine businesses should partner with some of the leading technology companies of China so that we can leap frog in these sectors where our university graduates can be more productively employed. China—together with Taiwan, South Korea and Japan—could be one of our major sources for Smart Cities technologies in the coming years.

         The question of whether or not China will be Number One really does not matter as far as Philippines-Chinese economic relations are concerned.  Japan never became Number One in the last century, but we have immensely benefited from our closer relations with the Japanese.  As long as we are selective in choosing the right business partners from China, preferably from their private sector, there is so much we can gain from closer economic relations with the largest economy in the world.  Let not all the polemics about the dangers of being heavily indebted to the Chinese Government blind our leaders to the many benefits we can derive from trade and investment opportunities with the leading Chinese enterprises, especially in the technology sector.  For comments, my email address is bernardo.villegas@uap.asia.