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Over the years, we’ve heard several alternative investment experts wax poetic about China and its potential to dominate world affairs. In contrast, they have criticized the U.S. for running unsustainable deficits, kicking the can down the road. But the idea that China will usurp American hegemony runs into one inconvenient fact: the Chinese demographic crisis.

Thanks to an ill-advised “one-child policy,” China’s government disincentivized families from prior generations to have more than one child. Having more than one could lead to limitations in social welfare programs at best. Or, it could lead to forced abortions at worst. Combined with the cultural preference for boys, it created a massive demographic crisis.

However, the reality didn’t hit the nation until just recently. To be fair, the government recognized the brewing demographic crisis, lifting the one-child policy in some cases and encouraging higher fertility in others. Neither reactive policies worked.

Now, experts forecast that China could face peak population growth in 2027. Shockingly, though, other analysts predict that the peaking could occur earlier, if it hasn’t already happened.

 

Demographic Crisis Imposing Economic Challenges

Previously, the Chinese could ignore the burgeoning demographic crisis as an academic concept. Yes, the one-child policy made this dynamic an inevitability. However, at the first warning, the issue didn’t threaten daily life.

Now, that calculus has changed. One of the other associated problems with China’s demographics is that the country is aging rapidly. Moreover, a substantial number of the population are poor and uneducated. For instance, more than half-a-billion Chinese are not connected to the internet. In contrast, roughly 90% of Americans are online.

As the population ages, an increasing share of China’s wealth must be allocated toward the elderly. With advances in medicine, we can expect that globally, life expectancy will rise. And that adds more pressure to the already strained system.

Unless they want to risk censure from the international community, China has few options but to tax its younger workers to pay for the liabilities associated with the old. Therefore, we can expect to see a gradual deterioration in the Chinese economy.

 

Demographics Is Everything

Few reliable forecasting tools exist quite like demographics. If you’ve read any book by Harry Dent, you’ll recognize that demographic trends allow him to predict future events with uncanny accuracy.

Whether you’re talking about the stock market or the economy or even the election of the next President of the United States, demographics holds the key to the future.

As it stands, China has very poor demographics. Thus, I wouldn’t gamble too heavily on this sector, irrespective of what perma-China bulls believe.

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