#3. China Demographics in One Chart
Demographics, Consumers, Real Estate, GDP, Carbon Emissions, Stock Flows
This is China Charts. We are a pair of finance professionals with boots on the ground in China, each with 10 years of experience in the country. We love charts, mainly because of their ability to tell so much. In this newsletter we create and gather informative charts on the Middle Kingdom. Feel free to get in touch about deep dives on companies and data sets.
Demographics. When discussing China, it’s the elephant in the room that few are really talking about. We get it. It’s a slow undercurrent. And human attention tends to dart towards the topics that move fast. But it’s arguably the single biggest factor that’s going to cut across industries and define China’s story for the next 20-30 years. Just to illustrate, how are property prices going to behave as there are simply fewer young people to take out those mortgages? (See our previous post on decelerating property prices here). How is China’s pension system going to handle this? There’s a reason why VCs have been piling into healthcare as shown in our previous post. And China’s ageing fast. Just look at the elderly dependency ratio. From the mid-2010s, China’s ratio has accelerated and broken away from other emerging nations such as India and Indonesia.
Taking a closer look at China specifically, one can see that the population growth rate (cyan line below) actually decelerated sharply in the 1970s, well before the one-child policy was officially announced in 1979. Presumably efforts to curb population growth were being carried out through a collection of various policies from the early 1970s. And as population growth decelerates, so does real urban wage growth (see purple line). The growth story is over. There is a reason for all that economic restructuring taking place right now. China pre~2010 and post~2010 have to be qualitatively different by sheer necessity of demographics.
The two-child policy was announced in 2016. But it’s doubtful it’s going to have much of an impact. Looking at the chart, there’s already been a kink to the downside despite the policy changes. Moreover, as countries get richer, people simply stop having kids. It gets expensive. There is a strong relationship between fertility and income across countries. Here’s a scatterplot to illustrate the point. And China’s right at the bend.
And here’s a variant of the chart but on a log10 scale for those data scientists who may happen to be reading this.
Here are some projections on how China’s population decline may go. First, from the UN. Note: the UN’s projects the US to slowly increase in population due to immigration.
Second, from A2 Milk’s investor day presentation, a forecasted range of the number of newborns in China. Our view is that the lower end of the projections is the more likely scenario.
II. Consumer Class
Despite a declining population, China’s consumer class is expected to increase by over 300 million by 2030.
Goldman Sachs released a model portfolio they expect to benefit from “Common Prosperity.” Here are the companies:
III. Real Estate
The number of cities with falling home prices continues to increase.
Land Sales premiums are declining. Chongqing stands out with largest drop.
Here are Evergrande’s upcoming interest and principal payments.
Bloomberg Intelligence put out some good charts on China’s property developers’ financial condition.
This chart compares property developers recurring income (fees, not sales) coverage of finance cost.
Comparison of investment property (presumably can be sold) and cash as a percent of total current liabilities.
IV. GDP and FAI
GDP growth rates vary by province, with eastern coastal provinces faring a bit better.
Fixed-asset investment has been slowing. It could reverse into the end of the year.
V. New Covid Cases Rising
China is experiencing a new wave of Covid cases since Mid-October, when a couple returned from Mongolia was found to be positive.
China does not seem to be changing it’s Covid-Zero policies. Note: they are popular on the mainland.
Covid-Zero policies are not popular with foreign executives, who’s family members’ visas have been delayed.
VI. Carbon Emissions
The FT has a fantastic interactive graphic with each countries CO2 emissions and targets.
This chart uses older data and compares each country’s emissions.
VII. SHSZ300 Underperforming and Stock Flows
SHSZ300 trailing the SPX and Vanguard Total World ETF by greater than 30%.
Foreign buying recovering a bit from July low.
Monthly Southbound flows.
Monthly Northbound flows.
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China Charts Team