Earlier this week, Beijing posted its second-worst growth rate in more than forty years, at 3 per cent. Reeling under the Covid-zero policies of President Xi Jinping, many manufacturing pockets within the mainland faced disruptions across 2022, resulting in supply chain issues, lower productivity, and a general discontent amongst the public. The economic spillover left the companies operating in China with lower revenues, and an urgent need to diversify their manufacturing operations. However, for Xi and the Chinese Communist Party, the more alarming news was the shrinking population. For the first time in over six decades, China’s population growth was in the red, falling by around 850,000 to 1.412 billion. Not that Beijing was not anticipating a fall in the population growth, but as per observers, it has come earlier than expected, thus worrying the administration. A rapidly aging population with declining numbers is set to impact China’s stature as the world’s manufacturing capital and economic powerhouse. China’s economy is caught in a vicious loop. While Beijing may want to set the growth targets in the neighbourhood at 6 to 7 per cent for 2023, the fundamentals remain questionable. To begin with, the real estate, a primary mover of China’s economy, is under stress with developers defaulting on dollar bonds, plagued with unfinished projects, and backlash from the buyers. Furthermore, the semiconductor industry is being hammered by the sanctions from the White House. Even the provinces have been bailed out by Beijing through purchase of lands at inflated prices. Therefore, even if there is a sharp growth in 2023 and 2024, relative to 2022, where does the next economic buoyancy come from for Xi? Post-2008, it was the real estate, but that card is done and dusted. Manufacturing, scarred by the Covid-zero lockdowns, may not want to diss China completely, but is looking elsewhere, starting with India and Vietnam. In the long-term, a declining population may hit consumption, already hit by the real estate crisis and high unemployment in the 16-24 age group. China’s desperation with respect to its population was visible in 2021 itself. In 2021, China allowed families to have three children, given the fertility rate in China was only 1.3 per woman. For Japan, it was 1.36 in 2019, and in the United States, it was 1.7. China’s history of family-planning complements the problem of the fertility rate, for before 1971, there were no restrictions on the number of children a family could have. Thus, the fertility rate in China hovered around 6.0 during the 1960s and 1970s. The problem is that the country is set to get older before it gets richer. As per reports, the population aged 15-24 is around 72 per cent of those aged 45-54. For Japan, this percentage is 79 and for the United States it is 100. Therefore, without more children, China risks being on the wrong side of demographics a decade from now. Further, there will be a decline in the workforce, gradually taking away the cheap labour advantage from China. As per estimates, around 234 million people in China will hit the retirement age in the next ten years. Another problem plagues the younger generation in China. In a government survey of over 90,000 employers, more than 40 per cent admitted that hiring was difficult, with more young people wanting to opt for white-collar jobs instead of labour work. Even the People’s Liberation Army had to increase its enlistment age from 24 to 26. Turns out, many Chinese youngsters are happy with the basic standards of living in the countryside, and do not want to participate in the 996 culture (working 9 to 9, for 6 days a week). Consequently, China’s shrinking population and stagnating economic growth is India’s opportunity. Clearly, the infrastructure and human resources and skilling gaps would have to be bridged at the earliest. Also, in an era of geopolitical uncertainties, a stable government in the Centre would only further India’s interests. For instance, a semiconductor supply chain partnership within the QUAD with some South-Asian economies must be one of the pursuits of the Centre. For long, many companies prostrated before the administration in Beijing, even the likes of Apple, to ensure access to their growing market. Going forward, India alone will hold that advantage. The next two decades will be about India’s growing consumption, along with rising investments and exports. Thus, for any company, even the likes of Apple or an automobile company, there is plenty of incentive to come build in and for India. For all the right reasons, the shift is already underway, aided by the government’s push through Production Linked Incentives (PLIs) in several sectors. This is India’s window. It must make the most of it. INAV
