Population growth or productivity? China's dilemma

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Population growth or productivity? China's dilemma.

Last week Chinese officials announced the impending removal of the one child policy which was introduced as a temporary measure back in 1979. While China is the world's most populous country, its population is forecast to decline from 2030 onwards.

This might seem a long way off but the composition of China's population is already creating challenges. Due to low birth rates over the past 35 years the number of people in the 25 to 49 year old category is also forecast to decline from next year, placing greater pressure on income earners.

In 2013 the government partially relaxed the one child policy by allowing two children per family if one of the parents is an only child. The jury is still out on whether a change in behaviour has resulted and the reasons why remain relevant.

It appears that as incomes rise the cost of staying at home goes up. It is not uncommon for three generations of families to live together supported by the youngest. When one partner stops work to raise children there is an effect on lifestyle and Chinese couples are in no hurry to do that. The country might get some population growth but it might come with a reduction in the workforce and lower household incomes.

So achieving population growth can sometimes come at the expense of productivity and may not be the panacea that policy makers hope. Nevertheless, share market investors have been looking ahead at least nine months and thinking about companies that stand to benefit from this change. The share prices of property development companies and companies providing any of the various paraphernalia of raising children have seen their share prices rise.

Only time will tell whether this policy change addresses the decline in population as desired; however, it should mean some improvement in the outlook for New Zealand's key exports: dairy and tourism. China is our largest trading partner and we know that small changes in their demand can have a big effect on New Zealand exporters.


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