In the last couple of weeks a swag of data has been produced which says that by this time next year India will overtake China as the world’s most populous country.

China’s government, which is not in the mood to be overtaken by anyone on anything, is facing more than just a fall of pride.

Earlier this month, China’s National Health Commission (CNHC) let slip an apparent truth bomb about its looming demographic bomb. It seems the Middle-aged Kingdom’s long-expected population retreat is already beating a hasty long march, well ahead of schedule.

For the first time since the calamitous great famine of the Great Leap Forward in 1961, China’s population could even contract this year.

With the tipping point of fewer births than deaths so close, authorities will now need to start facing up to the harsh reality of labor shortages, tax imbalances, pension shortfalls, and the prospect of social unrest.

The idea had already crossed a lot of minds but the consequences for China’s future remain unquantified.

Now, according to statistics released by Hong Kong’s Census and Statistics Department overnight, the city’s population fell by a record 121,500 residents in the year ended June 30.

It’s been more than 60 years since the city has seen that kind of an exodus and while China’s zero-COVID and zero-FREEDOM approach to the city is a likely catalyst, it adds another layer of complexity to a demographic challenge China appears in no state to confront.

A few weeks ago, the Global Population Project at the United Nations revealed that by this time next year – August 2023 – a whole lot of geography text books are going to require new editions: China will no longer be the world’s most populous country.

The UN says China’s population began to decline this year (10 years earlier than its 2019 projection), and that India’s population will surpass China’s in 2023 (seven years ahead of the 2019 forecast).

Right now China is home to 1.43 billion people, while its next-door neighbour, India has 1.41 billion. But by mid-century there will be more than 1.6 billion Indians to around 1.3 billion Chinese.

And this month, for the first time a senior Chinese authority, the CNHC, has conceded in public that China’s numbers game – already a giant threat to its economic model – is going to reach critical un-mass sooner than expected.

With lower fertility intentions, China’s population is going to start shrinking within the next three years – around 2025.

That’s from the state’s preferred bomber of truth – the party’s official emotional outlet The Global Times.

Earlier forecasts pegged the population to start declining about five years hence, in 2027.

The statistics were bad news indeed and the growing demographic crisis facing the world’s No 2 economy has no easy fix, exacerbated as it is with a huge and fast-ageing population.

In March, already anxious Chinese economic officials were given an extra start by Cai Fang, a top member of the Chinese central bank’s (People’s Bank of China) monetary policy committee, when he said China’s population was in fact more likely to peak this year, telling the 21st Century Business Herald peak population in ’22 was “entirely possible”.

China National Bureau of Statistics

Mr Cai was referring to the hit a declining work force was already having on the Chinese economy, but in the context of both supply line constraints and  as a constraint on the supply side of the economy, a shrinking population will become a new restriction on the demand side.

China used to rely on its demographic dividend to drive economic development, Lu Jiehua, a professor of sociology at Peking University, told the Global Times in a previous interview.

“In this case, China should explore advantages in areas beyond the demographic dividend to fully improve the overall quality of the population and create new conditions for economic development,” said Lu.

Despite the country abandoning the long and tightly regulated one child policy in 2016 – instead replacing that with incentives for couples to have two or more kids – China, at 1.15 children per woman, currently has one of the lowest fertility rates in the world.

An oldie but a goodie, courtesy Nature.com

The potential evaporation of some 66% of China’s working-age population is unprecedented. And as Bloomberg has noted, the threat of it may bring policy and societal changes that slow or even halt the trend.

Unchecked population ageing could entirely change the structure of China’s economy, according to Goldman Sachs.

The typical life cycle theory suggests that people tend to consume less and save more during their working years but inevitably consume more as they age. As a result, we could see a negative correlation between the production-to-consumption ratio such that consumption increases as the working-age population drops.

And India is ready to step up.

India Avenue’s director and founder, Mugunthan Siva, has been covering China’s demographic decay in contrast to its neighbour, India.

“We know that India’s GDP growth is likely to be above other developed or developing countries due to its fundamentals of a youthful and large population (over 1.4 billion, average age 29),” Siva told Stockhead.

“Additionally, its reformist, pro-business Government has played its cards right by putting in place incentives to make India more self-reliant at a time when China was adopting a zero-tolerance policy for dealing with COVID-19 and therefore absent to some degree in global supply chains.”

India is likely to be the third largest economy in the world by the end of the decade and its stock market, fuelled by its growth and largely privatised economy, will grow to well over US$5 trillion and be the third largest stock market after the US and China. And remember both these two economies, as well as Australia, are likely to have ageing/aged populations by then.

What we do know is that China’s demographic-dynamic is one of the most critical, yet under-reported factors moving the world ever close to conflict right now.

Does China’s president Xi Jinping appear overly trigger-happy when it comes to Hong Kong, Xinjiang, or Taiwan?

As the legendary foreign correspondent and professor of journalism at Columbia University Howard W. French, says:

Among other things, (China’s demographics) help explain Chinese President Xi Jinping’s determination as he asserts China’s positions more forcefully than his recent predecessors. 

But China’s leaders surely know that their country’s moment of maximum opportunity in the world is now at the tail end of decades of fast economic growth and that the resources for global diplomacy, influence-building, and military investment will soon come under tremendous pressure from the need to fund more prosaic but inescapably necessary things, such as much more robust social security, national health insurance, and retirement systems.