China has a ton of challenges to face as it tries to transition its economy from one based on investment to one based on consumption.
But only one of them is “fundamental,” according to Barclays. And that’s demographics.
The principle behind this is really simple. When your working-age population shrinks, everything in your economy shrinks.
What’s more, China is already showing signs of exhausting its supply of cheap labor as low-skilled workers move from rural areas, get an education, and become more expensive.
In economics, this point in an economy’s move through industrialization and beyond is called The Lewis Turning Point.
China has reached this point before anyone thought it would. Back in 2013 the IMF released a working paper estimating that this would happen between 2020 and 2025 – but it seems to be happening already.
Check out the breakdown in the slide below.
For what it’s worth, China isn’t the only one with this problem. For the first time since WWII, the entire world’s population growth rate is slowing, making prior growth estimates unachievable.
So it looks like we all have a fundamental problem. China’s is just more dramatic.