The China Run Is Over
The world is undergoing a change and the next 30 years are not going to include China. This is the end of that story.
In my articles I try to cover subjects that helps people understand the macro events that are happening along with technological implication in an effort to help the loss of money. Going with the crowd will often lead to a train wreck financially.
Right now, the situation with China is one that is going to really cause a great deal of harm in the coming decades. There will be a lot of wealth lost there and it will not be pretty.
So why is it time to start getting bearish on China?
Demographics
This is the biggest headwind China is facing. There is no way to avoid what is taking place and the impact economically is devastating. The nation is trying to convert their economy to one based upon consumerism. Sadly, for them, it is not going to work.
Here is the demographic table from 2020. Just by looking at this, we see how the next few decades will not bode well.
In fact, some researchers believe the situation is dire in China. Some believe the fertility rate of the country is much lower than the government numbers are letting on.
China’s population decline may be much faster than expected, with the number of people in the country halving within the next 45 years, a new study has warned.
The projection was based on the official birth rate of 1.3 children per woman last year – well below the figure of 2 needed to keep the number stable – and forecast a much more dramatic decline than previous estimates.
Basically, the Chinese population is getting over very quickly. Notice from the chart how they have a so few people under 20. This does not lead to massive consumer spending. As people get older, they tend to spend less since their incomes are fixed.
This also leads to less workers to perform all the work that is needed.
Losing Its Best Customer
Have you noticed the United States and China are at odds with each other? This is something that some feel might be heading to war. Personally, I do not think this outcome is likely since the Chinese tend to be a lot of show and very little might. For all their boasting about a navy, the reality is they could get stomped by the Japanese, let alone the Americans. So China is not going to follow that path.
What is evident is that China is upsetting its best customer. Anyone who owned a business knows this is a never a good idea.
Since China is not a consumerism economy, they have to rely upon exports. The United States is the world's largest importer. Of course, it comes as no surprise, since China is a low cost producer (or was), that the U.S. has an enormous trade deficit with that country.
For years, American companies have tried to get into China. After all, with a market of 1.4 billion people, there is a lot of money to be made there. However, if the forecasts are right, the entire country could be down 700 million people in 40 or so years. This does not help the attractiveness of the country.
At the same time, the headaches being caused make it not worth it for companies. To start, the Chinese are known for stealing the technology from companies entering its markets. This does not sit well with many nations, especially the Americans. Both Trump and Biden went after Chinese companies for stealing technology.
Another issue is companies are realizing it is not smart to have all their manufacturing coming from one place. The lockdown in China due to COVID froze the supply chain for many companies. Instantly, in the course of a week or two, all shipments stopped. It was realize that things need to be spread out more, even if the cost was a big more. They simply cannot afford to have things shut down overnight like that.
Firms from the US are not the only ones leaving. The Japanese are pulling out of China with greater urgency now. While they started the process more than a decade ago, opting to do a lot of manufacturing in Vietnam, they are accelerating the process.
China's Replacement
There is already a replacement ready to step in. This is a country with the demographics that countries such as the United States wants along with the low skilled labor that will make it a force when it comes to providing products are a reduced cost.
Here is the demographic chart of this country. Note the stark difference between it and China.
For the United States, there is also the advantage of geography. Mexico is a lot closer than China. That means shipping costs are greatly reduced as well as security. It is much easier to float something up the Pacific Coast or through the Gulf of Mexico. These areas are very secure and easy for the US to patrol.
The above chart shows how Mexico is primed to become the China story over the next few decades. While China is getting older as well as smaller, in terms of population, Mexico is ideally situated to provide the world with a growing economy that is going to experience significant growth. Look at the size of those categories 24 and under. Anyone who has kids knows those are the age brackets that are very costly.
Mexico is positioned to take advantage of their demographics and low cost labor, much in the same way as China did. With the EU shrinking due to their own demographic issues and Japan still constrained by theirs, Mexico can take advantage of its proximity and trade agreement with the United States to really prosper over the next 30 years or so.
And that will help to end the run for China.
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