The Zig Zag

Where Have all the Children Gone?

It’s impossible to understand the Chinese economy without understanding the effects of the one child policy of the 70’s. This produced on of the fastest demographic transitions in history, cutting the Fertilityrate from 6 to under 2.5 in less than 15 years. The result of this rapid change was a “fat” cohort of workers, born just before the policy kicked in, and their biography has tracked Chinese destiny to date; they entered the workforce in the late 80’s and early 90’s and this coincided with, and perhaps caused, China’s recent economic growth miracle.

However, as in Joseph’s dream, the fat years are followed by lean; as Mao’s Fat Cohort enters its 30’s it is being replaced by a much smaller cohort of workers. As the figure shows, in 1995, workers aged 20-30 made up 38% of the working age population. In 2005 they will constitute just 25%. The effects of these changes are threefold; firstly, since 20-30 year olds make up the bulk of the unskilled workforce in the manufacturing sector, a tighter supply will inevitably raise wages and lower profits in this sector. Secondly, as the fat cohort is now older, its productivity has increased and this will appreciate the real exchange rate, placing further pressure on exporter's margins. Thirdly, the current young generation differs from the fat cohort in that most were "only children". The effects of this are not clear, perhaps they’ll find it harder to fit into the faceless factories, perhaps they’ll substitute the industriousness of their predecessors with the profligacy of spoilt only children. Perhaps….. well anyway, the times they are a changin in China.