Changing Demography and Your Future

CHINA ECONOMY TO CRASH AND BURN

[This guest column is written by Ken Gronbach, a past PEMA® meeting speaker.  Mr. Gronbach’s views are presented as his and his only.]

I remember my first PEMA^® presentation a year and a half ago in Florida. Someone raised his hand and said “I go to Beijing all the time, looks fine to me.” It was an honest statement. But trust me Beijing is not fine. China cannot recover from what it has done to itself demographically with its “One Child Only Policy”. So what does this mean to PEMA^® members? Should you bail from China now? No, make money while you can but don’t make long term capital commitments. Lease, rent and keep both eyes open because the Chinese house of cards is going to crash and burn.

Many facts in this article are chilling, but you need to be aware of them. China’s economy is directly dependent on its demography. China has tampered with its demography to its own detriment.

I just stared at the photo of the idle young Chinese men. It bothered me. I was missing something. How could there be 30 million more Chinese men than women. Sonograms are illegal in China. How did the parents know they were males? The answer is simple. They determined they were males when they were born. And if they were baby girls, well, they were disposed of. The baby girls were not aborted, they were killed as infants. Infanticide. I don't have any place to file this information in my brain and apparantly the rest of the world doesn't either, because no one talks about it. Let's pretend it doesn't happen.

The Chinese approved press was volunteering the fact that there were 30,000,000 young Chinese men of marrying age that could not find wives. The reason given was the pervasive “One Child Only Policy” enforced by the Chinese high command for the last thirty one years. Males were obviously favored by Chinese parents under this rule because they were more likely to care for the parents in their old age according to Chinese tradition.  Having a girl baby was bad luck because she was likely to eventually marry and care for her husband’s parents.

China’s social security is family. There is no formal state sponsored financial safety net for the elderly. A typical symbol for a family is a pyramid. At the top you have a couple, and then you have a large number of children. Below them you have an even larger number of grandchildren and finally an even larger number of great grandchildren. Though this triangle may not always be played out in modern culture it has been the corner stone of societies through-out the ages. With their “One Child Only Policy” China has inverted the family pyramid. They call it “Four, Two, One”. Four grandparents are at the top, then two parents and finally one child. The child will have no brothers, sisters, aunts, uncles, nieces or nephews, no family.    Being elderly without family in China is going to be very difficult.

The thought of China rising to the position of the dominant economic world power and influencing world-wide public policy is frightening. From my perspective they have no moral compass.  I recently heard President Obama expressing the desire to have the United States re-establish itself as if we had fallen in some way and turned the baton over to China. We haven’t and they are not even close. The United States GDP is about $15 trillion. China’s GDP is about $5 trillion. Germany is about $4 trillion and Japan is about $3 trillion. We have a bigger GDP than our nearest three competitors combined. What do we need to re-establish? China produces but cannot consume because their vast 800,000,000 work force is not paid at a level that facilitates consumption. In order for the Chinese GDP to increase the United States would need to consume more. Also it is not likely that China will call in their loans to the United States any time soon because we are their best customer. They need us.

China officially boasts of preventing 400,000,000 live births in the last thirty-one years with its “One Child Only Policy.” In the short term this is an economic accelerant because China has not had to feed, clothe, educate or house the equivalent population of the United States and Mexico combined. In addition this afforded them substantial recognition at the Third International Conference on Climate and Water in Helsinki in 2007 for significantly reducing their carbon footprint. However from an economic perspective they have also significantly reduced their number of potential consumers, wage earners and tax-payers by 400,000,000. The full weight of this population reduction will play out over the next twenty to thirty years. Demographers worldwide believe the results will be economically catastrophic.

China has other problems albeit not as horrific as the “One Child Only Policy”. Their currency must be allowed to fluctuate according to world market and the pressure is on from many quarters including the United States. As it stands now the value of the Yuan is artificially suppressed by the Chinese government. They just keep printing more of it to keep the value down. If you want to see the net results of this just go shop at Wal-Mart. If the Yuan was allowed to fluctuate as other world currencies it would double in value and everything in Wal-Mart would double in price. The Yuan will increase in value. It is just a matter of time. This will be bad news for China and Wal-Mart.

Shipping costs are rising with the cost of oil. China produces lots of stuff but doesn’t consume much because they don’t pay their workers at Western levels. Shipping is critical to them because it is imperative to get their cheap goods to their consumers in the European Union and in the United States. As the price of shipping increases so will the price of their goods. Low price is the single biggest advantage that the Chinese producers have to offer. The Chinese will not go quietly. Watch for them to pull quality out of their products in an effort to preserve margins. Let’s hope they don’t capture too much of our food market before this really sets in or you can be sure they will have no reservations about poisoning us. If you think I am being too harsh in my forecasts, think again. The proof will be in the pudding. Sorry.

By 2016, the huge 800,000,000 Chinese labor force will begin shrinking. Less labor means higher wages. The Chinese are already experiencing labor shortages in isolated areas. When you compete for labor the employer’s market disappears and the employee’s market emerges. This should be fun to watch.  China is very used to abusing their labor. Workers have been expendable for decades. That’s over. Labor costs should spike and tensions will increase. The price for Chinese made goods will increase and their desirability will decrease. The paper tiger will begin to unravel.

China has polluted its water in its rush to economic prominence. So China has an acute shortage of potable water and an acute shortage of women. Russia has both. Russia should be concerned.

The United States has 5 percent of the world’s population but we produce 25 percent of the world’s economy. We are the best place on earth and our best days are ahead not behind us! The best and brightest people from all over the world are going to pour into our country because the rest of the world, the European Union, Eastern Europe, the Middle East, Sub-Sahara Africa and all of Asia are going to be difficult places to live and because they want to be part of the success of the Americas. 

Count on it!