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China's demographic collapse is accelerating. In 2023, births in China fell to a record low, accelerating population decline. The potential economic slowdown, along with weak real estate data, sent Chinese stocks lower after the figures were released on Wednesday.
This change has serious implications for the country's economic situation. It shatters a 2020 forecast that China would soon overtake the United States as the world's largest economy. But it's not all bad news. Some sectors are expected to benefit from Beijing's new policies to address changing demographic trends.
According to government figures, the country's population fell by more than 2 million last year to 1.41 billion. The decline, which was more than double the previous year, is due to both the lowest birth rate since the founding of the People's Republic of China in 1949 and the highest death rate since 1974.
A major concern is the declining labor supply and the associated higher wages. China is already facing a labor shortage in the manufacturing sector as younger workers avoid factory jobs. Average wages in China more than doubled in the decade to 2022, surpassing wages in Southeast Asian countries such as Thailand and Vietnam.
But the sheer size of China's elderly population – in 2022, a fifth of the country's population was 60 or older – should lead to new growth sectors that should attract more money.
Beijing took the initiative this week with a plan to develop a “silver economy” that provides seniors with tailored products and services – a market estimated to be worth trillions of dollars. Health-related consumption, ranging from medical devices to pharmaceuticals, would account for the largest share of spending by the older age group.
The move would provide a welcome boost to the largest local biotech and pharmaceutical companies, including Jiangsu Hengrui, WuXi Biologics, Shanghai Fosun Pharma and Sinopharm. These were impacted by an industry downturn as the Covid-19 effect faded. Shares of WuXi have fallen 60 percent over the past year, while Fosun has plunged nearly 40 percent. Part of the problem was that the sector became the target of an unprecedented anti-corruption campaign by Beijing in August.
Another overlooked sector is robotics. As the need for automation in the manufacturing sector grows, leading local robotics majors including Siasun Robot & Automation and China Shanghai Step Electric would be the biggest beneficiaries. The latter's shares are currently only twice as high in terms of company value relative to sales, a discount compared to global competitors.
The impact of China's shrinking population will ripple through the global economy. But it should also create the next wave of investment opportunities as government spending shifts to meet changing demographic and consumption trends.
The Lex team provides timely commentary on capital trends and large companies. We'd love to hear more from readers. Please let us know your thoughts in the comments section below or email [email protected]
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