Why China’s ‘Population Pagoda’ Could Mean Slower Growth for Australia


China’s first quarter GDP grew at 7.7% in the first quarter, according to figures released by China’s National Bureau of Statistics. It’s a solid, respectable result that would be the envy of any developed nation. But it’s a far cry from the 10% plus growth that China achieved from its stimulus efforts in 2009 and 2010.

What could explain China’s lower average quarterly growth over the last four years? Is it a global recession? Are China’s new central planners failing to engineer the previously required rate of 8% annual growth? Or is there a simpler explanation?

The most obvious explanation is that 2010 was three years ago. China’s population, like the whole world’s, is three years older too. For a country that was already old in 2009, getting old has important effects socially and demographically. Check out the population pyramid below and you’ll see what we mean.

China Population Distribution 2012

Source: US Census Bureau

China’s population pyramid doesn’t really look like a pyramid. It looks like a pagoda, or a house whose walls are bulging in the middle due to water damage from a flood. Why does that matter? A younger country has a broader base in its population pyramid. The broad base indicated that there are more young people than older people.

A young, growing, resource-demanding country will have a broad base. This is why, back in 1978, Deng Xiao Ping and China’s first generation of economic reformers required such high rates of GDP growth. For one, they were coming off a small base. Double digit growth was easier to achieve. But there was more to it.

When you have a lot of young people in your society, you’d better get them jobs, or else. The ‘or else’ is social unrest. To paraphrase the science fiction writer Robert Heinlein, ‘The most dangerous animal in the world is a 19-year old single male.’ Countries with surplus young men who can’t find wives and jobs tend to have a lot of violence, or export those men in the form of armies.

As a younger country, China needed high growth to absorb young men into the work force. The ‘great urbanisation’, where hundreds of millions of farmers moved to cities, also required jobs. But China’s population pyramid shows that the huge ‘bulge’ of older workers will begin leaving the work force. That means China no longer needs double-digit rates of economic growth to absorb the unemployed into the work force.

This is what happens to developing economies; they develop. And as they do their growth slows. For Australian resource investors, this means that the big demographic trends that underpinned China’s resource demand for the last twenty years — urbanisation and the political imperative for full employment (which led to productive over-capacity) may have reached their maturity as well.

So what? Well, good question. So what? If investors are hoping for a huge recovery in Australian resource stocks because of a big investment splurge from China’s new political leadership, they may be sorely disappointed. More on that tomorrow.

Dan Denning
for The Daily Reckoning Australia

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Dan Denning
Dan Denning is the Editor-in-Chief of The Daily Reckoning Australia and the author of 2005’s best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 as a small-cap analyst. From 2000 to 2005 he was the managing editor of Strategic Investment, where he recommended gold and warned of the US housing bubble. Dan has covered financial markets from Baltimore, Paris, London and, beginning in 2005, Melbourne Australia, where he is the Publisher of Port Phillip Publishing. To follow Dan's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.


  1. On the contrary, a baby boom maybe brewing with those in their 20s reaching their greatest fertility. This is a common pattern in other countries.

  2. This was inevitable, birth rates are falling across Asia and other areas in what appears to be a sharp yet inevitable ‘demographic transition’.
    The research conducted by the Brookings Institute show Chinese population pyramids that are worse than the example above. Given the short time frames of the demographic transitions for China (and other groups), recovery will not be possible in the long term. The gender inbalance is far greater than most realise and this will soon impose a ‘mothers’ drought’ from about 2030 in China, India and many islamic countries. Although birth rates have risen in a few nations such as the United Kingdom and France, the trend for Asia the rest of the world is for decline. India will soon undergo a rapid transition soon as the nation enters a ‘feminist revolution’ triggered by the contriversial rape cases.


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