The (global) consequences of Chinese demographic trends

Due to its size China has an undeniable impact on megatrends such as the rising middle class, global power shifts and resource scarcity. However, its got challenges of its own, some of them I've reported on in a previous post 'The end of cheap China'. But undoubtedly the biggest challenge facing China is its demographics:

The trouble is that in 20 years the amount of youngsters that need to support the elderly will fall dramatically. As stated in The Economist interview here under:

• The overall fertility rate in China is about 1,5 (2 parents have an average of 1,5 children), which in itself indicates a declining population over a generation (since you need 2 persons to replace 2 persons); in some regions the fertility rate is below 1 !
• Today there are about 120 million people in their early 20's entering the Chinese labor market, but in 20 years they will only be 60 million - which will be a drag on the innovation and fresh energy in the economy, according to the Economist editor.

This will have an important impact on economic growth, but also on Chinese consumption patterns -not a trivial matter given its population size. In a recent article from McKinsey Quarterly 'Meet the Chinese consumer of 2020', it observes:

"Most people in China over the age of 55 experienced the harsh conditions of the Cultural Revolution, in the late 1960s and early 1970s. Not surprisingly, they think it important not to spend frivolously. Among residents of tier-one cities, 55- to 65-year-olds allocate half of their spending to food and little to discretionary categories: only 7 percent goes toward apparel, for example. People who are ten years younger devote only 38 percent of their spending to food but 13 percent to apparel. Indeed, our consumer surveys have revealed that although today’s older consumers behave very differently from younger ones, today’s 45- to 54-year-olds—the older generation come 2020—have spending patterns similar to those of 34- to 45-year-olds (who allocate 34 percent of their spending to food and 14 percent to apparel). This finding implies that companies will have to rethink their ideas about what older Chinese consumers want."

One of the advises McKinsey gives to global companies is to take China as a test market to service the aged population worldwide. I'll certainly keep track of their findings...