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What China’s baby woes mean for its economic ambitions

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A small boy in traditional outfit for Chinese New Year in Beijing.Getty Images

Crystal, who wished to withhold her real name, is a 26-year-old living in Beijing. Unlike most women from previous generations in China, she is unmarried and currently faces no pressure to tie the knot.

When asked why that is, she laughs: “I think it’s because my family members are either never married or divorced.”

It appears to be a common sentiment among young urban women in China. A 2021 survey by China’s Communist Youth League of almost 3,000 people between the ages of 18 and 26, found that more than 40% of young women living in cities did not plan to marry – compared to less than 25% of men. This is in part due to rising childcare costs and the ghosts of China’s one-child policy.

“Having just one child or no children has become the social norm in China,” says Yi Fuxian, a senior scientist in obstetrics and gynaecology at the University of Wisconsin-Madison, and a prominent critic of the one-child policy.

“The economy, social environment, education and almost everything else relates back to the one-child policy,” he adds.

For Beijing, this is a worrying trend because China’s population is declining. It’s birth rate has been slowing for years but in 2022 its population fell for the first time in 60 years.

That’s bad news for the world’s second-largest economy, where the workforce is already shrinking and an ageing population is beginning to put pressure on the state’s welfare services.

China’s working age population – those between the ages of 16 and 59 – currently stands at about 875 million. They account for a little more than 60% of the country’s people.

But the figure is expected to fall further, by another 35 million, over the next five years, according to an official estimate by the government in 2021.

“China’s demographic structure in 2018 was similar to that of Japan’s in 1992,” Mr Yi said. “And China’s [demographic structure] in 2040 will be similar to Japan’s in 2020.”

Until last year, many economists had assumed China’s growth would surpass that of the US by the end of the decade – a move which would cap the country’s extraordinary economic ascent.

But Mr Yi says that is now looking unlikely, adding “By 2031-2035, China will be doing worse than the US on all demographic metrics, and in terms of economic growth”.

The average age in China is now 38. But as its population ages and birth rates plummet further, there are concerns that China’s workforce will eventually be unable to support those who have already retired.

The retirement age for men in China is 60 and for women, it is 55. Currently, those above 60 make up almost a fifth of the population. In Japan, which has one of the fastest ageing populations in the world, nearly a third of the people are 65 or older.

 

An elderly man sews a handmade wallet at an alley in Beijing on October 6, 2022.

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“Population ageing is not unique to China but the strain on China’s pension system is a lot more acute,” says Louise Loo, a senior economist with Oxford Economics.

She says the number of retirees has already exceeded the number of contributors, leading to a drop in contributions to the pension fund since 2014.

The country’s pension fund is administered at a provincial level and on a pay-as-you-work basis – that is, contributions from the workforce pay the retirees’ pensions.

So Beijing, aware of these cracks in its system, created a fund in 2018 to shift pension pay-outs from richer provinces like Guangdong to those facing a deficit. But in 2019 a report by the Chinese Academy of Social Sciences predicted that because of its shrinking workforce, the country’s main pension fund would be depleted by 2035.

Then in 2022 China launched its first private pension scheme in 36 cities, allowing individuals to open retirement accounts at banks to buy pension products like mutual funds.

But Ms Loo says it’s unclear if many Chinese people, who typically invest savings in more traditional avenues such as property, would turn instead to private pension funds.

These problems are not unique to China – Japan and South Korea both have a greying population and a shrinking workforce.

Mr Yi noted that Beijing is poised to replicate Tokyo’s policies to lower parenting costs but, he adds, “China, which is ‘getting old before it gets rich’ does not even have the financial resources to fully follow Japan’s path.”

And this is not the only thing troubling Beijing. There’s also a growing online youth movement to “lie flat”. It calls on workers to reject the struggle for career success and promises release from the pressures of life and work in a fast-paced capitalist society. Add to the mix a high youth unemployment rate, which peaked last July when 20% of those aged between 15 and 24 were jobless.

As Mr Yi puts it: “The labour force is the flour and the pension system is the skill of making bread. Without enough flour, it is impossible to make enough bread, even with the best bread-making skills.”

 

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Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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Why Trump’s re-election could hit Europe’s economy by at least €150 billion

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A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.

 

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