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China’s once-in-a-decade census¹revealed some interesting demographic issues. The country has 264 million people aged 60 and above, which equates to 18.7% of the population, considerably higher than 13% in 2010. The 12 million births recorded in 2020 were the lowest since 1961. In addition, the working population has declined from 70% to 63% over the past decade. While rising living costs, unaffordable property, and uncertain career paths were often cited by young adults as major reasons for delaying parenthood or limiting the size of their families, the bigger elephant in the room is a rapidly rising dependency rate.

So how does a surging dependency rate impact demographics? Let’s think of a scenario. Imagine being one half of an average married couple in China with a monthly disposable income of RMB6,726²(US$1,056). Yet you are living in Shanghai, the world’s fourth-most expensive residential property market³ , with property prices standing at RMB36,826 (US$5,779) per square metre⁴ . You also have to take care of four aging parents as well as three young children – the number allowed under China’s family planning policy – in a society with an ultra-competitive academic system. Life can feel rather daunting, even unbearable.

Why should this concern investors? For starters, demographics are a major driver behind recent regulatory reforms targeting education, health care and property. These three sectors are known as the “three mountains” that Beijing aims to overcome to take pressure off households, solve its demographic challenges and achieve “common prosperity”, an overarching vision that incorporates quality growth, social wellbeing and environmental sustainability.

Despite the scale and complexity of China’s demographic issues, the country’s unique governance and policy system has proven efficient when it comes to taking action. Examples include reforming the after-school tutoring system (banning after-school tutoring activities during weekends and holidays), drastic cuts in generic drug and medical device prices, as well as curbing speculative activity in the property sector to keep real estate prices in check.

While a degree of regulatory overhaul would likely create complexities in China’s investment story going forward, the country’s commitment to solving its demographic deadlock remains strong and future policies will likely revolve around this agenda.

2. Regulatory reforms could be here to stay

Even though the “three mountains” are obvious candidates to receive further regulatory attention, investors should keep in mind that other sectors could also be targeted.

In the technology space, industry heavyweights such as Alibaba, Pinduoduo, Meituan and Tencent were hit with multiple penalties for breaching antitrust regulations in 2021. Alibaba, in particular, was on the receiving end of a record RMB18.2 billion (US$2.8 billion) fine for abusing its dominant market position in the retail platform service market. According to President Xi Jinping’s vision of common prosperity, reforms could be undertaken anywhere the authorities believe changes can promote social and economic stability as well as healthy competition.

 

1. The Seventh National Population Census was conducted in 2020 and results were released in May 2021. Source: National Bureau of Statistics of China

2. Average monthly disposable income of Shanghai residents based on data from the first half of 2021. Source: Source: National Bureau of Statistics of China

3. Rankings are based on CBRE’s Global Living Report 2020. Source: CBRE

4. Data as at 30 October 2021. Source: National Bureau of Statistics of China

 

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