China's aging population is a bigger challenge than its 'one-child' policy, economists say

A medical worker takes care of a newborn baby lying inside an incubator at Jingzhou Maternity & Child Healthcare Hospital on the eve of Chinese New Year, the Year of the Ox, on Feb. 11, 2021 in Jingzhou, Hubei Province of China.
Huang Zhigang | Visual China Group | Getty Images

BEIJING — China’s decades-old one-child policy gained renewed attention in the last few weeks, after authorities gave mixed signals on whether they were closer to abolishing limits on how many children people can have.
Authorities have rolled back the controversial one-child policy in recent years to allow people to have two children. But economists say other changes are needed for boosting growth as births fall and China’s population rapidly ages.

“There are two ways to address this. One way is to relax the birth control, something (that) will help on the margin, but even if they fully relax the control (it’s) probably difficult to reverse the trend,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The other way to deal with it, from an economic policy perspective, is to make industry more dependent on other sectors,” he said.

China’s economy has relied heavily on industries such as manufacturing that require large amounts of cheap labor. But rising wages are making Chinese factories less attractive, while workers will need higher skills to help the country become more innovative.
The bigger problem for China is that an aging population feeds into an existing issue: slower growth in labor productivity, said Alicia Garcia-Herrero, Natixis’ chief economist for Asia-Pacific. She’s watching to see whether China will see more growth in capital-intensive sectors, which is driven more by investment in automation.

Births fall 15% in 2020

China introduced its one-child policy in the late 1970s in an effort to slow a surge in its population. The country had doubled in size from more than 500 million people in the 1940s to over 1 billion by the 1980s, according to official figures.

Over the next 40 years, the population grew by only 40% — to 1.4 billion, more than four times that of the U.S. today.

I don’t think the relaxing of the birth policy could have much of an economic impact because the slow growth in population hasn’t been because of policy restriction, not for the last 20 years.

Dan Wang
chief economist, Hang Seng China.

Similar to other major economies, high housing and educational costs in China have deterred people from having children in recent years.
Despite a change in 2016 allowing families to have two children, births dropped for a fourth-straight year in 2020, and fell by 15% to 10 million, according to analysis of a public security report.
“In general, I don’t think the relaxing of the birth policy could have much of an economic impact because the slow growth in population hasn’t been because of policy restriction, not for the last 20 years,” said Dan Wang, Shanghai-based chief economist at Hang Seng China.
She said based on the experience of other countries, the most effective policy for a country of China’s size would be to welcome more migrants, but that would be an unlikely change in the near term.
Other options policymakers are already pursuing include raising the retirement age, increasing the skills of the existing labor force with more education and using more machines and artificial intelligence to replace human workers, Wang said.

Policy change just a matter of time

The one-child policy gained renewed attention last month when the National Health Commission made public a statement authorizing research into the economic benefits of removing birth restrictions in a northeastern region. The three-province area, known as Dongbei, has struggled economically and has the lowest birth rates in the country.
Two days later, the commission issued another statement saying the news was not a test for full repeal of the family planning policy, despite much online speculation that it was.
But a removal of limits is likely only a matter of time, according to economists interviewed by CNBC.
Yi Fuxian, a critic of the one-child policy and author of the book “Big Country With an Empty Nest,” said he expects a decision at the end of the year, after China releases once-in-a-decade census results in April.

Challenges from China’s aging population

The Chinese government has also said that implementing a strategy for responding to an aging population will be a priority for its next five-year plan, to be officially approved at a parliamentary session that kicks off this week.
Meanwhile, the generations born before the one-child policy was implemented in the 1980s are becoming a significant segment. In the next 10 years, 123.9 million more people will enter the age category of 55 and above, the largest demographic increase among all age ranges, according to Morgan Stanley.
This demographic shift will create its own economic demands, said Liu Xiangdong, deputy director of the economic research department at the China Center for International Economic Exchanges based in Beijing.
Liu said more workers will be needed to care for the elderly, while retirement communities and other infrastructure tailored to an older population will see greater demand.

Dow futures rise more than 200 points as Treasury yields fall

A woman walks past the New York Stock Exchange (NYSE) at Wall Street on January 12, 2021 in New York City.
ANGELA WEISS | AFP | Getty Images

U.S. stock futures rose sharply in overnight trading on Sunday, as Treasury yields continued to retreat from their highs from last week.
Dow futures rose 240 points. S&P 500 futures gained 0.88% and Nasdaq 100 futures rose 1.18%.

The 10-year Treasury yield dipped slightly to 1.4%. Prices move inversely to yields.
Boosting sentiment on the vaccine front, the Centers for Disease Control and Prevention advisory panel voted unanimously Sunday to recommend the use of Johnson & Johnson’s one-shot Covid-19 vaccine for people 18 years of age and older. The company expects to ship out 4 millions of doses initially.
Last week, stocks were pressured by rising interest rates. Higher interest rates can threaten the dominance of equities, as bonds are viewed as less risky. The yield on the benchmark 10-year got as high as 1.6% on Thursday but retreated to around 1.41% on Friday.
The Dow Jones Industrial Average and S&P 500 lost and 1.7% and 2.5%, respectively, between Monday and Friday.
The technology-heavy Nasdaq Composite dropped more than 4% for the week, suffering its worst one-day sell-off since October on Thursday. Technology companies rely on being able to borrow money for a low rate in order to invest in future growth.

“Bond market volatility surged to its highest level since April and until some calm and some new peak level of yields is found, this well be the key focus for investors,” Jim Paulsen, The Leuthold Group chief investment strategist, told CNBC.
The major averages rose for the month of February, bolstered by a strong earnings season, positive news on the vaccine rollout and hopes of anther stimulus package.
The House passed a $1.9 trillion Covid relief bill, the American Rescue Plan Act of 2021, early Saturday. The Senate will now consider the legislation. 
The Dow gained 3.15% for its third positive month in four in February. The S&P 500 gained 2.61% and the Nasdaq Composite gained nearly 1% for its fourth positive month in a row.
February’s final read for Markit’s U.S. manufacturing purchasing managers’ index for February comes out on Monday at 9:45 a.m. ET. Economists polled by Dow Jones are expecting a read of 58.5, the same as December’s read of 58.5.
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Hong Kong trading tax hike won't harm stock market's competitiveness, says financial secretary

Hong Kong’s plan to increase the stamp duty on stock trading will not harm the competitiveness of the city’s financial markets, Financial Secretary Paul Chan told CNBC on Friday.
Chan said in his budget speech on Wednesday that the government will raise the stamp duty paid on listed stock trades from 0.1% to 0.13%. The announcement sparked a sell-off in shares of the operator of the city’s stock exchange, and the broader Hong Kong market.   

“The Hong Kong market has been doing very well, very active, the volume has gone up quite a bit,” Chan told CNBC’s Emily Tan.
“So, perhaps this is the time for us to increase a little bit on the stamp duty which will not harm our competitiveness and at the same time will bring additional revenue to the government at this juncture,” he added.

Signage for the Hong Kong Exchanges & Clearing Ltd. (HKEx) in Hong Kong
Justin Chin | Bloomberg | Getty Images

The financial secretary said Hong Kong authorities have in recent years launched different initiatives to enhance the competitiveness of the city’s stock market. That includes allowing listings of dual-class shares and attracting U.S.-listed Chinese companies to seek a secondary listing in Hong Kong, he said.
Hong Kong in 2020 was one of the top markets for listings globally as Chinese firms such as e-commerce giant JD.com and gaming company NetEase raised funds through secondary listings.
In total, the city’s stock exchange saw 132 initial public offerings worth $32.1 billion, and 199 further offerings worth $62.9 billion last year, according to data compiled by consultancy PwC.

With such “robust” capital markets activity, raising the trading stamp duty may offer Hong Kong “a quick solution” to increase its tax revenue in the short term, said Stanley Ho, a partner for corporate tax advisory at consultancy KPMG China.
“However, it is also important for Hong Kong’s capital markets to stay competitive with global financial markets, many of which are trending towards reducing or removing such duties,” Ho said in a statement after Chan’s budget speech.

Chan said he remains confident of Hong Kong’s prospects as an international financial center.
He explained that the government is working on promoting Hong Kong as a center for sustainable and green finance, developing further the city’s fixed income markets and encouraging more activity in the asset and wealth management sectors.
On the stock market sell-off after his announcement of the trading tax hike, Chan said Hong Kong wasn’t the only one experiencing a “downward adjustment” following a previous run-up.
“So, I would not be bothered by temporary fluctuations in the market. What we believe is we continue to work hard to enhance the offering of our market to further enhance the competitiveness and attractiveness of the Hong Kong market,” he said.
“We will continue to attract inflow of international capital.”  

Japan stocks set to trade higher; China says its factory activity growth slowed in February

SINGAPORE — Stocks in Japan were set to trade higher at the Monday open, as official data released over the weekend showed China’s manufacturing activity growth slowing in February.
Futures pointed to a higher open for Japanese stocks. The Nikkei futures contract in Chicago was at 29,445 while its counterpart in Osaka was at 29,350. That compared against the Nikkei 225’s last close at 28,966.01 following a nearly 4% plunge on Friday.

Stocks in Australia edged higher in morning trade, as the S&P/ASX 200 gained about 0.80%.
South Korea’s markets are closed on Monday for a holiday.

China manufacturing PMI

In economic developments, China’s official manufacturing Purchasing Managers’ Index (PMI) for February came in at 50.6 over the weekend, according to data released by the country’s National Bureau of Statistics.
That was lower than January’s reading of 51.3 but still above the 50 level that separates expansion from contraction.
Looking ahead, a private survey on Chinese manufacturing activity in February is expected, with the Caixin/Markit manufacturing PMI set to be out at 9:45 a.m. HK/SIN on Monday.

Currencies

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 90.825 after recovering from levels below 90 in late February.
The Japanese yen traded at 106.53 per dollar, weaker than levels below 105.6 against the greenback seen last week. The Australian dollar changed hands at $0.7735, having slipped from levels above $0.792 last week.
Here’s a look at what’s on tap:
China: Caixin/Markit manufacturing Purchasing Managers’ Index at 9:45 a.m. HK/SIN
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