Good morning! China is undergoing a series of dramatic changes from a shrinking population to its new domestic-focused economic agenda — we explore them all in today’s Sunday Deep Dive.

Slow, then fast

‍China’s population is falling. The world’s formerly most-populous nation reported its second straight year of decline, with the country’s citizen count dropping to 1.409 billion, as just ~9 million babies were born, down from 9.56 million last year.

It’s hard to overstate just how seismic a demographic shift the figures represent. China was, of course, known for its infamous one-child policy, which put restrictions on arguably one of the most fundamental of human rights: the ability to have a family. That policy was formed out of fears of overpopulation, as the country’s population soared past the 1 billion mark in the early 1980s. Although numerous exemptions were eventually granted, the policy existed — in at least some form — for roughly 35 years, shaping the very make-up of China for generations to come.

For a few years it appeared to be “mission accomplished” — as the birth rate leveled out, and an enormous affluent middle class began to emerge. However, China’s fertility rate kept dropping, leading authorities to relax its restrictions, abandoning the one-child policy in late 2015. While you’d have expected a baby boom with the lifting of the rules, quite the opposite happened, with birth rates falling sharply ever since, reaching a low of just 6.39 births per 1,000 people last year, a fraction of the figures seen in the 1980s.

Baby blues

‍In an ironic twist, the Chinese government has since tried to boost the falling birthrate by incentivizing mothers with tax breaks and free college tuition. However, these efforts have yet to take effect: the country’s natural population growth rate — calculated as the number of births minus deaths — now stands at -1.48%.

After COVID-19 surfaced in Wuhan, the country faced a series of strict lockdowns — the economic and social implications of which are still being felt. China’s youth unemployment rate hit an all-time high of 21.3% in June, before the statistics bureau suspended the release of further data (although it has, just in the last few days, reinstated these figures). Furthermore, the cost of raising a child in China is astronomical, deterring would-be mothers and fathers. In 2022 it stood at ~7x per capita GDP — almost double that of the US, and the second-highest globally.

While workplace discrimination has in part discouraged career-seeking women from starting a family, a social shift away from the traditional family model has also been seen amongst China’s youth. A survey of 2,459 students at Zhejiang Sci-Tech University found that 30% “have a negative attitude towards marriage”, coinciding with China’s marriage rate falling to a record low of ~6.8 million, almost half the number recorded just a decade ago. On social media site Weibo, the tag #thelastgeneration garnered millions of posts before being removed — but remains a popular slogan for the anti-family youth.

Conscious uncoupling

‍On the list of China’s economic problems, a shrinking population is very much in the “long-term” bucket, with ramifications that won’t fully materialize for decades. However, the country also faces shorter term challenges. Having been the engine behind much of the world’s economic growth for decades, China’s economy is starting to sputter, just as the country turns inward after decades of liberalization, with the country’s 14th “Five-Year Plan” (released 2020), laying the groundwork for China to transition away from its export-led economic model, to one that is more domestic-focused.

As China opened its markets in the 20th century foreign investors flocked — pouring trillions of dollars into the country. But, with geopolitical tensions rising and Chinese foreign policy becoming more insular, that flood of investment slowed to a trickle. In fact, as of the latest data, Chinese authorities reported an outflow of investment — the first time since data collection began.

Walled off

‍China’s ongoing trade war with the US — which has involved disputes and tariffs over everything from steel to washing machines, corn to cars, and has most recently focused on the increasingly important semiconductor industry — has accelerated China’s transition to a domestically-focused economy. Indeed, as we charted about last year, China is no longer America’s largest source of goods imports.

‍Bear in a China shop

‍Figures from the US Census Bureau reveal that, with data recorded up until the end of November, the US had imported just $393bn of goods from China in 2023, down a staggering 21% on the year before, and only just ahead of the $388bn that the US imported from Canada. Furthermore, on Wednesday, China’s stock market had its worst trading day since 2022, as investors sold on concerns about Chinese real estate, slowing growth, and demographics.

‍Xi Jinping wants China to untangle itself from the western world, building a more domestic-focused China to solidify his position at home. That is a tricky tightrope to walk when hundreds of millions of people have come to rely on the prosperity wrought by a booming economy — and it’s made even more difficult to navigate when demographic winds shift strongly against you.

Thanks so much for reading, have a wonderful Sunday!