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An ageing population: the unintended side-effect of population control

12 February 2021

Jonathan Marriott, Chief Investment Officer

David Attenborough has highlighted the damaging impact a growing human population has on the planet. The pressure on resources will only increase in the years to come. Another article we have shared in this week's The Brief focuses on the rise of Smart Cities and how technology may be used to address scalability and sustainability issues that occur from a rise in population, particularly the urban population. However, the picture is far from uniform and indeed in many parts of the world, the population is declining.

While controlling the birth rate may slow population growth, advances in medicine and better living conditions mean life expectancy is rising. The burden of an ageing population will also be felt, as in some countries the number of people of working age declines meanwhile those beyond retirement age rises. This may have profound implications for investors in the long run, but in the short term it may be harder to observe the impact. This article will look at China as an example, which has particular significance for the global economy. We will soon publish a more robust piece that looks at other parts of the world where there are very different expectations.

China recognised the difficulty in providing for its rapidly growing population many years ago. From 1979 to 2016, they had a one-child policy. Prior to that, they had a two-child policy. In practice, there were exceptions and it was possible to pay to have more children. The restriction varied from region to region and at one time, you were permitted to have more children if the first was a daughter. This has led to a higher number of male children than females, which may create its own problems. Overall, the policy reduced the birth rate and over time the population growth in China has slowed, and is expected to fall from about 2030 onwards. This is demonstrated in the chart below from a United Nations (UN) population study.

Population graphs_Brief

Source: www.population.un.org

Controlling the total population is helpful; unfortunately, however, it results in a sharp rise in the number of elderly people relative to those of working age who generally support them. This will put strains on health care systems and on those that have to pay for it. The rise and fall of the working age population, as shown by the pale blue line, has implications for the rest of the world.

The enormous rise in the working age population, and the migration out of the countryside into towns, has provided a low-cost source of labour for the world. Globalisation has seen the outsourcing of production to countries where labour is plentiful and cheaper; in many cases, this meant China. From 2025, the working age population will start to fall sharply, and China may cease to be such a cost-effective manufacturing base.

The COVID-19 pandemic highlighted the risks of long, far-flung supply chains, and some companies are already looking to shorten them by bringing production back onshore. Increased use of robotics and artificial intelligence will also have a part to play in removing the need for cheap labour in some manufacturing processes. Other companies may look to other countries with growing working age populations, such as India and Indonesia.

As countries develop, the birth rate tends to decline and many other countries in the developed world have aging populations. Despite this, the world population is still expected to grow from 7.8 billion today, to close to 11 billion by the end of the century. Most of this growth comes from Africa. Feeding the growing world population will be a struggle. If the developing world aspires to the materialistic lifestyle of the developed world today, that will put a severe strain on resources globally. The world is finite and we need to conserve our dwindling reserves. 

From an investment point of view, these very long-term trends take decades to develop. Trying to take short-term views based on these expectations can be dangerous. For now, the pandemic and recovery from it will be much more important. However, when planning our long-term futures, it is important to be aware of these factors at play. We plan to release a longer paper on this subject in due course, where we will look at the global picture in more detail.

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