China’s rapid economic growth created a global power. China moved from a largely agrarian country to a manufacturing juggernaut in a few decades.
The Wall Street Journal dates the beginning of China’s rise to 1978:
The three decades following China’s 1978 “reform and opening” coincided with a massive surge in China’s working-age population, which peaked at more than one billion in 2013—more than three times the size of the entire U.S. at the time.
Connecting that gargantuan pool of youthful strivers to global supply chains not only enabled Chinese factories to undercut other low-value-added manufacturers world-wide but also helped build a deep pool of savings to finance investment.
Young workers with rapidly rising incomes, eyeing an uncertain future, saved heavily. That capital was then recycled into more factories and world-class infrastructure, further boosting China’s comparative advantage.
Now, that virtuous cycle is coming to an end. It could send the economy into a decades-long contraction.
The chart below shows demographic trends in the United States, China and other developing markets.
The pace of China’s reversal is a concern for policymakers and investors.
The World’s Aging Workforce
Emerging Markets ETF to Buy as China’s Workforce Ages
Young workers fueled China’s growth. An aging population now threatens the economy.
The U.S. faces a similar demographic trend. But technology could offset it. Since the economy doesn’t depend on labor-intensive industry, growth is possible even in the face of a changing workforce.
There is some good news in the chart above.
While the uptrend in less developed regions is not as steep as it was in China in the 1990s, it is the best in the world. On a relative basis, these countries should be the world’s fastest-growing economies.
Investors looking for long-term investments should consider exchange-traded funds (ETFs) that provide access to specific economies or to developing economies in general. One example is the iShares MSCI Emerging Markets ex China ETF (Nasdaq: EMXC).
If you are looking for developing market ETFs, make sure China is not included in the fund.
• Michael Carr is a Chartered Market Technician for Banyan Hill Publishing and the Editor of One Trade, Peak Velocity Trader and Precision Profits. He teaches technical analysis and quantitative technical analysis at New York Institute of Finance. Mr. Carr also is the former editor of the CMT Association newsletter, Technically Speaking.
Follow him on Twitter @MichaelCarrGuru.