This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

China's Demographic Challenge

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- By the mid 1980s economic forecasts were clear -- Japan would soon be the world's most powerful economy. But that never happened. Japan's stock index, the Nikkei 225, closed 1989 at 38000. Today, 23 years later, the Nikkei sits at 9600 -- a 75% drop.

There are myriad reasons for Japan's economic collapse. But, Henry W. Dent of the HS Dent Foundation claims that there is a near-consensus among demographers that the root cause of Japan's inability to recover has been its demographic collapse. Between the end of World War II and 1950, Japan's fertility rate (i.e., the number of children born to one woman) was 4.5. By 1989, that fell to 1.6. Today's fertility rate is 1.2. A fertility rate of 2.1 is required to maintain the population.

Falling fertility rates increase the age of a population and aging affects economic growth. Demographers have learned that, in developed countries, spending peaks at about 48 years old. Through the 1990's as Japan's average age surpassed 48, consumer spending fell. Consumer spending drives corporate earnings and corporate earnings drive stock price growth. In the '90s the stock market inflows of the '70s and '80s reversed. Real estate markets dried up from lack of investors and new-home owners. China may be headed for the same fate.

Follow TheStreet on Twitter and become a fan on Facebook.

In 1978, China's one-child policy was established. Although actual implementation varies by location, the policy's objective is to control population growth by restricting each family to one child. A 2008 survey undertaken by the Pew Research Center found that 76% of the Chinese population supports the policy. Also in 2008, China's National Population and Family Planning Commission said that the policy will remain in place for at least another decade.

Although a reduction in the number of countrymen will be a welcome relief for most Chinese, there are also negative side effects. The first is a potential Japan scenario of reduced consumer spending, a stressed equities market and a long, slow decline of real estate prices.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs