China’s Big Mistake

Christian DeHaemer

Posted February 21, 2024

Last week we talked about unintended consequences and the inevitable problems that come from central planning.  There are plenty of people out there with the hubris to believe that  they are a genius and run things better than everyone else. But the truth is that free market capitalism, born from the seeming chaos of a trillion individual decisions, works better than any central plan.

Case in point: China is running out of people.  

It seems almost impossible to think of it, but it’s true.  You see, forty years ago after Mao killed all of his academics and scientists and called it a Cultural Revolution, he became worried about the idea of a Malthusian population bomb.

Thomas Mathus was a 17th century economist whose idea that the human population would grow so large it would devour all of the earth’s resources and subsequently cause global famine and war.

In the 1970s this idea was quite the fad.  The Chinese, looking at their booming population, turned to a Russian-trained rocket scientist named Song Jian.  Song, who is still alive at 92, is a mathematician who looked at the population and extrapolated out that there would be 4 billion Chinese in 100 years if something wasn’t done about it. 

And China came up with the biggest social experiment in history.  They limited couples to one child.  And it worked.  Problem solved…

But now, here we are 4 decades later and the population of China is crashing.

Births in the middle kingdom fell more than 500,000 last year.  And this trend will continue.  There are three million fewer women of child bearing age than there were in 2022.  Even if 

China wants more babies, it is too late.  They can’t have them.

Researchers from Victoria University in Australia and the Shanghai Academy of Social Sciences predicted that China will have just 525 million people by the end of the century.   That is less than half of the 1.4 billion population today.

This is important because a country’s economy correlates to the population pyramid.  In 1968 the U.S. had an average age of 26.  When people are about 30 they get married, have kids, buy houses and fill them with stuff.  They also work their butts off to afford it all.  This is why the 1980s and 1990s were boom times: the baby boomers were hitting their peak house formation years.

Japan, China and South Korea also saw this type of economic explosion.  But that growth has now passed.  The five youngest countries in the world are all in Africa.  Forty-nine percent of Niger is under 15 years of age.

Countries like South Korea, Japan and Italy are all below population replacement rates.  They are not good places to bet on economic growth.

If you are looking at countries with the correct population pyramid, check out Vietnam and Mexico both have an average age around 30.  I like the iShares MSCI Mexico ETF.  Mexico is now the United States largest trading partner and will continue to benefit from the supply chain switch from China.

I personally own Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMAB) which owns a number of airports.  It is similar to a utility in that they are a monopoly regulated by the Mexican government. They make money from parking lots and restaurants and other fees.  The more traffic that comes through the more they make, and they are expanding runways and terminals.  The stock has a p/e of 14 and pays a 6% dividend.

All the best,

Christian DeHaemer

Pro Trader Today