2022 marked a historic turning point for China as its population fell for the first time in 61 years, shrinking by 850,000 to 1.4bn according to The National Bureau of Statistics.
The decline is the product of Beijing’s decades-long policy of restricting how many children couples can have, motivated originally by fears that overpopulation would exhaust resources.
Couples were restricted to one child from 1980 onwards. The policy was relaxed to two children in 2016 before being scrapped altogether in 2021.
However, Beijing has struggled to boost birth rates given the fact China’s entire society has for decades been oriented towards single child families. The country’s fertility rate has in fact declined since the two-child policy was introduced, according to the World Bank.
India is now set to overtake it as the world’s most populous country this year, according to UN projections.
A shrinking population “aggravates” other issues, according to Magnus. China, like much of the developed world, now faces the prospect of an ageing population that will put ever greater financial strain on its workers.
Even now, the economy is stuttering. A massive credit bubble, which drove China’s bumper growth over the past decade, is starting to unwind.
“There’s a lot of debt in China, it’s over 320pc of national income. A lot of that debt is uncommercial. Borrowers are finding it very, very difficult to keep current with their interest payments and paying off their loans,” Magnus says.
The unwinding of this debt bubble is triggering serious problems in the property market. Analysts at UBS estimate that China’s real estate slump will cost the nation’s banking system as much as $212bn (£170bn) in losses on loans, bonds and other assets.
The country’s finance industry has already lost ground to rival Asian centres like Singapore in recent years. Many international banks have turned their backs on Hong Kong in the face of draconian Covid restrictions that have made it difficult to do business there in recent years.
China’s tech sector has also lost its lustre. Revenue growth at some of its biggest companies, including e-commerce giant Alibaba and games company Tencent, has slowed as Beijing has turned its draconian glare on the industry.
“The government in the last several years has taken a much more authoritarian and controlling view about its relationship with private firms and entrepreneurs. Lots of private firms and entrepreneurs have had their wings clipped,” Magnus says.
The most public example was at Alibaba. After founder Jack Ma criticised regulation in a speech in October 2020, Beijing launched an intense crackdown on Ma’s business empire that derailed plans to list his financial business Ant Group. Ma himself disappeared from public view for three months.
While Beijing has exerted greater control over tech, it has come at a cost. Revenue from customer fees at Alibaba, China’s answer to Amazon, fell by 7pc in November.
In recent months, President Xi Jinping has given signals that the tight grip on tech could be easing. This week, ride-hailing company Didi announced it had reached an agreement with China’s authorities to begin adding new customers to its app again. Didi had been forced to pull its US listed stock due to data concerns from Beijing.
However, the damage is done. China’s position as the world’s tech manufacturing hub has been severely weakened and US companies are seeking to reduce their exposure to the country.