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Demography is Destiny

Still building in shrinking Chinese cities

Still building in shrinking Chinese cities

by Marcus Roberts | May 07, 2019

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It will be interesting (“interesting” as in “may you live in interesting times”) to see in the next few years whether the Chinese economy will continue to grow at its hitherto remarkable rates or whether demography will catch up to it. Chinese economic growth has all sorts of global implications, not just economic, but geopolitical as well. The growing Chinese economy funds its growing military and diplomatic reach and its ability to challenge the US-dominated post-Cold War world order.

The demographic challenges that China faces are massive, however. Its workforce is shrinking and much of its economic growth has depended on cheap labour as hundreds of millions of Chinese moved from rural areas to factories in the cities. Once that cheap labour runs out, how will the economy continue to expand expand? In recent years, the Chinese economy has been primed by massive amounts of debt (like much of the rest of the world) and debt-fuelled growth and investment has been the result. However, not all of that debt-fuelled spending has been productive. One massive example of this is the building of new housing stock. As we discussed last year, over a fifth of all Chinese housing stock is unoccupied. This is not surprising as dozens of Chinese cities are massively expanding their housing stock at the same time that their populations are shrinking. According to a study carried out by the South China Morning Post, 90 Chinese cities, 14 per cent of the total number, declined in population in the past eight years. Yet, of those 90 shrinking cities, 71 expanded their urban area. That is, these cities continued to build homes while there were fewer people to live in them.

Many of these shrinking cities are small by Chinese standards: most have urban populations of less than one million people. One exception to this is an ancient capital of China: Luoyang in the central province of Henan. The population of Luoyang is well over two million people. In the years 2010-2017 the city's population declined by 70,000 people and yet it added nearly 36 square kilometres of urban sprawl in that time period. 

Although one would think that building houses when your city is losing population does not make much sense, it apparently helps local governmental authorities which are all competing for limited central government resources. The building of houses is helping to spur current economic growth, but it does not bring real productivity (especially if those houses are not being used!) But the building boom of the last few years is very real and can be seen in this incredible fact: across China as a whole, the urban population grew by 20 per cent in the years 2010-2017. Over the same time period, the built-up urban area grew by 40 per cent. China has some real demographic and societal problems to cope with in the years ahead. Building more houses for a workforce that is no longer growing is a visible sign of some of these problems. 

Marcus Roberts is co-editor of Demography Is Destiny, MercatorNet's blog on population issues.

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