China will face new challenges after ending its one-child policy
I was in China this week. The purpose of the visit was to promote Chinese investment in Ireland. I met the Irish Ambassador, Paul Kavanagh and his team, who are working very hard to promote links between Ireland and what is now the largest economy in the world.
The Chinese economy is being rapidly restructured.
Services are now the largest sector at 48pc, as against 41pc in manufacturing. There is now less reliance on exports and more on the home market.
Last week, it was announced that China is to end its one-child policy. This is a response to the fact that labour shortages will eventually be a problem for China.
This policy was first brought into force in 1980. It has been very effective. The total fertility rate globally is 2.5. In developing countries, it is 2.7, in the poorest countries it is 4.4, but in China it is only 1.6.
The Chinese population will peak in 2027 and begin to decline thereafter. In this, China is like Europe.
In contrast, the population of Africa could increase from 1.1 billion to 4.8 billion by the end of the century. Africa's labour force will grow, whereas that of Asia will remain stable and Europe's labour force will fall.
As a result, Africa's economy could enjoy the fastest growth in the world over the next century if it can manage to maintain political stability.
In that sense, demography is destiny. Without a growing labour force, it is difficult for an economy to grow.
For example, the very rapid growth of the Irish economy between the mid-1980s and the mid-1990s is explained by a doubling of the available labour force in that period, which in turn is partly explained by a high birth rate in the 1970s.
A labour shortage is already evident in China. The number of young people in the 18-24 age group today is 108 million, as against 124 million in 2008.
The number in that age group will fall by seven million in each of the next 10 years.
At the other end of the age spectrum, the number of retired people will start to grow rapidly. That is bound to have an effect on the overall productivity of the Chinese economy.
More and more Chinese families now consist of four grandparents, two parents but only one child. Growing up as an only child is a very different experience from growing up in a large family and it remains to be seen what effect this will have on society.
Because of the preference of families for sons over daughters, more female babies are aborted, which has led to an imbalance in society. Abortion is contrary to the tenets of traditional Chinese religions, like Taoism, as I saw in a plaque displayed in a temple I visited in Beijing. But it is the policy promoted by the government. The fact that more girls than boys are aborted has not got much attention from the world feminist movement.
The new two-child policy will not become effective straight away. Regional laws have to be passed to bring it into effect and to remove the severe penalties that still apply to having a second child.
There are also practical difficulties in the way of parents who may wish to have a second child. Housing is in very short supply in the big Chinese cities and there will simply not be room for a second child. Already, many parents, who have gone to work in the cities, have had to leave their only child behind them in a rural village, to be cared for by a relative, because they cannot find room for the child in the city where they work.
A declining labour force and housing shortages are among a number of challenges China must face at the same time. The country must also:
l Orientate the economy away from heavy industry to consumer goods
l Reduce the level of debt of local governments, state-owned enterprises and households. Eighty per cent of all public spending is done by local governments.
l Reduce reliance on coal because burning coal causes so much pollution.