How Does China Getting Older Affect the Markets

At Top Gun Options we routinely pay attention to what is going across the world and refer to our DRINC acronym which refers to Democrats, Russia, Iran, North Korea, and China. The concept refers to how events far from our shores can have major effects on US markets. An interesting recent announcement from China is that their population shrunk this last year while their average has been going higher for years. So, how does China getting older affect the markets? And why does China having fewer people make any difference to US markets?

First Time China Population Falls in Sixty Years

China has more than 1.4 billion people making it the most populous nation on earth ahead of India by 400 million people. Why should it matter if a country with so many people sees a slight drop in population? The last time China’s population fell was from 1960 to 1962 during the “Great Leap Forward” under Chairman Mao. Between twenty and thirty million people died due to starvation as gross mismanagement and corruption plagued an over-ambitious attempt to modernize the country.

Communist Party Starts a Reverse Population Time Bomb Ticking

Subsequently, Chinese leadership decided that China needed to slow its population growth. This resulted in a one couple, one child policy that slowed but did not stop the population from growing. Although this policy was reversed in recent years, it left China with a population that was getting older and older without the usual number of younger people coming behind to take over jobs and help take care of their parents. What China has now is an aging population in a country that does not allow immigration from outside and has little in terms of a social safety net such as the USA and EU do.

Why Is a Shrinking Population of Older People a Problem?

The way modern societies work is that the earnings (and taxes) of younger wage earners support older people or the systems that support them. China has a state pension that many rely on and it is dependent, like US social security, on younger workers paying taxes. More important for the economy is that a shrinking population with fewer younger workers needs fewer factories to provide work and, thus, less investment. China’s economic future is going to look similar to Japan’s but with a bigger country. Japan was set to dominate the world economically in the late 1980s before their network of internal debts imploded. Since then their aging population has led to a persistently weak economy.

The difference between Japan and China is that Japan gave up its ambitions of empire after the Second World War. Meanwhile, China wants to claim Taiwan and the entire South China Sea as their own. They are striving to build the world’s dominant military and achieve technological dominance. As their economic might wanes with a smaller workforce this could lead China to take risks in the next few years that would make Russia’s invasion of Ukraine look tame. If this is not the route they go but rather a slow economic decline it will reduce China’s long term role as an economic driver of the world. Both ways would affect the US economy and the options trading environment.

At Top Gun Options you will work with traders who pay attention to events across the world that may seem unrelated to our daily work as options traders but could, in fact, be major drivers of prices both over the long term and slowly and quickly with no apparent warning. Times such as these are not good for trading solo. Join one of the trading squadrons at Top Gun Options where we potentially print money no matter what is going on in the world and where the markets are headed.