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Getting lonely in China
Getting lonely in China
James Liang*

In 2011, Sony accumulated losses of $5.6 billion, Sharp lost $4.7 billion, and Panasonic $9.6 billion. The momentum of similar huge losses at these firms has continued through 2012. All these enterprises that used to be so much admired by the Chinese are plunging, one by one, into historic lows.

Of course the ups and downs of enterprises are part of the laws of nature. For instance, Kodak, once a king, is sliding toward extinction. More important are the new forces attacking the throne.

Among the four enterprises with the highest stock market capitalization in the world, Microsoft, Apple and Google were established since the 1970s. If we use the age of a person to measure these companies, they are just in their thirties, the prime of life. Google can even be regarded as a teenage boy. The vitality they possess infuses the U.S. economy with a steady stream of power.

In contrast, Sharp and Panasonic which were founded in the second decade of last century are about to become century-old stores. Their apathy not only drags down their own businesses, but is also pulling the Japanese economy into a quagmire.

Why is it that Japan can’t give birth to a new generation of corporate giants like the United States?

The answer may be quite complex, however one point in particular is not to be neglected. That is the discrepancy of the demographic structure between America and Japan. The creation of a young and dynamic enterprise must first have a young and dynamic entrepreneur. Bill Gates founded Microsoft when he was 20. Jobs founded Apple at 21. Marc Andreessen created the web browser and the company Netscape when he was 23. Google was founded by Larry Page and Sergey Brin when they were both 24 years old.

Where in Japan can one expect to find similar young entrepreneurs?

First, looking at the data of the total fertility rate. Japan has fallen from 4.0 children in the post-War period to today’s 1.3. This is far lower than America’s 2.1. That is to say, as Japan’s newborn population continues to dwindle, young people as a proportion of the total population also decrease. This has become a great disadvantage relative to the United States.

Fertility decline impedes the creation of corporations not just because of the absolute decline of young people but also because with the aging demographic structure. The elderly constitute the main voting force so various social resources and benefits will tilt in their favor.

When I was leaving Japan, three pairs of glasses of different degrees of farsightedness were available at the customs office where the forms are to be filled in. I can’t help but sign that Japan is indeed a paradise for the elderly. When a Japanese retires he still enjoys 70% of his previous wages at work, far higher than the salaries of young people just starting their career. This is enviable. The government’s taxation and the corporate seniority system virtually hand over the economic output created by the young to the elderly.

Under such circumstances, it’s hard for Japanese youth to have any chance of getting ahead. In the 1970s, 32% of section chiefs in Japanese firms were under 35 years old. This figure dropped to 16% in the 1990s. At the higher departmental level, there used to be 25% of managers aged under 45 years old, whereas this number dropped to less than 8% in the 1990s.

Turning to China

In the past, when people analyzed the gloom and doom of the Japanese economy they usually focused on factors such as the changes in exchange rates and the economic policies, but they ignored Japan’s demographic structure. It’s particularly worth noting that when policies deviate, it’s possible they can be corrected in the short term. However, the correction of population issues uniquely imposes much higher long-term costs.

Today’s population policy has its impact on the ratio of youngsters only in 20 or 30 years’ time. Were Japan able to use a time machine presumably they would have chosen to launch a pro-baby policy decades ago.

Having looked at the case of Japan, now we turn back to the situation in China. Japan has a 1.3 total fertility rate and is trying desperately to encourage child-bearing so as to fight its way out of the aging population quagmire. Meanwhile, as its Sixth Population Census showed, China has a 1.2 fertility rate and is still implementing the One-Child Policy that restricts child-bearing. Such a contrast looks particularly glaring.

Perhaps in Chinese policymakers’ eyes, what they see are just the crowds filling the Beijing or Shanghai subways, and therefore are convinced that China still has too many people. Nevertheless the effect of a population policy takes time to see. Thus, in the process of today’s formulation of policy, the conditions in 20 or 30 years’ time ought to be anticipated.

According to a statistical forecast coming from the U.S., if China maintains its current total average fertility rate, its demographic structure diagram by 2040 will be nearly the replica of that of Japan today. The series of issues that Japanese society is facing today are likely to befall us.

Due to the urgency of this, one of my jobs over the past two years has been making demographers understand better the relations between economy and population as well as try to make economists learn more about the grim situation of China’s demographic structure with its low birth rate. Hopefully this will encourage more economists to stand up and call for a change of China’s family planning policy.

Along with numerous economists and sociologists I have recently issued an Urgent Appeal to Stop the Family Planning Policy. It brooks no delay for China to adjust its population policy.

*James Liang is a columnist at Caixin media and a professor of economics at both Stanford University and Peking University

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