Population, Industrial Upgrade and Taiwan: Some predictions for China in 2030 - Part 1
"When China's national strength becomes strong enough, a peaceful reunification would be more probable and we could realize complete national reunification at a smaller cost."
(Update: for Part 2, you can check Population, Industrial Upgrade and Taiwan: Some predictions for China in 2030 - Part 2)
The following article, published on April 30, was written by 宁南山 Ningnanshan, the original title is 对2030年中国的一些预测 Some Predictions About China in 2030. This is the second time GRR features blogposts of this popular blogger who writes extensively on China's industrial policy. The previous time, a piece on Huawei, is among the most read newsletters on GRR.
This new article offers a sweeping look at what the author believes are the three most fundamental challenges and variables facing China's future. Although it is highly likely that Ningnanshan himself is only working in the private sector, some have even claimed that Ningnanshan’s blog was widely read in China’s policy circles, which have a reputation for long-term strategic thinking.
For one thing, the author saw population decline as the biggest long-term hurdle for China, echoing a key concern he also pointed out in his widely circulated 2018 article, 作为一个中产阶级，我对国家有哪些不满意 As part of the middle-class, what gripes do I have about my country. To combat this inevitable mega-trend, the author proposed industrial upgrade as the ultimate solution. He laid out his predictions about China's development in semiconductors, new energy and autonomous vehicles, cloud computing, biotech, aerospace and space exploration by 2030.
The author did not stop at economics and industries. What's exceptional about this article is how he placed Taiwan within the context of these other mega topics. For us at GRR, when it comes to Taiwan, there always appears to be a big gap in understanding between China and the United States. For Washington, Taiwan is a geopolitical and security matter, one of the "cards" they can play in the grand game of keeping a lid on China's rise. For China, however, it is not a game of cards. It is a matter of life and death, a raison d'etre for Chinese nationhood, a necessary final chapter in 200 years' history of decline, humiliation and rejuvenation. An issue like this is, literally, non-negotiable for China. Chinese people (not just the government) are dead serious about it, so much so that there is never a standalone Taiwan policy (as the case for the United States). In fact, every other strategic calculation, as shown in this article, is intertwined with this particular issue and helps to set the stage for peaceful reunification.
GRR hopes by demonstrating the depth of thinking around this issue, we can help to elaborate on the kind of resolve when we say Washington is playing with fire on Taiwan.
The highlights in the article are by the author. The translation, which was done by GRR, hasn’t been reviewed by the author. Errors may well exit. As always, usual disclaimers apply - the content here is neither official nor authoritative, as this is just a personal newsletter. Also, Ginger River knows that the article contains some views which not every subscriber will agree with, but he guesses exposure to some different Chinese views is at least partly what you look for.
Some Predictions About China in 2030 对2030年中国的一些预测
I’d like to talk about my predictions about China in 2030. As we all know, human society is full of variables. So it’s impossible to come up with a perfect model to predict things. My prediction is just for your information.
COVID-19 has been one of the hottest topics in the past two years and it has become a frequenter of headlines on Chinese social media. In the long run, however, COVID-19 does not undermine the foundation for China’s industrial upgrading. China’s average GDP growth of 2020 and 2021 was 5.1 percent. Although one percentage point lower compared with 6 percent [Ginger River: China's economy expanded 6.1 pct in 2019], this mild slowdown didn’t hurt China’s industrial upgrading in a fundamental way. On the contrary, key emerging industries, such as semiconductors, electronics and new-energy vehicles, have been booming in the last two years.
The tertiary industry, which is service-oriented, including airlines, tourism and catering are hit the hardest by the pandemic, with the largest number of jobs affected. The impact is more comprehensive than in other sectors.
COVID-19 still haunts us, as the resurgence in Shanghai has dominated news cycles in the past month. Nonetheless, the virus will eventually be defeated as long as the central government remains resolute in the “dynamic zero-COVID policy”.
COVID-19, which has been with us for over two years, has revealed a fact: among all jobs other than government jobs, those in high-tech industries are the most stable and the least affected. In fact, key emerging industries such as semiconductors, electronics and NEVs are developing faster than pre-pandemic days.
Therefore, for those who work outside the system, it’s best to work in a high-tech company or in an emerging industry.
The same principle applies to a country too. China is a country that is “outside the system” because we're not included in the “system” run by the Western world. Hence, the way to build China is through high-tech manufacturing.
Granted, this Western "system" is attractive. It's so tempting that in East Asia, China's Taiwan region, China's Hong Kong, South Korea and Singapore, scrambled to join it, and offered the United States, "the chief examiner", many benefits. However, we [the Chinese mainland] didn’t have that choice. For one thing, the strong national pride of the Chinese people wouldn’t allow us to live under anyone’s thumb. For another, our population is way too large for the Western system to accommodate. The United States now feels that they have been taken advantage of for letting China halfway into the Western system. The West welcomed China's economy, but it turned out that China’s vast population and rapid economic development would empower China to replace the United States. So the U.S. has been trying to decouple with us in the last couple of years and this trend is likely to last for quite a long time.
[Some part is omitted here]
Next, I’d like to share with you some of my predictions about China in 2030.
There are three biggest variables for us from 2021 to 2030: population, industry and reunification.
And among these three, the most important is the change in population. I think it’s the biggest fundamental of China in the long run. China's total population will decline in the coming years, in other words, China’s population will peak somewhere between 2021 and 2030. This will be the peak in any history, i.e., reaching the largest population ever since the birth of China as a country or as a civilization, and the number will keep dropping after that.
This is not much of a prediction for me. Because it’s a certain event. It will happen inevitably.
Why is population our biggest fundamental? We all know that the Chinese civilization is the only civilization that has never perished since its birth and the land on which we’re living is the very land our ancestors lived. This is highly unique throughout the whole world.
And population affects every aspect of a nation, including the economy, military affairs, industries, races, education and technologies.
The drop in population will have an impact on many things. Just as mentioned earlier, Taiwanese, Hong Kong people are also Chinese and a large portion of Singapore’s population is ethnic Chinese. Small sizes make them prone to be colonized or influenced. And it is harder for them to win the fight against hegemony by themselves, not to mention that they lack some resources to challenge the powerful. They stand no chance to change the order where the U.S. resides at the top of hegemony while white people are at the top of the racial ladder. Knowing that they don't stand a chance of winning, they are more likely to go with the strategy of joining the existing order.
The biggest challenge we’ll face in the future is to keep our population stable, or to make the decline curve flatter rather than taking a nosedive. It’s a high challenge for our fertility rate to return to 2.1, the level needed for a generation to replace itself. To maintain the long-term stability of the population is strenuous, for it requires nearly half of Chinese families to have three babies. Under the current circumstances, this is mission impossible.
Let's do the math. To achieve a fertility rate of 2.1 [Ginger River: If, on average, women give birth to 2.1 children and these children survive to the age of 15, any given woman will have replaced herself and her partner upon death. A total fertility rate (TFR) of 2.1 is known as the replacement rate.], every 100 people need to give birth to 105 children to prevent the population from decreasing since some may die prematurely due to diseases and accidents.
[For instance, if] Out of these 100 people, 10 of them may not get married or give birth because of infertility or because they choose to be DINKs (an acronym that stands for "double income, no kids."). Then we have 90 people to become 45 couples. 10 couples have one child, 15 couples have two children, then how many children do the remaining 20 couples need to have to keep the total population from decreasing? The answer is 105-10*1-15*2=65 children, i.e., these 20 couples must have 3.25 children on average. This is extremely difficult, almost impossible.
For industrialized countries, the population is a non-renewable resource. Once the birth rate drops below 2.1, the population will keep dwindling. The rate of decline will go up and the shrinking population will never recover to its former level.
The population affects every industry and sector.
From the perspective of mega-trends, the size of population will ultimately be the defining factor in the competition when China’s labor productivity gradually catches up with that of the West. In fact, the labor productivity between nations with excellent organizational capabilities wouldn’t have a five times or 10 times gap, while population gap does.
From the perspective of individuals, more and more people will choose to work or live in big cities. Taking the pension as an example, big cities, with a higher proportion of working young people, have a big enough pool for pensions, which will further attract more people to come.
In terms of home-buying, about 44 percent of cities in China have seen a decline in their population as shown by the statistics of the 7th population census in 2020, and this is a comparison made with the results of the 6th population census (2010). If we only look at the data of the last two or three years, the population of most cities in China has already been decreasing.
All these cities are tier three, four and five cities. For citizens living in these cities, other than buying one apartment for living purposes, they would buy other apartments for investment. And the investment demand will flood to bigger cities with a larger population. As a result, more people will buy apartments in metropolitan centers.
From the perspective of industries, capital and industries wouldn’t go to a place where a significant outflow of population is the norm, because an enterprise's core demand is to hire a sufficient amount of high-quality employees. Therefore, industries will concentrate in big and medium-sized cities, as well as areas close to these cities.
China will definitely introduce a large number of policies to encourage childbirth in the next ten years to slow down the population decline. However, the total population will inevitably go down. Rural areas, towns and villages, as well as tier three, four and five cities will suffer the biggest population loss while tier one and tier two cities will continue to witness an influx of people.
By the way, I think the uncertainties introduced to our society by COVID-19 and the economic losses we’ve suffered from the lockdowns will cause the birth rate to drop further. This is one of the major impacts of COVID-19.
So China’s population is very likely to decline in 2022.
Next, I’ll talk about the Taiwan issue which is the biggest external risk we face in the next decade.
As I’ve mentioned in my articles before, between 2025 and 2030, China will finish all preparatory work for reunification both economically and militarily.
By 2030, China’s GDP will definitely exceed that of the United States.
GDP per capita in the three economic circles (the Circum-Bohai Sea Economic Zone, the Yangtze River Delta, and the Pearl River Delta) and Fujian Province will catch up with or even surpass that of Taiwan.
At the same time, China's navy plus naval air force plus land-based support in East Asian waters will be on par with or even superior to the possible military support consisting of the U.S. aircraft carrier fleet, U.S. support forces based in Japan, and Japanese self-defense force combined.
It is very likely for us to have three or even more aircraft carriers, while our Type 055 guided-missile destroyer will be put in mass production and equipped. The Type 075 amphibious assault ships, fourth-generation carrier-based aircraft, carrier-based fixed-wing AEW aircraft, carrier-based long-range unmanned drones and electromagnetic launch will be mass-produced and equipped for the aircraft carrier fleets.
By 2030, China’s semiconductor industrial chain will become fully independent, and the manufacturing capacity of semiconductor chips will be at least two times or even three times more than that of 2021.
This means China will be well-prepared militarily, economically and technologically by then. When the national strength becomes strong enough, a peaceful reunification would be more probable and we could realize complete national reunification at a smaller cost.
However, things usually don't go as expected.
One of the biggest points of risk between 2022-2030 is that with the changes in the China-U.S. relations, the "Taiwan independence" separatist forces may grow and eventually cause Taiwan, with U.S. support and Japan’s instigation, to cross the red line we set for reunification by force, such as scenarios specified in the《反分裂国家法》Anti-Secession Law. It’s intolerable to the mainland for Taiwan to cross the red line, and we’ll have to launch the reunification by force immediately once it happens. This is the biggest risk we face between 2022 and 2030.
"Taiwan independence" separatist forces are growing, and the U.S. and Japan are more inclined to play the Taiwan card. They are challenging the bottom line of the mainland with Salami slicing tactics.
Although the Taiwan authorities dare not assert the legal independence of Taiwan, their actions are separatist in nature. As we all know, quantitative changes will eventually lead to qualitative change. Once Taiwan authorities cross the bottom line of the mainland, a war may break out unexpectedly. I believe that we can nonetheless win it in the military sense. But our industries in the mainland must get prepared beforehand so that they won’t be left flat-footed if [unfortunately] the worst does come.
The simplest way to get prepared is for our industrial chains to grow independent of Taiwan. At present, the Chinese mainland still imports loads of electronic components, machine tools and chemical products from Taiwan. Unlike high-end chips, the sources of these products can be replaced. If adjustment is not done right now, the supply and normal operation of enterprises may be severely affected when the situation suddenly changes.
The chaos in Afghanistan when the U.S. Army withdrew from it in August 2021 is a typical example.
Be it pro-American Afghans who worked for the U.S. or Americans themselves, no one saw it coming and no one had a plan for it. When the political situation changed abruptly, they scrambled to flee the country. The U.S. army left a lot of military equipment in Afghanistan whereas a large number of pro-American Afghans and even Western citizens didn't manage to evacuate.
The Russia-Ukraine conflict that broke out in February 2022 is another example. Chinese enterprises in Ukraine suffered great losses. Therefore, it’s sensible to make preparations for the Taiwan situation to reduce loss because the reunification of Taiwan is a certain event for the mainland while the possibility of reunification by force cannot be ruled out.
I’ve noticed that enterprises from the Chinese mainland don't attach enough importance to political risks and social risks. Their unpreparedness resulted in great losses when the U.S. waged a trade war against us a few years ago and when COVID-19 re-emerged.
Enterprises relying heavily on Taiwan-produced parts and components should take some time to evaluate how [a scenario of] reunification by force would affect them.
If the "de-Taiwanization" process, or cutting "the reliance on Taiwan products" doesn't start now, because the normal operation of enterprises in Taiwan requires employees, as well as the orderly running of transportation, logistics, customs and the financial system. After the reunification, there will come a transfer of government. So if enterprises in Taiwan are forced to close down for weeks or even months, mainland enterprises relying on them for supplies will be given a heavy blow.
For those enterprises who have a rather poor performance well before the incident, it may become the last straw that breaks the camel’s back.
Next, I’ll talk about industries. Our economy is made up of different industries. What I’m concerned about most is how many cities in China could join the ranks of “new tier-one cities” or “strong tier-two cities” in 2030.
In the past decade, many cities in China, including Chengdu, Hangzhou, Nanjing, Wuhan, Suzhou and Hefei, have managed to narrow the gap between them and traditional tier-one cities (i.e., Beijing, Shanghai, Guangzhou and Shenzhen), in terms of industrial development. This is one of the great progresses China has made and it offers young people in China many new options when it comes to making a living in big cities.
Let’s take Chengdu, capital of southwest China's Sichuan Province, as an example. How many people in Chengdu earn more than 10,000 yuan (about 1,500 U.S. dollars) a month in 2022?
Before January 1, 2019, individuals earning more than 120,000 yuan (about 18,000 U.S. dollars) per year were required to declare individual income tax by themselves and many cities would publish the number of people who did so. So we can have an understanding of the number of people who accomplish this in a particular region.
In Chengdu, the number of people who declared individual income tax was 224,500 in 2017, up 80.2 percent compared with 2016 (124,560). Please note that the declared amount in 2017 was in fact income of 2016, meaning that at least 224,500 people in Chengdu earned more than 10,000 yuan per month in 2016. Plus, some people who reached the threshold didn't make the declaration. So the actual number of people passing this standard was much higher than the reported number. The 80.2 percent surge was due to two reasons: firstly, China’s personal tax system is improving, so more people declare tax. Secondly, residents’ income is not evenly distributed. Instead, it follows the pattern of normal distribution. For example, if 5 percent of the population earns more than 10,000 yuan a month while 10 percent earns 8,000 yuan to 10,000 yuan, the income increase in five years will push this 10 precent of people to earn more than 10,000 yuan. The result is that the proportion of people earning more than 10,000 yuan would increase from 5 percent to 15 percent, which is three times of the original.
It’s been six years since 2016 and the number of people earning more than 10,000 yuan must have increased by a large amount. For a conservative estimate, the number of people earning more than 10,000 yuan per month in Chengdu would have exceeded 500,000, and it’s highly likely that this number has well exceeded one million. Nonetheless, the proportion of this group of people in the total population is not high as Chengdu now has a population of over 20 million. If we assume that among them 10 million people are employed, then an estimation of one million people earning more than 10,000 yuan per month only accounts for 10 percent of the total employed people.
By 2030, the proportion of people earning more than 10,000 yuan per month in tier-two, tier-three and tier-four cities will increase significantly even if our economy only grows by 5 percent per year. It would be a great thing if university graduates could find good jobs in more cities which can offer decent pay, good infrastructure and a high standard of living. Cities like Changsha, Dongguan, Xi’an and Chongqing possess great potential. Dongguan's industrial development has been booming, but it needs to work on its urban development because Dongguan doesn’t strike me as a prosperous metropolis with landmark sites.
I’ve always believed that the best way through which we can achieve common prosperity is industrial transfer. When a post is transferred from a tier-one city to a tier-two or even tier-three city, the same pay will lead to a significant increase in the employee’s living standard due to the much lower housing price, and the employee gets to work in a place near his hometown.
In my opinion, the best way to solve the problem of 内卷 involution [Ginger River: literally translated "inward curling". It refers to a social concept where hard work and competition do not result in any rise in productivity or innovation, while everyone feels burnt out] is industrial upgrade and construction of the "新三线建设 new Third Front", which I have elaborated on in my previous articles. (For a colorful history of the great Third Front project, you may refer to GRR's previous post How China prepared for potential invasion from Soviet Union with mankind’s largest doomsday project in March)
This is Part 1. For the upcoming Part 2, the author laid out his detailed projection of the industrial upgrade in semiconductors, new energy and autonomous vehicles, cloud computing, biotech, aerospace and space exploration.