The Peter Zeihan Podcast Series - Peter Zeihan - Demographics Part 7: The Northeast Asian Crash

Episode Date: March 2, 2023

Today we're talking about another region of the world competing for the title of "worst demographics" - and that, of course, is none other than Northeast Asia.Full Newsletter: https://mailchi.mp/zeihan/demographics-part-7-the-northeast-asian-crash

Hey everyone, Peter Zion here, coming to you from a snowfield just above Littleton, Colorado. Today, we are going to continue with the demographics series and discuss East Asia. Now, East Asia, combined with the Orthodox world, are the most rapidly aging parts of the planet, but for significantly different reasons. So let's start with China, because that's on everybody's minds these days. China supposedly has 1.4 billion people, and it is the most rapidly aging workforce in recorded history, according to Chinese stats. But we now know that the Chinese have overestimated their population in the past by over 100 million people.

And that's a lot worse than it sounds. China as a modern entity was really not founded until after the conclusion of the cultural revolution in the 1970s. Specifically when Mao had his summit with Richard Nixon and then following on the partnership between Jimmy Carter and Ding Xiaoping, whose Mao's successor. At that point, concrete started getting laid down and high rises started going up, and that was the first time that the Chinese really had a meaningful record-keeping system in the 20th century. But where there are records, there is money, and how you completed your records determined who got the money. So specifically, the first time in the intake system for the Chinese Communist Party,

where the government really became fully aware of you as a person, is when you entered primary school, typically at age 4 to 6. well, for local governments, the number of kids you had in primary school determined your population and therefore your share of the national budget. So local government officials throughout the country had a vested interest in overguessing or deliberately increasing and inflating the number of kids that they actually had. That means that the overestimation of numbers really didn't begin until 1980 and that all of the 100 million missing people in China are,

age 40 and under. So you're talking the most important part of the workforce. You're talking about pretty much everyone who has kids. You're talking about where most of the private consumption happens. And this is now probably a third less than the Chinese thought initially. But it's that second piece, the childbearing years thing, that's the real hit. Because now there are not enough people in China aged 45 and under to even theoretically regenerate the population to a structure that would be more sustainable. So I've always believed that this was going to be the last decade of the Chinese system. It can happen faster. If you've been following my work, you know that when it comes to agriculture and energy and finance and government, there are other reasons to believe that this is

the end. But those at least theoretically could benefit from reforms or shifts in policy. There's not a lot you can do about demographics when you no longer have enough people of child bear in age. So this is it for China. Just a question of how they go out. Japan, the picture isn't nearly as dark. Now, Japan was part of the second big batch of countries that started industrialization shortly after the United States. But whereas the United States could industrialize its northeastern seaboard and still have huge tracks of land everywhere else for people to live on the farm or in small towns where it's easier to have kids, in Japan you were in a subsistence rice patty or you moved into a city with multifamily units. And so the birth rate collapsed there almost on the same pace as it did

in Germany, and it's never hugely recovered. But the interesting thing about Japan is, you know, being an island nation helps. They are able to take the long view on a lot of things. And they have known they've been in a demographic pickle since the late 1970s. And so the Japanese have been adopting a lot of policies designed to help them get by with less labor and less consumption, as well as increase the birth rate. So if you want to have kids, Japan's probably the best place in the world in terms of health care and child care, the government will go out of its way to make your life easier. In addition, you can get free housing if you're willing to live not in one of the major cities or near free housing. And the Japanese government has a national robot strategy to help

with the workforce problems, and they have repositioned a lot of their industrial plant into countries with better demographic pictures in order to keep the economy going. You add all of this up, and the fact that the Japanese have been working on this for over 30 years, and the Japanese have actually been able to tick up their birth rate a bit so that they are the highest in East Asia now, Northeast Asia anyway. It's still terminal. It's still in decline. This is still a problem, but they now have a higher birth rate and more of a trajectory than Taiwan or China or Korea. Let's talk Korea. Korea is like a poster child for all the trends in question here.

It didn't start industrializing until after the Korean War, 1955 and then went immediately to a series of megalopolis with Seoul now having half the population of the country. There's not a lot of green space. There's not a lot of elbow room where people live. Very difficult to have kids. And the rapid industrialization process means that this has all happened in two generations. And so Korea's has a full inverted pyramid with more people in their 60s than their 50s and their 40s and their 40s and their 30s and their 20s and their teens and the children. And if it was any country other than Korea, I would, say that we're going to see the end of it in the next 10 years. But the Koreans have a reputation for

defined physics. And if they can find a strategy that works, hopefully they will share it with the rest of the world. Otherwise, they are a pure export-led system now, and they simply don't have enough people of youth to carry them into the next generation. All right. Finally, there is Taiwan. Taiwan has by far the youngest demographics of the four, in part because they started industrializing immediately after World War II. And unlike the Koreans or the Japanese or the Chinese who began this process, when they were fairly strict dictatorship, society in Taiwan was always a little bit more open. And it was also the first of the four to really begin their democratic processes in full, which means that we didn't really get this hyper change into urbanization until you're

in about the 1970s, and because they had a kind of a generation from 1945 to 1975 to kind of slowly adapt, people were able to take the jobs and still vacation in the countryside. They still had connections to the world that was, and they haven't aged nearly as quickly. Now, you get to the 1970s, and it all turns inside out, and their birth rate is actually now lower than any of the others, and they are aging actually more rapidly, but from a much younger and later start. So Taiwan still has at least another 30 years before this gets really bad. Their bulge and their population structure isn't in the 60s like the Koreans. It's in their late 40s, early 50s. So, you know, we don't hit that mass retirement bit for another 10 years.

And that's when they're kind of in a situation, a little bit like Japan and aging a little bit faster, but they won't hit actual mass retirement until the late 2040s. So there's still some time here. Maybe not enough young people to regenerate things, but enough to slow it down a little bit. To that end, the Taiwanese, just like the Koreans, have a very capital-intensive, skilled worker-intensive economic system, because you've got a lot of people, aged 40, and up, who don't have kids, who have degrees, and are very good at high-tech STEM-style work. And so these two countries, assuming they can get the geopolitics right, and that is not a minor concern, have the perfect workforce to basically take over tech manufacturing and tech development in any

number of fields. Of course, they import a lot of their food and all the inputs for their food and all of their energy, and they're completely dependent on countries beyond the horizon to keep their sea lanes safe, so there are plenty of problems. But at least for the Taiwanese, the demographic question is not the imminent bus right in front of them like it is for Korea or China. All right, that's it for me for now. I think our next one is going to be on Southeast Asia, which is one of the better stories. Until then.