China is the world’s green energy leader. And its population is declining.
The combination has profound implications for energy.
The Wall Street Journal ran a piece on Monday with the headline “China’s Birthrate Sinks to Record Low.”
It’s a known challenge for the country, one that is turning demographics upside down and leading to an aging, declining population base.
At the same time, China leads the world in manufacturing and deploying advanced energy technologies like solar cells and batteries.
THE STRATEGIC DIVERGENCE
One of the developed world’s chief criticisms of China is that it produces wildly in excess of what it consumes.
The surplus is shipped out to the world, which can hollow manufacturing centers vital for domestic economic growth and energy security.
The developed world has pushed for China to prop up its own consumption to reduce the surpluses that distort global trade flows.
But it’s difficult to prop up domestic consumption when your population is shrinking.
THE MACRO IMPLICATION
A declining population reduces aggregate output, which is simply the size of the workforce multiplied by workforce productivity.
As China’s population shrinks, we will see headwinds against its total output, and its capacity for domestic consumption will decline.
If anything, that’s an incentive for China to steer an even larger fraction of its output as exports to maintain the trade surplus it so deeply values.
THE RESULT: AN INCREASINGLY REGIONALIZED WORLD
We could easily find ourselves with two simultaneous realities.
On one hand, China and its closest neighbors pursue a rapidly evolving energy system at relatively low cost, given China’s large aggregate output steered to relatively fewer destinations.
On the other hand, much of the developed world evolves its energy systems more slowly, or does so at a considerably higher cost, given China’s retreat in this scenario.
A huge demographic move like the one unfolding in China can have dramatic effects that accumulate and escape visibility until the whole landscape changes.
I don’t make a big deal over every media headline I see. But this China piece is absolutely worth keeping track of.
