Wednesday, July 22, 2015

Russia Bets on China: Picking the Wrong Horse in the Short Term and Long

By Paul Goble

Russians are waking up to the fact that Vladimir Putin’s much-ballyhooed “turn” to China is not bringing Russia the benefits he promised or that they expected. Not only has Beijing refused to tow Moscow’s line on a variety of international issues at the United Nations and elsewhere, but Chinese direct investment in the Russian economy fell by 25 percent over the last year, a reflection of problems in the Chinese economy as well as in the Russian one (Kommersant, July 21).

Some Russian analysts are dismissing these trends as short-term issues and argue that Russia will ultimately benefit both politically and economically from its rapprochement with China. But other Moscow analysts suggest that China’s economic prospects are not nearly as rosy as many in Russia assume and that that country’s rapidly aging population faces a period of ever-slower growth. This negative trend will affect Beijing’s ability to invest in other countries, including the Russian Federation. And their conclusions suggest that Moscow under Vladimir Putin has picked the wrong horse on which to try to ride into the future.

In a detailed two-part, 40-page study published in Moscow’s “Demoscope Weekly,” Yevgeny Andreyev, a senior scholar at the Institute of Demography of Russia’s Higher School of Economics, says that “the economy of China depends on demography.” His report points out, in particular, that Beijing’s “one child” policy” is leading to a rapid aging of the population and that the expenses of dealing with an ever older population will suppress that country’s economic growth in the decades to come (, April 6–19, April 20–May 3; summarized at, July 13).

Indeed, Andreyev says, despite China’s lack of natural resources, this East Asian giant has vaulted to the status of the world’s second-largest economy (after the United States). But by the beginning of the 2030s, China may find its growth slowing significantly because of the burdens imposed on its workforce by an aging population and the demands for higher wages by its increasingly educated workforce. The combination of those two trends undercuts the low-wage, high workforce participation that have been the source of China’s growth in recent times.

Over the next 15 years, the aging of the Chinese population means that the number of pensioners that those working must support will approach the levels prevalent in Western Europe and the United States. And at the same time, the costs of supporting the elderly will continue to rise with advances in medicine. As a result, the Moscow scholar concludes, China will lose the demographic advantages it has enjoyed for decades—and its economic advantages will be at risk as well.

Beyond any doubt, Andreyev continues, Beijing will have to devote more attention to and spend more money on this demographic shift. But related to it are two other demographic problems with a likely negative economic impact: China’s one-child policy has not only reduced the rate of population growth but created a serious gender imbalance, and it has undermined the traditional relationship between children and their parents. The first of these means that Beijing will be under pressure to find wives for these extra men; and the second means that the state has to assume burdens that families had assumed earlier.

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