The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

The Global Battle for the Consumer

The Brookings Institute has a very bullish report predicting high growth of consumers in China and other Asian countries by 2030.

Below is an excerpt of a very important article affecting investors who are in Asian consumer stocks. The bullish case is that consumers are getting wealthier and therefore will buy more.

However, the story below shows that the number of consumers in the age bracket of 0 to 60 years old is declining significantly in Asia. These are the top consumers.

Authored by Chris Hamilton via Econimica blog,

In 2010, the Brookings Institute offered a “watershed” report stating that the global “middle class” was set to explode, almost entirely from the Chinese and Indian poor populations urbanizing and transitioning to the middle class (middle class meaning annual incomes, per household of four, from $14,600 to $146,000 in PPP (purchasing power parity)).

In 2017, the Institute updated the original work (HERE) reiterating that from 2015 to 2030, China, India, and the remainder of Asia-Pacific will add 2.1 billion (or 89%) of the nearly 2.4 billion new entrants to the existing 3.2 billion person global middle class.  By 2030, presumably China will add around 800 million to the middle class and India more than 900 million?!?

However, Chris Hamilton has a different view. The chart below shows the actual decline of consumers the past 8 years. That is contrary to what we hear from analysts all the time. If you think that the emerging profits are very risky now because of conditions in the credit markets, and that this could produce another deep recession, and you can see that the Brookings study might soon be discarded. Chris writes:

Nowhere is this decline in potential consumers more acute than East Asia (China, Japan, N/S Korea, Taiwan, plus some minor others).

In Asia, peak growth in the under 60yr/old population (consumer base) took place way back in 1969, annually adding 22 million potential consumers.

As recently as 1988, an echo peak added 19 million annually but the deceleration of growth since ’88 has been inexorable.

Then in 2009, decelerating growth turned to decline and the decline will continue indefinitely.  What began as a gentle decline is about to turn into progressively larger tumult.  By 2030, the under 60yr/old population will be 9% smaller than present.  East Asia’s domestic consumer driven market is collapsing in real time and it’s reliance on exports greater than ever.

Conclusion:

So, China’s births have been collapsing for decades, China’s child bearing population is collapsing, China’s working age population is now falling, and so it follows that China’s domestic markets have begun shrinking and this shrinkage will only continue to accelerate indefinitely.

Add to this, the export markets for 90%+ of their exports are hardly growing, and in about a decade, all but Africa and India’s under 65 year old populations will likewise be shrinking.

Somehow, the Brookings Institute estimates that China’s middle class will grow more than the total working age population that will be in existence?!?  None of this was even “mention worthy” in the Brookings Institute report, let alone problematic for their estimate of a massive increase in the middle class population.

From my viewpoint, no way in hell does this add up to 800+ million Chinese moving into the “middle class” by 2030, regardless how many trillions China throws away building new factories, roads, apartment blocks, and infrastructure for a population that is never coming!  In fact, more likely by 2030, we could well be looking at little to no growth…or even a declining Chinese middle class from today’s levels.

As for India, unfortunately, the estimates for middle class growth are every bit as ludicrous, but that is for another day.

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