Revising down China

Delivered on By Justin Pyvis

Good morning! South Australia overwhelmingly voted for change on Saturday, installing Labor’s Peter Malinauskas as the state’s 47th Premier.

In an ominous sign for the Liberal-Nationals ahead of the federal election, it was the first time a state government had been thrown since the start of the pandemic.

The latest federal Newspoll has Labor leading the Coalition 55 to 45, which puts federal Labor two points ahead of the successful South Australian Labor party, which had a lead of 54-46 in the pre-election Newspoll.

ScoMo needs a big couple of months to pull this one back!

Reading the tea leaves

Daily % change







AU Bond



US Bond









Brent (bbl)



Gold (oz)



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Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

Markets had a great week after fears about US Federal Reserve monetary tightening eased, and concerns about a slowdown in China were allayed by positive remarks from Vice Premier Liu He and President Xi Jinping.

The US S&P500 closed up 1.17% on Friday, in the process recording its best weekly performance since November 2020. The index is now back to pre-Ukraine invasion levels, a feat also achieved by the regional Stoxx Europe 600 index.

Locally, the ASX200 gained 0.60% on Friday to cap off its best week in over a year, led by energy (+2.22%) following the surge in a price of oil the night before.

Food for thought

In terms of demographics, China is well behind where other catch-up nations were ahead of strong periods of economic growth.
In terms of demographics, China is well behind where other catch-up nations were ahead of strong periods of economic growth. Source

The Lowy Institute published a report last week looking at the long-term decline in China’s growth, which it expects to “slow to about 3% by 2030 and 2% by 2040, while averaging 2–3% overall from now until 2050”.

It’s a long report, so do check it out. But essentially it warns that given the Chinese government’s track record at executing key, productivity-boosting economic reforms (it hasn’t), the investment-driven ‘catch-up’ model it has relied on for so long is approaching its use by date.

Demographics play a large role in the decision to “substantially revise down” China’s potential growth (see the chart above). China is well behind where other countries using the ‘catch-up’ model were given its age profile. While the authors used Korea and Taiwan as examples, we also looked at Japan.

In terms of GDP per capita (a proxy for wealth), China in 2020 was about where Japan was in 1983. But Japan’s dependency ratio – the ratio of aged under 15 or over 64 to the working-age population – didn’t bottom out until 1992, with GDP per capita 200% higher than China’s in 2020.

That would all be well and good if China was still in the early days of its demographic dividend. But it’s not – China’s dependency ratio bottomed out in 2010, and the government’s “ability to materially offset this demographic outlook is limited”.

The authors conclude:

“China would still likely become the world’s largest economy. But it would never establish a meaningful lead over the United States and would remain far less prosperous and productive per person than America, even by mid-century.”

If China “decouples” from the West – “reducing economic interdependencies for geopolitical reasons” – it is likely to fall even further behind.

Chewing the fat

Bits and bytes

🗣️ First step to abandoning the policy? China’s President Xi Jinping pledged to target COVID-zero “at the least cost and minimise the impact of the epidemic on economic and social development”.

🦗 Australia qualified for the ICC Women’s World Cup semi final with two games still to play after a 6 wicket victory over India on Saturday.

⛑️ Australia’s government will send more aid to Ukraine, this time about $A75 million worth of weapons, 70,000 tonnes of coal and “emergency humanitarian assistance”. It also banned the export aluminium ores to Russia (~20% of its alumina comes from Australia).

📞 US President Joe Biden and his Chinese counterpart Xi Jinping had a two hour call on Friday. Biden warned Xi of the “implications and consequences” of supporting Russia, while Xi cautioned against “Sweeping and indiscriminate sanctions… crippling the already languishing world economy and causing irrevocable losses”.

📈 Inflation stings: 80% of Canadians “had started or planned to buy cheaper items at the grocery store to save on food bills”, while 75% “planned to cut spending on household items and eat from local restaurants less frequently”.

✋ The Bank of Japan said “it is not necessary or appropriate to tighten monetary policy”, as rising prices are “caused by increases in international commodity supplies, energy, and food import prices”.

📽️ Arnold Schwarzenegger’s video message to Russians trended on Russian social media. In the video, “Arnie” said: “This is an illegal war. Your lives, your limbs, your futures have been sacrificed for a senseless war condemned by the entire world.”

🎬 Amazon’s $US8.5 billion bid for film studio MGM will go ahead, bringing cult franchises such as James Bond and Rocky to Prime Video.

🏆 France completed the Grand Slam after a 25-13 victory over the old enemy, winning all five of their matches to claim the Six Nations Rugby trophy undefeated.

💉 Moderna applied to the US FDA for emergency approval of a fourth booster dose of its COVID-19 vaccine. Pfizer made the same request early last week.

🌞 The US government’s plan to make daylight savings time into a permanent clock change appears as though it will be blocked in the House.

🏃‍♀️ The UN estimates that over 10 million Ukrainians (over 20% of the population) have fled their homes since Russia invaded.

🕊️ Turkey’s foreign minister, who is brokering peace talks between Ukraine and Russia, said the two sides were “close to an agreement”.