China seems to be following the same path trodden by Japan in the last century. There were economists who forecast Japan to be the Number One economy before the last century ended, surpassing the US economy. The prediction never came true because Japan suffered a serious demographic crisis by the last quarter of the 20th century. Those who are forecasting that China will be the Number One economy, surpassing the US in the next decade or so, may also be proven wrong for the same reason: Demographic suicide. As the New York Times article observed, the looming demographic crisis could be the Achilles heel of China’s stunning economic transformation over the last 40 years. The declining population will surely create an even greater burden on China’s economy and its labor force.
With fewer workers in the future, the government would be struggling to pay for a population that is growing older and living longer. A decline in the working-age population could also slow consumer spending and thus have an impact on the Chinese economy. As the Philippines continues to enjoy a young and growing population, increasingly better educated, it is not farfetched that Filipino workers in education, health care and other personal services, will be recruited by the Chinese government to overcome the labor shortage as is already happening in Japan that is now proactively facilitating the learning of the Japanese language among Filipino nurses and caregivers who are now welcomed to work in the land of the rising sun.
Despite the slowdown in the economic growth of China, Filipino entrepreneurs — especially those who can speak Mandarin — should strive for closer economic relations with what will be the second most populous country in the world, after India. Even now, there are an estimated half a billion Chinese who belong to the middle-income and high-income households with a high propensity to consume both goods and services. It is extremely important that we are able to put our agricultural house in order to be able to address the food security worries of the Chinese in the coming years. We cannot allow our neighbors such as Thailand, Vietnam and Malaysia to corner the rich consumer markets of China for high-value food products such as livestock, fruits and vegetables. After feeding our own expanding population, we should have enough extra production to export to China. We should also be ready to absorb some of the labor-intensive manufacturing operations that are moving away from China for two separate reasons. The first is the increasingly high wages prevailing in China. The second is the ongoing US-China trade war which is boosting investments in Southeast Asian countries. Unfortunately, Vietnam and Thailand are getting the bulk of these investments because of the failure of the Duterte Government to remove the many unreasonable restrictions against FDIs enshrined in our Constitution. In food production, our agribusiness sector is also suffering from a failed agrarian reform program that is a serious stumbling block to increasing the productivity of our agricultural sector.
At bottom, though, the Philippine growth story over the coming decade or so must be mainly financed by domestic savings. As the Oxford Economics report pointed out: “There is a need for emerging markets to undergo rapid capital accumulation through domestic financing to succeed alongside strong GDP and robust total factor productivity (TFP) growth. A sizeable export sector is seen as a key factor in avoiding the middle-income trap — wherein countries get stuck at one size for long periods of time (like Argentina, South Africa and Turkey) — with the main way of aiding this coming from investment in innovation.” For sustainable and inclusive development, there is no alternative to capital deepening, the bulk of which has to be financed by domestic saving. The good news is that over the last decade or so, there has been a significant increase in the Philippine savings to GDP ratio, thanks to the remittances of OFWs and the determined efforts of the Government to increase the tax to GDP ratio.
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