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From Tokyo to Beijing, growing old is hard to do

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Sometime later this month, Japan will release the first estimate of births and deaths in 2020 — an annual gift from the health ministry that arrives around December 25 with all the seasonal joy of a broken boiler.

For the past 13 years, this release has delivered evidence of Japan’s shrinking indigenous population and its darkening demographic shadow via a series of bleak milestones. These seem all the starker for their stubborn resistance to remedy and for the cautionary road map they provide the outside world. 

By 2008 — one year after the great inflection from growth to decline — deaths in Japan outnumbered births by just over 50,000. By 2019, that imbalance had increased tenfold to more than half a million. In 2016, the population decreased at an average rate of 1,000 people per day. Based on monthly numbers, 2020 is on trajectory for a possible shrinkage rate equivalent to 1,500 per day, or one person per minute. 

As per tradition, Japanese media will greet this by assembling experts to shake their heads and wring their hands. But for Japanese viewers, both young and old, it is all gloomy non-news. They may not relish it, but the populace, whose popular books include Enjoying Nursing Care, has already struck a bitter peace with reality. The audience that really matters — in a country where birth rates fell to a 70-year low in 2019 and senior officials often highlight “warning lines” on fertility rates — is China.

The question for Beijing is not how worried to be, but rather when the weight of demographic concern makes itself felt. Along the road of ageing and population decline, there are some unexpected moments of benefit: Japan’s jobs-to-applicant rate, for example, has stayed above 1.0 this year, despite Covid-19. Yet an aged population is nothing to look forward to. There are also important differences in what brought the two countries to their demographic present: China’s 1979 one-child policy is prime among them. Even so, Japan’s experience is instructive. 

Japan’s latest health ministry numbers will confirm a phenomenon whose effects are now plain but that have been the subject of warning for over a quarter of a century. From giant typefaces on menus, to empty schools being razed to build care homes, daily life teems with mundane examples where Japan’s physical fabric is changing. Businesses, families and the public sector must adapt to having almost 29 per cent of the population aged over 65 and a relentlessly shrinking workforce to support them. Changes to the macro fabric — such as a historic risk rebalancing by pension funds, or a surge in outbound acquisitions — can also reverberate globally.

For China, where the over-65s ratio stood at 11.9 per cent in 2019, a Japanese-style demographic fate may seem distant. But China’s ratio is rising more rapidly than it did in Japan and some projections suggest it will hit 25 per cent in about 15 years. The critical death-birth crossover that Japan experienced in 2007 will, on current projections, happen in China a decade from now. 

Japan’s lesson is that real peril lies in the expectation of pain. In the more than 30 years since the bursting of Japan’s stock market and property bubble, there has evolved a spectrum of theories about the economic landscape that formed in its aftermath: for some, a permanently half-baked flirtation with recovery; for others, a reasonably managed decline with dignity. 

Less in doubt is that there has never since been any real sense that Japan will ever sustainably recapture the optimism and euphoria that once acted upon the country as such a powerful propellant. Recent days have been a reminder of that. Any celebration of the Nikkei 225 stock market index hitting a 29-year high last week was tempered by the fact that it is still a third below the 1989 peak. There are many reasons for this, but demographics are surely central: once the idea beds-in that population decline is inexorable, it is difficult to look out at the economic horizon and see, as Japan once did, infinite possibility. 

Japan’s fertility rate fell to 1.5 the year after the bubble burst in 1990; five years later the working-age population began to fall. By 1997, demographers were predicting that the crossover into overall population decline would come a decade on — as it duly did. China faces a similar series of milestones over the next 30 years. The double challenge is not only to prepare the economy for the practical effects of population decline and ageing, but to find ways to be optimistic in their shadow.

leo.lewis@ft.com



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Emerging Markets

Tech-heavy Taiwan stock index plunges on Covid outbreak

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Taiwan’s stock market, home to some of the world’s biggest tech companies, suffered one of the largest drops in its history as investors were rocked by a worsening Covid-19 outbreak.

The Taiex fell as much as 8.55 per cent on Wednesday, the index’s worst intraday fall since 1969, according to Bloomberg. It finished down 4.1 per cent.

Construction, rubber, automotive and financials — sectors retail investors had been shifting into from technology in recent months — were the worst hit in the sell-off.

The world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Company, which has a 30 per cent weighting in the index, fell as much as 9.3 before recovering ground to be down 1.9, while Apple supplier Hon Hai Precision Industry, also known as Foxconn, dropped 9.8 per cent before paring losses to be down 4.7 per cent.

While Taiwan’s sell-off was related to domestic Covid-19 problems, it followed recent declines in global markets as investors worried about possible inflationary pressures.

The falls came as Taiwan’s government was expected to partially close down public life to contain a worsening coronavirus outbreak — something the country had managed to avoid for more than a year.

“The reason that triggered the escalated sell-off during the trading session is the new [Covid-19] cases to be reported this afternoon, and probably the raising of the pandemic alert level,” said Patrick Chen, head of Taiwan research at CLSA. “On top of that, the market before today was already at a point where the index was at an inflection point.”

Taiwan’s strict border controls and quarantine system and meticulous contact tracing measures had helped it avoid community spread of Covid-19 until recently.

That success, which allowed Taipei to forego lockdowns, helped boost the local economy, which grew about 3 per cent last year and 8.2 per cent in the first quarter of 2021.

But health authorities announced 16 locally transmitted confirmed cases on Wednesday, for three of which the infection source was unclear — a sign of widening spread in the community. Authorities had confirmed seven untraced cases on Tuesday, and domestic media reported that the government might introduce partial lockdown measures.

President Tsai Ing-wen called on the public to be vigilant but avoid panicking.

Taiwan’s stock market rose almost 80 per cent over the past year, peaking at a historical high late last month. It is now down 8.5 per cent from that mark.

Retail investors have increasingly moved out of technology stocks in recent weeks, reducing the sector’s weight in trading volume from almost 80 per cent at its height to just over 50 per cent.

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China factory gate prices climb on global commodities boom

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The price of goods leaving factories in China rose at the fastest pace in more than three years, on the back of a rally in commodities supported by the country’s economic recovery.

The producer price index rose 6.8 per cent in April year-on-year, beating economists’ expectations and surpassing March’s increase of 4.4 per cent.

The rate was driven in part by comparison with a low base last year in the early stages of the pandemic. But it also reflects a global surge in the prices of raw materials that was first stoked by China and now incorporates expectations of recovering global demand.

While PPI prices in China have leapt, economists suggested there was limited spillover into consumer prices and that the central bank was unlikely to react. China’s consumer price index added just 0.9 per cent in April, the National Bureau of Statistics said on Tuesday, although it touched a seven-month high.

“It tells us that demand at this moment is super strong,” said Larry Hu, head of greater China economics at Macquarie, of the PPI data, although he suggested policymakers would see the increase as “transitory” and “look through it”.

“We’re going to see some reflation trends,” he added.

Signs of tightening in China’s credit conditions have drawn scrutiny from global investors eyeing the prospect of higher inflation as the global economy recovers from the pandemic, especially in the US, which releases consumer price data on Wednesday.

China’s PPI index remained mired in negative territory for most of 2020 following the outbreak of coronavirus, but has started to gather momentum this year. Gross domestic product growth in China returned to pre-pandemic levels in the final quarter of 2020.

An industrial frenzy in China has stoked demand for commodities such as oil, copper and iron ore that make up a significant portion of the index and have helped to push it higher. 

Policymakers in China have moved to tighten credit conditions, as well as attempted to rein in the steel sector. Ting Lu, chief China economist at Nomura, said the relevant question now was “whether the rapid rise of raw materials prices will dent real demand, given pre-determined credit growth”.

Retail sales in China have lagged behind the growth rate of industrial production, putting downward pressure on CPI, which has also been weakened by lower pork prices that rose sharply on the back of African swine fever. Core CPI, which strips out food and energy, rose 0.7 per cent in April 

Julian Pritchard-Evans, senior China economist at Capital Economics, said that producer prices were feeding through into the rebound in consumer prices, but also suggested that pressures on the former were “likely to be mostly transient”.

He added that output prices for durable consumer goods were rising at their fastest level on record.

China’s rapid recovery has been driven by its industrial sector, which has churned out record quantities of steel and fed into a construction boom that policymakers are now trying to constrain. On Monday, iron ore prices hit their highest level on record, while copper prices also surged.



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Iron ore hits record high as commodities continue to boom

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The price of iron ore hit a record high on Monday in the latest sign of booming commodity markets, which have gone into overdrive in recent weeks as large economies recover from the pandemic.

The steelmaking ingredient, an important source of income for the mining industry, rose 8.5 per cent to a record high of almost $230 a tonne fuelled by strong demand from China where mills have cranked up production.

Other commodities also rose sharply, including copper, which hit a record high of $10,747 a tonne before paring gains. The increases are part of a broad surge in the cost of raw materials that has lasted more than a year and which is fanning talk of another supercycle — a prolonged period where prices remain significantly above their long term trend.

The price of timber has also hit a record high as US sawmills struggle to keep pace with demand in the run-up to peak homebuilding season in the summer.

“Commodity demand signals are firing on all cylinders amid a synchronised recovery across the world’s economic powerhouses,” said Bart Melek, head of commodity strategy at TD Securities.

Strong demand from China, the world’s biggest consumer of commodities, international spending on post-pandemic recovery programmes, supply disruptions and big bets on the green energy transition explain the surge in commodity prices.

Commodities have also been boosted by a weaker US dollar and moves by investors to stock up on assets that can act as a hedge against inflation.

The S&P GSCI spot index, which tracks price movements for 24 raw materials, is up 26 per cent this year.

Strong investor demand pushed commodity assets held by fund managers to a new record of $648bn in April, according to Citigroup. All sectors saw monthly gains with agriculture and precious metals leading the way, the bank said.

Agricultural commodities have had an especially strong run owing to rising Chinese demand and concerns of a drought in Brazil. Dryness in the US, where planting for this year is under way, is also adding to the upward rise in prices. Corn, which is trading at $7.60 a bushel and soyabeans at $16.22, are at levels not seen since 2013.

“From a macro economic environment to strong demand and production concerns, the ingredients are all there for the supercycle,” said Dave Whitcomb of commodity specialist Peak Trading Research.

Rising copper and iron ore prices are a boon for big miners, which are on course to record earnings that will surpass records set during the China-driven commodity boom of the early 2000s.

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JPMorgan reckons Rio Tinto and BHP will be the largest corporate dividend payers in Europe this year, paying out almost $40bn to shareholders. Shares in Rio, the world’s biggest iron ore producer, hit a record high above £67 on Monday.

Brent crude, the international oil benchmark, has crept back up
towards $70 a barrel, which it surpassed in March for the first time in
more than a year, recovering ground lost as the pandemic
slashed demand for crude and roiled markets.

Supply cuts by leading oil producers have helped to bolster the market
as consumption has begun to recover around the world.

While some Wall Street banks have hailed the start of a new supercycle, with some traders talking of a return to $100 a barrel oil, others are less convinced. The International Energy Agency said oil supplies still remain plentiful meaning any talk of a supercycle is premature.



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