Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Australia could pay a high economic price for an ageing China
The economic story emerging out of China will have long-term economic consequences for Australia. There is a growing school of thought that says the economic miracle China has enjoyed over the past 40 years has run its course and that the Middle Kingdom has missed the opportunity to join the ranks of the developed world. In no small part, China’s demographics are an integral part of this story.
A Franklin Templeton research report, The demographic wave: the tide is going out, puts it succinctly. “China’s population is estimated at 1.4 billion and it is not growing. The World Bank estimates population growth at nought per cent, although in 2022 there was a net decline, as more citizens died than were born.”
It’s not just a declining population. A consequence of the one-child policy, introduced in 1980 (it was abolished in 2016), is that China has a poor gender ratio because of the strong cultural preference for male heirs.
Today, there are 104 men for every 100 women – an acute shortage of women. It means about 40 million adult men – they are called guang gun-er or bare branches – will never have a family. Although China has recognised the problem, offering a supplementary pension to parents of girls, it will take at least a generation to reverse these fertility trajectories.
A gender imbalance and a declining population that is ageing coalesce in two ways that undermines China’s determined push to achieve first-world economic status. First, it will create pressure to increase social welfare payments – a policy initiative Beijing has shied away from to date.
As the Franklin Templeton report explains, “it might seem counterintuitive for a socialist country, but its social welfare spending is barely half the OECD average of 21 per cent, even with an ageing demographic profile. Only the central government can (increase welfare spending), but it appears unlikely to move in this direction, at least for now.
“It could be due to a belief that dependence on welfare makes people lazy and unwilling to work, or simply a low prioritisation of such matters as social welfare. Unfortunately, that could mean more of the same, low productivity, low interest rates for savers, an undervalued currency that makes imports more expensive and increasing inequality within China.”
Second, it is undermining China’s push to increase consumer spending as a percentage of GDP. In OECD countries, it accounts for about 60 per cent of GDP; in China the number is significantly lower. But an ageing population living in a parsimonious welfare state is unlikely to go on a shopping spree.
Compounding the problem of weak consumer confidence is youth unemployment (16–24-year-olds) that is now above 20 per cent and a society that is still recovering from the pandemic and the authorities’ zero-COVID policy. Franklin Templeton says consumers tend to spend when they are optimistic about the future, which usually coincides with periods of high economic growth and low unemployment, none of which is evident in China today.
World Bank data shows very few countries have successfully migrated from the middle-income bracket to the high-income group since 1960. This select group contains South Korea, Singapore, Israel and Ireland. One factor they all had in common when they were in the middle-income grouping was educational attainment with the percentage of workers with completed secondary education exceeding 70 per cent.
This could be the silver lining for China in what is a gloomy economic outlook. Educational attainment is easy to improve, and Beijing has all the finance and policy tools necessary to deliver this, although even here it has a hard row to hoe as the labour force is still under-skilled compared with most other middle- income countries.
None of this bodes well for Australia. Our largest trading partner, accounting for 27 per cent of our two-way trade, and the sixth-largest foreign direct investor in Australia, the ripple effect through our economy could be significant.
