2012 is the Year of Dragon in Chinese zodiac. Traditionally, it's the year to have babies, especially boys. It also marks the last year that China will have 20 million births for years to come.
Over the next 25 years, China is facing a huge demographic crisis largely because of its controversial one-child policy. To a lesser extent, better social welfare and urbanization also decrease the long term incentive to have more children.
Those heavily invested in the big names in China, such as China Mobile (CHL), China Unicom (CHU), China Life Insurance (LFC), new names in China, such as Baidu (BIDU), Sina (SINA), Sohu (SOHU), and RenRen (RENN), need to follow this population trend very cautiously.
The following two population pyramids (2010 and 2020) show what is to come in China's population. Each horizontal bar represents the population of an age group. The bars on the left half represent males; the bars on the right half represent females. The longer the bar, the large the population group.
(click to enlarge)
(click to enlarge)
China will have a huge population phasing out of the workforce by 2025. Because of shrinking trend in population, no supplemental labor will be added to the economy. It will also come in two waves, by 2040, China will face the second wave of retirees.
What does this mean?
It means the general problems with aging population are almost unavoidable: fewer people will work and more people will not be producing things. The social welfare expense, even with China's pathetically cheap system, will skyrocket in order to keep reasonable social order.
It also marks what's very likely to come soon: a full collapse of real estate market in real price terms -- the housing market could come to an end in the form of hyperinflation without much nominal loss. Also there will simply not be enough population to take over the overbuilt cities, even with the large scale urbanization that is happening now.
Japan's population pyramids between 2000 and 2010 look eerily similar to those of China five years from now. What happened to Japan? Almost two decades of lost time.
How serious is this time bomb going to be? We shall find out soon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.