Welcome back!

No apps configured. Please contact your administrator.
Forgot password?

Don’t have an account? Subscribe now

The Single Biggest Strategy Shift for the Next Few Decades

The Single Biggest Strategy Shift for the Next Few Decades

This is by far the biggest story of the week, and I’m very surprised that it hasn’t received more attention because it has incredible importance for the world. I would say this is the most important story that every CEO in the world needs to worry about. If you are the president of a country, as you’re making decisions about where to focus your industries, which to incentivize and which to disincentivize, this is an important story.

The biggest story that many people missed is the fact that the number of registered newborns in China dropped by 15% from 2019. As a corporate strategist, this is a phenomenal statistic. As I meet executives in our coaching program, I make sure that their companies are thinking about how this impacts them. A lot of them don’t understand how this impacts them, so I’m going to unpack it here.

This statistic means that the number of Chinese newborns is dropping. Why does this matter? At a certain point—predicted to be in 2027—the Chinese population will begin to shrink. This has profound implications for the world.

Let’s explain this in numbers. Let’s assume the population of China is 100 people. It’s not, but let’s assume it’s 100 people. For China’s economy to grow, it can add more people to its population. Let’s assume each person generated $1 worth of value in a year. If the Chinese population is 100 people, its GDP is $100. If it wants to grow its GDP, it can increase its population by five people per year, which means, assuming the output of those five new people is $1, China’s GDP goes up from $100 to $105. But if China’s population stays at 100, the output it needs to create per person needs to be more than $1 for its GDP to keep growing. If China wants to grow its GDP by 5% and its population is not growing, its output per person needs to grow by 5%. People need to be 5% more productive—to do more with fewer people.

But the story gets more interesting in two ways. One is that the population will start shrinking. If China’s population goes from 100 people to 95 people and it wants to increase its GDP by 5%, it doesn’t have to just increase output by 5%. It has to increase by more than 5% because there are fewer people. But life’s not that easy. If your population is fixed and you don’t have enough newborns, that means the percentage of people who are getting older and too old to work increases at a faster rate than newborns. This means that over time, the percentage of people that are responsible for driving the increase in output gets smaller and smaller. That’s logical. So, starting with 100 people, if the Chinese want to increase their output by 5%, it’s 5% per person, assuming the population doesn’t rise. If the population starts shrinking, you have to do it by more than 5%. If you have fewer people who can actually work, you have to increase it by much more than 5%.

Why does this matter to the world? A significant amount of global growth is driven by demand in China. There’s good news and bad news. The good news for everyone is that the Chinese GDP per capita is about $10,000. Depending on which source you use, it is around $10,000-$10,500, so it’s somewhere between Brazil and Russia. This means that China still has to do a lot to increase the output per person. Even if the population doesn’t grow, there is room to increase productivity per person. That’s good news.

The bad news is that, typically, countries that have low GDP per capita have very young populations. Those young people can work hard and increase their output per person. It’s very rare that a country ages before it becomes wealthy. If you look at countries like South Korea and Japan, they first got their GDP per capita to probably around $20,000-30,000 per person before they became what we would call an older and shrinking population. For Japan, which does have a shrinking population, that occurred around 2007.

The bottom line is that if your population starts shrinking, you have to do more with your people. Of course, China will keep growing, but that growth is going to be much harder to come by. You’re going to see that countries with large populations that are very young are going to have room to drive global economic growth. China is an economic superpower, and it will continue to be one. Whether its population shrinks from 1.3 billion to 1.1 billion, that’s 1.1 billion people who will see that GDP per capita go from $10,000 per person to $15, $20, $30, $40,000 per person. That’s going to have profound implications for the world, but it’s not easy growth.

The insight is to imagine how the world is going to change. It’s going to have profound implications because industries that we see in Japan are going to be migrating to China—like taking care of older people, building homes for older people, having industries with a large type font that cater to an older population. Fewer schools will be built. The retirement age will go up. Travel industries will cater to older people. Older people need to date. They need to eat. It’s a big issue in the world. I think every CEO in corporate America, corporate UK, corporate France, and dare I say corporate China, needs to think about these implications. It’s the biggest theme in strategy today. What happens when China’s population starts shrinking in 2027? The sub-bullet of that is: What happens as China ages before it becomes wealthy? Wealth is relative. China is going to be very wealthy, but it has profound implications, and companies that see this and start preparing for this are going to be in the right place at the right time. If you think COVID was big, this is an even bigger topic.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #16. 

Want to learn more about how FIRMSconsulting
can help your organization?

Related Articles

Monday Morning 8am

A strategy expert vs. a CEO

A strategy expert vs. a CEO I'm going to end today's Strategy Insights by talking about a client and some of the challenges, successes and particularly one of the deep insights we developed for this client. This client is named Raka, and she’s of Indian origin. She has worked at…

Monday Morning 8am

Sanctions Are Like Punishing Your Spouse by Letting Them Date Other People

Sanctions Are Like Punishing Your Spouse by Letting Them Date Other People The next big theme is called, “Sanctions Are Like Punishing Your Spouse by Letting Them Date Other People.” That’s a funny sounding headline. What am I talking about? Imagine you had a spouse, and you don't think they…

Monday Morning 8am

Three people that influence you the most

Three people that influence you the most The first big theme is titled, “The Three Most Influential People in the World: Roula Khalaf, Gwen Robinson, and Matt Murray.” This is a very deep insight. We have a lot of coaching clients, including very senior coaching clients. I’ve asked our coaching clients,…