....Demographic changes will impact household wealth creation. In their report, The Coming Demographic Deficit: How Aging Populations will Reduce Global Savings, [McKinsey analysts]* wrote: "Aging will cause growth in household financial wealth to slow by more than two-thirds across countries we studied (USA, Japan, and W Europe), from 4.5% historically to 1.2% going forward.A surprising development is that the demographic profile of the USA is so much better than that of China. Once the USA puts its financial house in better order, which it will if not willingly, its growth expectations will be better than China's......

For China, based on simple fundamentals, growth has peaked. The years of circa 10% growth are over because such growth is unsustainable and brings in its wake a package of problems. "One approach to forecasting total real GDP of a country is to combine the projected trend in the number of persons employed with the projected trend in the gross productivity per worker" writes Dr Laurent. He calculates that the trends in the education index of the country should give an expected productivity growth of 7.8% a year to 2016 and 5.8% a year to 2021. This equation gives a trend growth rate for real GDP growth of
• 7.5% a year to 2016
• 5.1% a year to 2021, and
• 3% a year to 2031

This slowdown will have a huge impact on China's future requirements of imported metals like copper. This trend is likely to be magnified also by US and other foreign companies vacating China and returning to their home bases – in the USA once the political system rolls back much of the red tape, health care costs and tax issues etc. There is a fundamental reason for companies to return home: it is that multinationals want their supplier chains adjacent to the market, not on the other side of the world.

CBA has trimmed its 2012 GDP growth forecast for China to 8.7% from 9.0%. The change reflects not only lower expected exports but also an “orderly” decline in Chinese property prices of 10-20%. Despite nervousness to date, China's net house prices has yet to peak, notes CBA, albeit price falls in the largest cities are an indicator of things to come. Yet even with 10-20% price falls, CBA suggests the greater influence of China's construction and manufacturing sectors on wealth generation means the negative contribution from falling property prices will only be small.

It would be a different story were China's prices to see much bigger falls, CBA concedes, but that's not what the economists are forecasting. They also offer nine reasons why an orderly decline of 10-20% in China is really nothing much for the rest of the world to fret over.
(1) The Chinese economy is undergoing a structural change which sees a shift from universal public housing towards ownership of private dwellings. Observers should not underestimate the impact of this structural upheaval on prices as opposed to what the West knows as property price cycles.
(2) China's residential mortgage loans are just 15% of GDP, compared to 70% for the US and 90% for Australia; and (3) the vast majority of China's housing boom has been financed out of savings rather than debt.
(4) Household consumption represents only 37% of China's GDP compared to 62% in Australia and 70% in the US. A fall in house prices thus implies a lower negative wealth effect on the economy in China; and (5) while it seems like China is undergoing a world-beating residential construction boom, residential construction only accounts for 6.0% in GDP which is the same in Australia.
(6) If the Chinese property market were to collapse, the response from Beijing would be swift. China's current cash rate is 6.56% so there's plenty of room to move.
(7) Does it seem like the Chinese property market is in a bubble? Since 2005 the net price increase for new homes has been 6.3%pa and for existing homes only 3.9%pa. The growth rate in the US, and in other Asian regions, had been much higher.
(8) Price-to-rent ratio growth suggests slight overvaluation, but not as much as is currently the case in Singapore, Hong Kong, France and Canada.
(9) While China's residential vacancy rate of 10% appears high (Australia 2.1%), this comes back to point (1) about the structural shift. As the Chinese move out of their old public housing complexes and into their own dwellings the government will be demolishing those old complexes in their wake.

To conclude, CBA notes that while falling housing affordability in large Chinese cities threatens significant social problems, a 10-20% nationwide decline in net house prices is not expected to deliver a large net impact on the Chinese economy.

... the dilemma facing China’s government as it tries to cool the property market. If policies such as increased down payment requirements don’t go far enough, it risks a housing bubble; if it pushes too hard, it may provoke the ire of a new generation of middle class “fang nu,” or housing slaves, in a reference to the lifetime’s work needed to pay off debts. ...

Residential property prices fell from the previous month in 33 cities of the 70 measured in October, the worst performance this year, after the government imposed restrictions on mortgages and loans to developers. Analysts at Credit Suisse Group AG say prices may fall 10 percent this year and another 10 percent in 2012. Huang Yiping, a Hong Kong-based economist at Barclays Plc, said the drop would be between 10 to 30 percent in the next 12 months.

In an indication of how seriously the government is taking the matter, a Nov. 21 commentary by the official Xinhua News Agency said that such protests are “a social phenomenon that cannot be ignored,” before adding that their appeals aren’t supported by law....

,....... a looming demographic shift for China, Bloomberg Businessweek reports in its Jan. 9 issue. The latest government census shows 178 million Chinese were over 60 in 2009. That figure could reach 437 million -- one third of the population -- by 2050, the United Nations forecasts. While the elderly were looked after in the past by their children, urbanization and the nation’s one-child policy have eroded the tradition of family care.

“It’s a demographic tsunami,” says Joseph J. Christian, a fellow at the Asia Center at the Harvard Kennedy School, and former DLA Piper partner in Hong Kong, who specializes in senior housing issues in China. “The whole multi­generational housing model has disappeared.”

China’s challenge is similar to that faced by Japan in the 1990s, with one essential difference: China will grow old before it gets rich. With tens of millions of parents left to fend for themselves, the government set up a National Committee on Aging to try to devise a comprehensive strategy (CHGE7) to ensure their health and comfort.

The latest five-year plan still gives families primary responsibility for elderly care. Even so, the government is looking to the private sector, nongovernmental organizations, and local communities for a more sustainable solution. So far only a handful of companies provide service comparable to the West, and even care like the kind offered by the clinic where Wang Fuchuan lives is relatively rare.

“Elderly health care is in its infancy” in China, says Ninie Wang, founder of Beijing-based Pinetree Senior Care Services, which employs 500 nurses providing in-home support to 20,000 seniors in Beijing.....

....In a 20 square meter (215 square feet) apartment without heating or an indoor toilet in one of Shanghai’s few remaining old neighborhoods, 81-year-old Luo Jinxiang says his pension barely covers food and medication for his diabetes and the occasional visit to a local clinic. “Do you really believe that the government cares for us?” he asks with a wry smile. “Don’t think about it too much. That is the way the country runs.”

China’s urban population surpassed the number of people living in the countryside last year for the first time in the nation’s more than 5,000 years of history.

The number of people living in towns and cities increased by 21 million to 690.79 million at the end of 2011, according to the National Bureau of Statistics. The rural population fell by 14.56 million to 656.56 million, the bureau said,.............