As China's Population Declines In 2023, Will Aging Demographics Boost Healthcare Stocks?

In a week’s time, China is expected to report that its population fell for a second-consecutive year as post-lockdown Covid deaths spiked and low birth rates continued.

The data are expected to show that for the first time in more than 60 years, deaths outnumbered births. This has deep economic significance as China must face the challenges of grappling with an aging population — a problem that many countries in the West have known for years.

The base economic scenario is well known: an aging population requires funding for state pensions and extra healthcare spending for the elderly. At the same time, there is a shrinking base of workers to pay the necessary income tax to meet this funding.

To put this problem in context — demographers believe that by 2035 China’s over 60s will number more than 400 million — almost a third of its current population and larger than the total population of the U.S.

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China’s Economic Miracle Fades

During China’s Tiger economy years through the 1980s to the 2010s, as it transitioned from a largely agrarian economy to a massive industrial power, it was possible for the country’s leaders to overlook rising life expectancy and falling birth rates — simply use economic growth to fund any shortfall between tax revenues and spending.

But China’ economic miracle of double-digit annual growth proved to be unsustainable. As young Chinese were tempted out of the fields and into the factories and foundries by the promise of higher pay and decent accommodation, the building spree to accommodate this shift was already sowing the seeds for an economic crisis.

Indeed, the persistent decrease in population numbers presents unfavorable news for the property businesses at the heart of this crisis. While China Evergrande remains close to collapse, the Global X MSCI China Real Estate ETF CHIR, an exchange trade fund that tracks China real estate firms, has fallen 41% since the start of 2023 – 8% of which is so far in 2024.

“China has long recognized that the country can no longer rely on the labor-intensive economic growth model of the past,” said Feng Weng, professor of sociology, University of California, writing in The Conversation.

“Technological advances and competition from countries that can provide a cheaper workforce such as Vietnam and India have rendered this old model largely obsolete,” he added.

Tech And Healthcare Will Be Pivotal

So what is worth investing in given an aging population? Mature economies that can no-longer support higher levels of industrial growth tend to turn more services oriented, and also develop their scientific and technological expertise. Thus, countries such as the U.K., services and pharmaceuticals are primary industries.

China, while remaining a significant industrial player, probably won’t see its economy expanding at the 12% annual rate once again. Many of these challenges have been related to trade disputes with the U.S., such as the procurement of semiconductors and technology components.

Alibaba Group Holding Ltd BABA shares have fallen as it cited difficulties getting all the semiconductors it needs to develop its business.

But, given China’s aging population, healthcare stocks could be the picks for the longer-term investors.

Companies such as BeiGene Ltd BGNE, the biggest Chinese healthcare stock listed in the U.S., received a “strong buy” rating from Zacks recently. While its performance throughout 2023 wasn’t notably outsanding, the company’s shares have gained 10% over the past three days.

Likewise, Legend Biotech LEGN, whose shares performed well in 2023, up 18%, and have gained a further 4.7% so far this week.

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