1. China tipped over the demographic cliff circa 2007-2010. Here are middle to young, middle to old, net investors and dependency ratio (inverted) measures:
3. China’s stock market correlates closely with commodities:
4. Demand for commodities is weakening as the economy weakens:
5. Chinese official GDP stats are questionable, so proxies are used for greater reliability. Here, steel, cement and electricity output show a wilting in 2014, flirting with the zero level:
6. Imports and exports are at much weaker growth levels since the demographic peak, and both have seen lurches below zero in 2014:
7. Government spending has shrunk:
8. Producer prices are mired in deflation:
9. And certain indicators have suddenly become more acute in 2014, starting with foreign direct investment:
10. Then the housing market:
11. The shadow banking market:
12. And lending:
History shows that economies which expand at breakneck speed typically derail at some point. A potential hard landing for China has been discussed in the media for a long time, but analysts don’t largely understand that it is only in the last 3-4 years that this has become more realistic, since China fell over the demographic cliff. Their one child policy has a nasty sting in its tail. The key is whether the Chinese government can roll out measures that nip the sharp 2014 declines in the bud (which would postpone rather than prevent the devastation), before the negative feedback looping becomes too acute.
In my view, it is the unprecedented collective demographic downtrends in USA, Europe, Japan and China that are tipping the global economy into an unstoppable negative spiral here (only currently propped up by the wealth effect of the stock markets) and central banks will not be able to prevent it. Japan, USA, Europe and China all took turns to be the engine of the world economy between 1980 and 2010 but now we are engineless until circa 2020/2025. By demographics that means a global deflationary recession, or a depression. Passing through the solar maximum here in 2014 should produce dwindling speculation and economic activity and nudge the stock markets and world economy over the edge, feeding off each other.