China’s population decline: what this means for global supply chain

China’s explosion in population over the decades took an interesting turn this week. According to China’s National Bureau of Statistics, China’s population declined by 850,000 in 2022, marking the first negative reading since 1961.

This seems to be a piece of news out of China that while attracting a fair amount of global media attention, seems to be underappreciated by investors. Financial coverage seems to be lacking, although this could be due to the World Economic Forum dominating attention.

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I found some interesting commentary sent to my inbox from Oliver Chapman, a supply chain specialist and CEO of OCI that I would like to share with our readers.

China birth rate: ‘an especially important trend’

Perhaps receiving even less attention than China’s population trend is what is going on in India. Chapman notes that China’s population at the end of 2022 was 1.412 billion while India’s stands at 1.414 billion.

India’s population has consistently grown at around 1% a year and “will soon unambiguously surpass China’s population” in 2023, Chapman writes. Perhaps more important, India’s median age stands at 28.4 while China’s is a full 10 years higher at 38.4. He adds:

The adjustment in the supply chain is inevitable, thanks to demographics, and good for global economic stability as it creates a supply chain less reliant on one region.

China is no longer ‘the world’s factory’

India is in a strong position to gain share in the global manufacturing industry. One needs to look at Apple Inc. (NASDAQ: AAPL) for proof, Chapman argues. From April 2022 through December 2022, India’s exports of iPhone devices doubled.

Ironically, Foxconn’s facility in Zhengzhou has been hard hit by China’s COVID policies. To counter this, Foxconn is investing $500 million in… India. Meanwhile, Apple is exploring similar investments in nearby Vietnam.

That said, China’s title as “the world’s factory is now coming to an end,” Chapman writes.

Is India the new China?

India has a lot of momentum and I am seeing more and more Indian startups attract global attention. I even covered news last March about a massively popular platform Chingari that recorded extremely impressive growth metrics.

The number of unicorns (i.e companies valued at $1 billion or more) is quite impressive with some estimates putting the figure at more than 100.

So, can India maintain recent momentum and become one of, if not the, most important country for the global economy. Not so fast, Chapman argues:

The recent supply chain crisis has forced organisations to focus on the minutiae of the supply chain detail and encouraged them to create a supply chain which can respond quickly and effectively to changing circumstances.

India is unlikely to dominate the global supply chain as we can expect further shifts in the coming years and decades. Specifically, companies are now focusing on establishing a manufacturing presence close to the point of consumption. Countries like Poland and Mexico will “become more valuable links” to the global supply chain. 

Nevertheless, India will “become an ever more important manufacturing hub” throughout the decades and an “important link” in the supply chain.