As odd as it sounds, China's economic policy is being held hostage by its heavily skewed sex ratio.
China's excess of young, unmarriageable males poses an acute dilemma for President Xi Jinping and other leaders as they set the country's path for the next five years during the 19th Chinese Communist Party Congress.
After years of heavy spending and investment to boost growth and employment, China is at risk of
economic stagnation if it doesn't restructure the economy. Yet there is peril that doing so will lead to
dangerous levels of unrest among the millions of unmarried men - known as "bare branches" - who will be laid off from shuttered unneeded steel, coal and auto factories.
So far Xi has tempered reform and kept the money taps open in order to avoid political instability. As the costs of domestic economic imbalances rise and international pressures to cut excess industrial capacity grow, Xi will have to decide what to do about the bare branches strewn in his way. And that won't be an easy task, as my research on the intersection of economics and politics suggests.
China's spending spree
This dilemma has been building for almost a decade, since Chinese leaders responded to the 2008 global financial crisis by channeling massive investments into infrastructure and heavy industry to sustain economic growth and prevent political unrest.
The proportion of China's economy devoted to investment shot up from roughly a third to close to half - a level unprecedented among modern economies (that compares with only 20% in US in 2015). Since 2008, China's crude steel production capacity has more than doubled, reaching close to half of the world total.
This investment has proven remarkably successful, at least in the short term, helping China avoid the economic downturn experienced by Western countries. China's investment binge also created the world's largest bullet train network and made it a global leader in solar panel production.
The binge, however, has also left China with a morning-after hangover that threatens to become a "national financial and economic crisis" unless it implements reforms, according to a group of Oxford-based economists. The report suggests that China focus on fewer but higher-quality infrastructure projects while accelerating a shift in demand from investment to consumption.
Yet China continues to rely heavily upon infrastructure investment to drive growth. Besides steel, the economy also remains plagued by industrial overcapacity in autos, cement, glass, solar cells, aluminum and coal. Recent efforts to close old and inefficient factories have had little effect so far.
This has international consequences as well because all that excess steel, glass and aluminum must go somewhere and often ends up in other countries, hurting domestic markets. Steel exports to the US, for example, surged 22 percent from August 2016 to July 2017, prompting retaliatory threats from President Donald Trump.
So why did Chinese policymakers extend the investment spree so long? Why have they been reluctant to close down factories producing excess steel, solar cells or glass or stop funding the development of uninhabited "ghost cities"?
While there are factors at play, one deserves more attention than it has received: Leaders fear the consequences of high unemployment among "bare branches," a term used in China for young, low-status men who, because they are typically unmarriageable, represent endpoints on the family tree.
Bare branches are a result of one of the most skewed sex ratios in the world. China has 106.3 males for every 100 females, compared with a global ratio of 101.8 to 100. In coming years, the workforce imbalance will only worsen because there are 117 boys under age 15 for every 100 girls. This is a result of extreme gender discrimination favoring males, a tendency exacerbated by China's one-child policy, which was in force from 1979 to 2015. Typically, unwanted female fetuses, identified
through ultrasound, are aborted.
This has resulted in a surplus of young bare-branch males. Bare branches are typically low status, since better-educated and higher-income males have better odds of attracting marriage partners. Lacking skills or the strong community ties brought on by family life, these young, unmarried men make up a large proportion of the internal migrant population that relocates from rural areas to cities in search of work.
Some economists believe that China's official unemployment rate of 4 percent understates the reality, which may be more than double that. The rate of unemployment is politically sensitive since unemployed workers are more likely to engage in civil unrest and other anti-regime activities.
In short, Xi could forestall reform, thus keeping the bare branches busily employed at the risk of an economic crisis and punitive tarriffs from trading partners like the US. Or he could cut investment and close thousands of factories, creating a significant risk of domestic unrest and potentially necessitating some combination of a strengthened social safety net and political repression to contain it.
China's excess of young, unmarriageable males poses an acute dilemma for President Xi Jinping and other leaders as they set the country's path for the next five years during the 19th Chinese Communist Party Congress.
After years of heavy spending and investment to boost growth and employment, China is at risk of
economic stagnation if it doesn't restructure the economy. Yet there is peril that doing so will lead to
dangerous levels of unrest among the millions of unmarried men - known as "bare branches" - who will be laid off from shuttered unneeded steel, coal and auto factories.
So far Xi has tempered reform and kept the money taps open in order to avoid political instability. As the costs of domestic economic imbalances rise and international pressures to cut excess industrial capacity grow, Xi will have to decide what to do about the bare branches strewn in his way. And that won't be an easy task, as my research on the intersection of economics and politics suggests.
China's spending spree
This dilemma has been building for almost a decade, since Chinese leaders responded to the 2008 global financial crisis by channeling massive investments into infrastructure and heavy industry to sustain economic growth and prevent political unrest.
The proportion of China's economy devoted to investment shot up from roughly a third to close to half - a level unprecedented among modern economies (that compares with only 20% in US in 2015). Since 2008, China's crude steel production capacity has more than doubled, reaching close to half of the world total.
This investment has proven remarkably successful, at least in the short term, helping China avoid the economic downturn experienced by Western countries. China's investment binge also created the world's largest bullet train network and made it a global leader in solar panel production.
The binge, however, has also left China with a morning-after hangover that threatens to become a "national financial and economic crisis" unless it implements reforms, according to a group of Oxford-based economists. The report suggests that China focus on fewer but higher-quality infrastructure projects while accelerating a shift in demand from investment to consumption.
Yet China continues to rely heavily upon infrastructure investment to drive growth. Besides steel, the economy also remains plagued by industrial overcapacity in autos, cement, glass, solar cells, aluminum and coal. Recent efforts to close old and inefficient factories have had little effect so far.
This has international consequences as well because all that excess steel, glass and aluminum must go somewhere and often ends up in other countries, hurting domestic markets. Steel exports to the US, for example, surged 22 percent from August 2016 to July 2017, prompting retaliatory threats from President Donald Trump.
So why did Chinese policymakers extend the investment spree so long? Why have they been reluctant to close down factories producing excess steel, solar cells or glass or stop funding the development of uninhabited "ghost cities"?
While there are factors at play, one deserves more attention than it has received: Leaders fear the consequences of high unemployment among "bare branches," a term used in China for young, low-status men who, because they are typically unmarriageable, represent endpoints on the family tree.
Bare branches are a result of one of the most skewed sex ratios in the world. China has 106.3 males for every 100 females, compared with a global ratio of 101.8 to 100. In coming years, the workforce imbalance will only worsen because there are 117 boys under age 15 for every 100 girls. This is a result of extreme gender discrimination favoring males, a tendency exacerbated by China's one-child policy, which was in force from 1979 to 2015. Typically, unwanted female fetuses, identified
through ultrasound, are aborted.
This has resulted in a surplus of young bare-branch males. Bare branches are typically low status, since better-educated and higher-income males have better odds of attracting marriage partners. Lacking skills or the strong community ties brought on by family life, these young, unmarried men make up a large proportion of the internal migrant population that relocates from rural areas to cities in search of work.
Some economists believe that China's official unemployment rate of 4 percent understates the reality, which may be more than double that. The rate of unemployment is politically sensitive since unemployed workers are more likely to engage in civil unrest and other anti-regime activities.
In short, Xi could forestall reform, thus keeping the bare branches busily employed at the risk of an economic crisis and punitive tarriffs from trading partners like the US. Or he could cut investment and close thousands of factories, creating a significant risk of domestic unrest and potentially necessitating some combination of a strengthened social safety net and political repression to contain it.
