Macroscope | Monetary policy and Asia’s people-shaped hole
China and Japan struggle to find solutions to problems posed by shrinking populations
For years in America an argument has been made that the US Federal Reserve has unsuccessfully tried to fill a fiscal stimulus-shaped hole with monetary policy.
In Asia, notably in China and Japan, the deficit that monetary policy is trying and failing to bridge is demographic: a people-shaped hole.
This was amply illustrated in China when the Communist Party announced last week it would scrap its longstanding one-child policy just days after the mainland’s central bank moved to cut interest rates for the sixth time in less than a year.
One phenomenon is linked to the other: mainland China’s economic slowdown, against which the People’s Bank of China is fighting, is in part the result of the drying up of its formerly huge pool of underutilized labour. That, as Beijing is well aware, calls into question the mainland’s long-standing economic model based on investment and exports, and argues for making the difficult transition to one centred on domestic consumption.
There are two problems with Beijing’s policy change: it won’t work and even if it did, help would arrive too late
Japan is little different, just a lot further down the track of shrinking population.