East Asia Crashing: Dynamism Undone by Demographics

Japan is falling rapidly through the ranks of the world’s top economies. According to the International Monetary Fund, it will drop to number five in 2025, behind the United States, China, Germany, and India, the new number four. But Japan is not alone in its plight. Just as it spearheaded the East Asian boom that began in the 1960s, it has set the pace for the bust now gripping South Korea, Taiwan, and Hong Kong—with China almost certain to follow. At the heart of this shift are the inexorable forces of demographic aging and population decline.

East Asia’s Economic Relay

For many years East Asia was the world’s key growth center, and Japan was the main engine behind that growth. During the era of the “Japanese miracle,” from the mid-1950s to the early 1970s, the Japanese economy’s growth rate was the envy of the world. In 1968, Japan shot past what was then West Germany to become the world’s second largest economic power, after the United States. Beginning in the mid-1960s, South Korea followed with the “miracle on the Han River.” It was soon joined by Taiwan, Hong Kong, and Singapore to form a dynamic group dubbed the Four Little Dragons.

The rise of the “big dragon,” China, began in the late 1970s under the “reform and opening up” policies of Deng Xiaoping. Emerging from the devastation of the Cultural Revolution (1966–76), China needed only about 30 years to overtake Japan, becoming the world’s second-largest economy in 2010.

By that time, Japan was already on a different trajectory. Following the collapse of the 1980s asset price bubble, it entered the “lost decade,” which dragged on for another 20-odd years, allowing China to take over as the growth center of Asia and the world. In 2024, the Japanese economy fell to fourth place, behind Germany. As a portion of global economic output, Japan’s nominal GDP has fallen from 17.5% in 1995 to around 4% today.

Demographic Destiny?

This growth trajectory closely tracks demographic trends.

Japan’s population peaked in 2008 at 128.08 million, and it has been contracting continuously since 2011. In 2024, the number of live births fell below 700,000 for the first time since the government launched its annual vital statistics survey in 1899. Moreover, Japan’s neighbors, after following us on the road to growth and prosperity, are experiencing the same demographic transition.

South Korea’s population fell for two consecutive years after reaching 51.76 million in 2020. In 2023, the country’s total population grew slightly thanks to an influx in foreign workers, but with one of the world’s lowest fertility rates, South Korea is unlikely to stem its long-term demographic decline. Taiwan’s population contracted for three years running after hitting 23.60 million in 2019. It bounced back slightly in 2023—again, thanks to immigration—but started shrinking again in 2024.

Finally, we come to China, long the world’s most populous country. Population decline here had an artificial component in the form of the one-child policy adopted in 1979. But the birthrate remained lackluster even after the policy was scrapped in 2015. As a result, China’s population has been shrinking ever since 2021, when it peaked at 1.264 billion. In 2023, according to UN statistics, India overtook China as the world’s most populous nation.

The key indicator of future demographic trends is total fertility rate (TFR), the number of children the average woman is expected to bear in her lifetime. In developed countries, replacement-level fertility—the rate at which the population stays constant—is about 2.1.

In the World Bank’s TFR ranking of 218 countries and territories, Japan ranks at number 199 with a TFR of 1.20, China at 211 (1.00), Taiwan at 215 (0.87), Hong Kong at 216 (0.75), and South Korea at 217 (0.72). If fertility continues at these levels, the region’s population will fall by at least half before the century is out. What was once the world’s growth center is facing depopulation.

Westward Shift

In addition to having fewer children, people in East Asia are living longer, resulting in rapid demographic aging. This means that the productive population (those aged 15–64) is dwindling as a percentage of the whole. This naturally drags down economic activity and blunts growth, and that is exactly what we have seen in East Asia in recent years. Japan’s growth rate has languished between 0% and 1% and South Korea’s between 1% and 2%, while Taiwan’s has ranged from 1% to 4%.

The Chinese government announced a growth rate of 5% for 2024, but that figure strains credibility. Domestic demand has remained sluggish amid the prolonged real estate crisis, and deflationary pressures have been mounting over the past two years. On top of that, China is experiencing an exodus of foreign capital owing to multiple factors, including the tightening of regulations in response to friction with the United States. China has been issuing special treasury bonds and injecting capital into its major banks. All these circumstances suggest that the actual growth rate may be less than half the figure published by the government. China still has the world’s second largest economy, but its share of global GDP has dropped to less than 17% from the 2021 peak of 18.3%.

Meanwhile, Vietnam’s population surpassed 100 million in 2023, and the country’s economy grew by 7% in 2024. In India, which has replaced China as the world’s biggest country, GDP growth has held between 6% and 9% since 2021. The growth center of Asia, and of the world, is shifting westward.

(Originally published in Japanese. Banner photo: Children receive instruction in first aid during a civil defense drill held in central Seoul, May 2023. © AFP/Jiji.)