E (4:15)

Good to see you, ed. And happy 2026.

C (4:17)

Happy 2026. So, I mean, it's hard to focus on China right now given what's going on in Davos and maybe have thoughts on what's happening there. And if so, feel free to, to discuss. But we wanted to focus on this birth rate, which was just released this week. China's birth rate hitting a record low seems like a pretty massive deal to us. I guess my question to you would be, is it?

E (4:47)

It's huge. And just for everyone to get historical perspective, we've seen four consecutive years of population decline. The birth level, 7.93 million births in 2025. That is the lowest level since 1949, the founding of the People's Republic of China. And most of that is driven by the fact that people are effectively having less children. Now, we can dig into the minutia as to why, but the fundamental takeaway from this is that this is an inevitable change that is going to be extreme difficult for the Chinese government to counteract. We actually have seen a great degree of policy response to the declining birth rate and declining population issue from the Chinese government. For instance, they're making it way more flexible to marry. In the past, you have to go to your, the place where you're born to register your marriages. Now you can flexibly marry. They pay $500 a year for your child until the age of three. They just waved in in the autumn in 2025. Free preschool education for all Chinese. And I think that they will continue to act on this with more policy levers to try to boost birth rates. They're even putting back onto condoms, a 13% tax to try to get people to avoid contraception. So I sense that there's a level of policy desperation because Ed and as we've discussed in previous podcasts, this is gonn huge demographic challenge for China because it has massive growth implications and massive labor market implications. Now economists debate whether or not having a rapidly aging population is going to be net inflationary or net deflationary, whether it means older people spend less and ergo, it's going to be deflationary, or it's actually going to tighten labor markets and make things more inflationary. We're actually going to see this play out in China very rapidly. And China is doing it at a rate that is far exceeding what we saw in Korea and Japan and at a poorer level. And one thing that I will add just to drive this home is that by 2035, 30% of the population larger than the size of America's population will be above the age of 60. So you think about what that means for society and for the economy. This is no joke, a huge issue for China.

C (7:10)

How much of this is a result of the one child policy, which I know is not in place anymore, but it used to be you could only have one child in China. Is this not just that?

E (7:23)

Well, that actually did, I think, respond to rather prudently massive population surges in China. You know, that we saw from the 60s onwards after the Cultural Revolution, we did see an upswing in population. They brought it in in 71. They got rid of it by 2015. So effectively by 2016, you could have more than one child. And now it's pret much fair game how many children you can have. The I don't think it really is the one child policy that has created this big demographic challenge. I think it is far more structural, far more societal and far more cultural in the sense that people are deciding they don't want to have kids, they don't want to marry. We've seen marriage rates, excluding last year when there was a bit of a surge in the first half of 2025, largely being on a downward trend because millennials like you and me are deciding I don't want to get married. What the point? We're getting highly educated women who are opting out of the marriage market, saying, I can take care of myself financially and think about the knock on impact of the One child policy, creating highly educated women who decide, I can focus on my career, I don't need a man in my life. That all that agglomerated has created a dynamic in which everyday young Chinese people of childbearing age have decided to opt out of the marriage market and opt out of the fertility market. That I think is the number one factor. It's the fact that young people are deciding they don't want to get married and they don't want to have children even although the government is doing everything it can to try to encourage more births.

C (9:05)

The start you said earlier about the share of the population who will be over 60 and just the implications that that would have on the labor force, what it would do to the social safety net. I mean, it sounds like all of America's problems on steroids. Where does this population issue rank for you in terms of China's macro risks right now? When you look at all of the things that China has to worry about.

E (9:35)

How big is this one in the short term? Ed Candidly, it's not the biggest issue. The biggest issue is going to be trade with the US and with the rest of the world, which is why what comes out of Davos is going to be interesting. What comes out of the April meeting potentially between Trump and Xi in China will be very, very important. And what matters more in the short to medium is China's technological advancements, especially in the realm of AI. And whether or not that can, as the government hopes and aspires, to unlock productivity gains for the economy. Because if AI is able to do this, it can to some extent counteract the aging demographic problem because you might have a tighter labor market, but then you have these deflationary pressures from humanoid robots, from technology that effectively will soak up some of the shortfall in the labor market. They could be used in elderly care, for instance, in factories, in manufacturing, in education, in healthcare. So I think that the technology issue is going to be critical. But if we move into the medium to long term realm, the demographic challenge, when I think about 2035 onwards, is going to be, I think, the top three issue for the Chinese government because thus far that they've, they've shown, I think in the last five years where they've really focused on this issue, that the government doesn't have the adequate policy toolkit to really ramp up fertility. And no other country in the world I think has been successful. You look to Korea, where the fertility rate is even lower. You look to Japan, you look to other countries that are actually desperately trying to respond to the aging demographic. No other country I think has shown a positive scenario or test case for how to respond. So I think when we zoom out of the short term, we look to the long term, the next decade and, and more. This is going to be a top three issue for the Chinese government and, and here I'm a little bit war worried about what it actually means for the labor market and more importantly what it actually means for the fiscal burdens of local governments and central governments. Because it is true that historically we've had a very weak pension system, a very weak Social Security system by Western and East Asian standards. So a lot more of the local and central government balance sheets will need to be dedicated towards creating a more robust Social Security system for an ever expanding population of 60 plus year olds. And they will have to, I think, continue to increase the retirement age which compared to the rest of the world is so low. I mean even before last year the female retirement age was only 55. So if you think about that, that is as much as 10 or even more years lower than some of the other G7 countries that I think is going to be a low hanging fruit for them to change as well, to try to maintain some degree of robustness in the labor market.

C (12:27)

You mentioned one of the risks being the relationship with the US right now, at least in the short term and how that's relevant at Davos. Just before you go, what have you made of what we've seen in Davos? How does any or all of it relate to China?

E (12:46)

So I sense that after the Rare Earths fiasco that we saw towards the second half of 2025, that China feels very vindicated in its US strateg. It feels that it can continue to use the red card if Trump doesn't play nice with them. From their perspective on trade talks, we've seen in response from Trump team, including Besson, I think a far more dovish approach to China on trade talks. So from Beijing's standpoint, they look at the unrest in Venezuela, they look at the unrest in other parts of the world and now the fiasco over Greenland and they go, well, this is good. This means that the US is going to be distracted from the China challenge, it's going to be distracted from dealing with its own domestic issues which, oh by the way, keep growing. And this actually plays into Xi's strategy, which is to divide and conquer. In my view, he is using the carney playbook, Kani going to China and using that to effectively create what the communists would call contradictions in the West. So to divide the G7 countries from America and encourage them through a degree of panda diplomacy, for instance, lowering tariffs or agreeing to bilateral trade and investment flows, using that lever to try to get the Canadians, the Europeans and the Brits to reset their relationship, quote unquote, with China. The next thing we'll have to watch is Starmer's trip. It should be at the end of January to Beijing, where it seems there are rumors that he also wants to reset the relationship and go back to some degree of the David Cameron golden era relationship. So I think this is the trajectory that China is on. And certainly right now, the more that the US focuses on Greenland and invokes the ire of the Europeans, I think the more likely it is that the Europeans say, hey, China, we're willing to compromise maybe further when it comes to the EV price minimums, maybe we'll be more open to Chinese investment in Europe in a way that we weren't, say, even last year or a couple of years ago. So I sense that China feels that it is vindicated. Whether or not that maintains as a theme through 2026 remains to be seen.

C (14:59)

Yeah, it seems like if anyone's celebrating what's happening in Switzerland right now, it's China and Xi Jinping. I can't see any winners coming out of this other than them. Lots more to discuss another time. Alice Han, host of the China Decode podcast, China Economist at Green Mantle. Alice, thank you very much for your time.

E (15:19)

Thanks so much Ed. Talk soon.

C (15:23)

After the break, a look at a bond sell off in Japan and also another taco. And for even more markets content, you can subscribe to my new weekly newsletter, simply put@edwardelson.substack.com.

F (15:44)

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C (18:01)

We're back with property markets. Japan's government bond yields surged to record highs on Tuesday amid fears of a looming debt crisis. The massive sell off came after Prime Minister Sanae Takaichi pledged to cut taxes and ramp up spending without explaining how she'd pay for it. The turbulence in Japan combined, combined with the heightened tensions over Greenland sent U.S. treasuries tumbling while Japan's long term bonds rebounded yesterday. Analysts warn that stability is unlikely until Tokyo provides a credible path toward deficit control. Okay, joining us to tell us what on earth is going on in Japan and how this all relates to global markets, we're speaking with William Chu, senior Fellow and Deputy Director of the Japan Chair at the Hudson Institute. William, welcome back to Profit you Markets.

G (18:52)

Yeah, great to be. Great to be back, Ed.

C (18:55)

So last time we spoke, Japan had just elected their new Prime Minister, Sanae Takaichi. We talked a little bit about who she is and also the market's reaction which was pretty positive. Here we are three months later. It appears that there's some sort of meltdown happening in the Japanese bond market. It appears it has something to do again with Prime Minister Takaichi what is happening in Japan right now, what triggered this and how did we get here?

G (19:24)

I think what's going on right now is that. So she had essentially all but declared that she will call snap elections once the Diet comes back to session on January 23. The elections are set for February 8. That is essentially an election to affirm her mandate to govern. And I think very much in terms of her priorities is one, the issue of just building up political support and focusing on issues of affordability that's obviously plaguing other countries other than just Japan, and cutting the consumption tax. The expectation there is that it will cause Japanese debt levels to rise. There's also other considerations just in terms of her own plans on economic investment, defense buildup, all things that will also put more pressure on long term Japanese debt. So I think that those are the various issues at play related to that is also I think the opposition are trying to build up pressure in terms of merging two opposition parties to create a centrist opposition bloc. And so I think that's creating more political pressure for her to address these more kitchen table affordability issues like cutting the consumption tax.

C (20:45)

Some people are calling this Japan's Liz Truss moment. That's something we've seen. And this is a reference to the former Prime Minister of Britain, Liz Truss, who left office. She planned this big package of all these unfunded tax cuts. There was this big sell off in the bond markets. Is that an accurate description? Should people be making that comparison? Is this different from what I understand.

G (21:16)

Certainly of Liz Truss's policies? I think Sanaya Takechi has a much clearer policy vision. I think in her case, it's not just unfunded tax cuts or consumption tax cuts for no political purpose. One, there is a political purpose which is to actually build up the ruling party majority, which she needs push through some of her other more ambitious plans. And those ambitious plans involve economic security, basically investment in 17 key strategic areas that will allow for, well, at least it's designed for long term Japanese economic growth and innovation, as well as defense spending, which obviously the China backlash has demonstrated to Japan that it needs to seriously invest in. And obviously there's also some pressure from the United States for Japan to spend more on their defense. And so I think she's doing this for very reasonable reasons. Right. These are all necessary reasons. So I think for at least on the policy side, it makes sense. Is it a risk? Yes. But these are also things that she needs to do policy wise. So I would push back on the sort of the Liz Truss Comparison. I think Sanae Takichi has a solid policy head on her shoulders, even if it is definitely running some risks.

C (22:34)

There's one last question before we let you go. We've been seeing a lot of activity up and down in the stock market, in the wider stock market, in the US Stock market. Given what's happening in Davos, all the conversations about Greenland, Scott Besant said the other day when we saw all of the selling, he said that this isn't about Greenland, this is about Japan. It seems like that's probably not the case given what happened after Trump basically tacoed just recently. But I guess it sort of introduces a larger question which is how important is the Japanese bond market to the rest of the market? Why does this matter if at all to U.S. investors?

G (23:26)

Sure. So I think the connection there is there's one primary and there's one secondary one is that Japanese bond markets have always been stable. Right. Like the fact that Japan can carry some of the highest levels of debt in the world is because so much of the debt is actually held internally in Japan. And so, you know, they're bought and rebought and resold within Japan. So that that provides a certain level of stability that allows for the Japanese government to essentially function on a deficit as they have many years. And I think there's a lot of appeal to foreign investors because the Japanese bond market and more broadly the political economic system is fairly stable. So I think that's the appeal. I think what the US Rhetoric on Greenland has done is obviously it's certainly created some spikes in the market and also both in the stock and the bond market, I think what it really does, at least in terms of connection to Japan, is it create concern in Japan about, well, if the US Is focused on Venezuela, it's a focus on Iran or it's focused on Greenland, you know, we, the Japanese are raising questions of like, you know, if something happens with China, as especially given the recent China blowback against Sakaichi over Taiwan, you know, like do we have to spend more on defense because the US Might be overstretched or it's just unable to get around. Come, come over. These are Japanese concerns. Right. These are not my own personal concerns, but that is the way that they are voicing a lot of these concerns through. I think both the bond, the expectation is that Japan will have to spend more on defense and security, hence driving the long term bond yields up while also driving the stock market up because there is expectation that there's going to be short term money flowing into the security and defense sector, both because of its own needs immediately as well as sort of like long term trends over U.S. presence in the, in the Pacific.

C (25:28)

Okay, William Chu, senior fellow and Deputy Director of the Japan Chair at the Hudson Institute. William, thank you. We appreciate your time.

G (25:36)

Of course. Thank you as always, guys. Appreciate it.

C (25:43)

Well, the big news is obviously the Taco. Trump has decided to cancel the tariffs because he has supposedly reached a framework for a future deal for Greenland. There's a lot there. We'll be breaking all of it down with Scott on our Monday episode. But before we go here, I do want to touch quickly on Trump's speech that he gave yesterday at Davos, the speech that preceded the Taco. There was a lot of build up to this speech. It was his first visit to Davos in six years. There was supposedly a 90 minute wait outside the conference room. Everyone wanted to be there because everyone wanted to know what is Donald Trump going to say? And what happened next was notable, and that is he didn't really say anything. The speech was over an hour long. He clearly hadn't prepared any notes. He rambled from one talking point to the next. There was no coherence, there was no message, there was no agenda. It was basically just a stream of consciousness. I tried to watch it. I could barely get through it because it was so boring. Now, the headlines would indicate that he did say something specifically that he wouldn't use force against Greenland. And that appears to be what initially moved markets before we saw the Taco, the S and P, the Dow and the NASDAQ all rose more than 1%. But let's not forget that in that very same speech, he also confused the country of Greenland with the country of Iceland. Not once, not twice, but four times. It was obvious to everyone he didn't really know what he was talking about. Plus, when he said he wouldn't use force, it didn't sound like an actual policy position, something he'd predetermined and decided to announce. No, it just sounded like the words were appearing in his head, like he realized in real time, oh, yeah, I guess using force is a bit much. I guess I won't use force. That was the level of intention and the level of care with which he delivered this supposedly breaking news. Now, this isn't to say that he was lying about Greenland. Maybe it's true. Maybe he won't use force. Rather, this is to say, I'm not sure he actually said anything. I'm not sure there was a takeaway, because I don't think Even he had one. And this would also inform the tacko decision. Just a couple hours later, he decides he's calling off the tariffs because of his framework for a future deal, which of course could mean anything. But more importantly, it probably means nothing. And this is the great irony of this presidency. Most of what he says is actually meaningless. It's basically just shower thoughts. But because he is the most powerful person in the world, we are forced to to make meaning out of it. And not just podcasters, but investors, traders, politicians, CEOs, all of us. We have to make business decisions. We have to make investment decisions. We have no choice but to try to understand him. And this is a theme that has played out constantly. We saw it with the tariffs last year, where businesses had to spend billions trying to figure out what the hell he actually meant. In fact, according to one estimate from the Fed, that cost will come out to 71 billion each year. We also saw it with his AI chip policy, which ended up costing Nvidia five and a half billion dollars, only to later be reversed. We even saw it with the Warner Brothers deal. First Trump says it could be a problem. Then Netflix and Paramount hire an army of Trump whisperers to negotiate with him. Then he decides actually he doesn't care either way. The point being, think of all of the time and the money and the effort that we spend trying to figure out about what he means, what he is actually saying. But what if he isn't saying anything? What if that speech or his tariff announcement actually tell us nothing about his foreign policy or his plans for Greenland, or his relationship with Europe or his economic agenda? You name it. What if it's all actually meaningless? What if it's all just a way to kill the top time? I don't know. But regardless of what he says. Tariffs. No tariffs. Invade Greenland. Don't invade Greenland. Use force. Don't use force. I've seen enough at this point to know what the real takeaway actually is. And it's pretty simple. There is no takeaway. Okay, that's it for today. This episode was produced by Claire Miller and Alison Wilson Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. Thank you for listening to Profit Markets from Proftry Media. If you like what you heard, give us a follow. I'm Ed Elson. And tune in tomorrow for a conversation with David Solomon.