India Passes China for World’s Largest Population

Mark your calendar. Today is the day that India holds more people than anywhere else on Earth, after two centuries of Chinese population supremacy.

Hot on the heels of the world surpassing 8 billion total people, India has surpassed China to become the world’s most-populous nation, according to fresh data.

India is now home to 1,428,600,000 people, according to newly released numbers from the United Nations, which you can find on its World Population Dashboard. China is home to a mere 1,425,700,000.

It’s a momentous shift. India’s economy is younger and still growing, while China is suffering from an ageing population and the low birthrate that’s a hangover from decades of the one-child policy, whose generations are now marrying and having their own children at less-than-replacement rate.

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Multinational companies are already keen to diversify production away from an overdependence on China due to geopolitical tensions as well as rising wages. Add to that equation the greater relative attraction of the Indian market, likely to grow at a faster pace than China for years to come.

So it is with impeccable timing that Apple is opening its first stores in India, with an outlet in Mumbai and then in New Delhi. India has also improved the attractiveness for international retailers with changes in the law that allow direct ownership of local stores, whereas companies used to have to work through a local partner. Apple has sold for 25 years into India through third parties.

Apple is now also making iPhones in India for sale to the local market, and is also ramping up production of its goods in Vietnam. The company will likely be making one-quarter of its products outside China by 2025, according to JPMorgan Chase, up from less than 5% now.

The official confirmation in the change in the population world order comes today, although of course demographics rely on estimates and censuses conducted over periods of time. The U.N. Population Fund has just released its State of World Population report for 2023, which you can find here.

India will begin to see its population shrink, too, and likely in fairly short order, within two to three decades. Already, 31 of its 36 states are seeing the population decline, but the remaining five states have such a high fertility rate that they offset the others.

India’s population growth reportedly peaked at 2.4% in the 1980s but has dropped to 1% as of 2020. However, the last Indian census was in 2011, and the country delayed the population count that was due to occur in 2021 due to the pandemic. The United Nations has updated the 2011 count based on fertility, mortality and migration rates.

The world passed 8 billion people in November 2022. To me, that’s too many. But the United Nations would rather cast the numbers in a positive light.

“For many of us, it represented a milestone that the human family should celebrate,” Natalia Kanem, the executive director of the U.N. Population Fund, writes in the new report, “a sign that people are living longer, healthier lives and enjoying more rights and greater choices than ever before.”

Kanem does make an excellent point that birthrates aren’t the be all and end all. Increased gender equality can offset problems in both low-birthrate nations, by encouraging women to enter the workforce, and in high-birthrate nations, by giving women more agency in family planning.

The United Nations says that around 24% of women and girls are “unable to say no to sex,” while 11% are unable to make decisions over contraception. Such families are unable to control unplanned pregnancies, while the poorest people may lack access to contraception even if they’re allowed to avail themselves of it.

World population growth is now at its slowest pace since 1950. Just eight nations will account for half of the projected growth in population by 2050.

China’s shrinking, ageing population is entering a world that nations such as Japan and Italy already inhabit. In fact, two-thirds of the world’s people live in places where the fertility rates are below the “replacement rate” of 2.1 births per woman. As mortality rates decrease, it makes sense that fertility rates fall, too.

In China, it is also a rising standard of living and rising incomes that are leading to a decline in the birthrate. Many Chinese families say they would rather focus their resources on a small number of children — often choosing to have only one child where they’re legally allowed and politically encouraged to have more — to give them a better start in life.

India’s fertility rate has fallen from 5.7 children per mother in 1950 to 2.2 births per woman today. So it is on the cusp of shifting into decline.

Often forgotten in this discussion is the effect of migration. A country with a shrinking population can quickly offset that effect by encouraging more workers to move there from abroad. Immigration is a dirty word in today’s politics. But it can be a boon to an economy that is struggling under an “inverted pyramid” of population, with a bulging older demographic slice supported by a tinier young generation.

We should also reconsider how we measure economic success. Figures for gross domestic product rely so much on growth that they “praise” a country that concretes over its entire wilderness to populate it with cities and factories. Gross domestic happiness is forgotten.

The U.N. report calls on governments to strengthen pension and healthcare systems in response to these demographic changes, as well as to promote exercise and healthy ageing, and protect migrant rights.

Japan’s Trading Houses Get Buffett-Backed Trading Boost

Warren Buffett sees something in Japan’s sogo shosha conglomerates, and says he’ll throw out the idea of co-investment deals while visiting his holdings in Japan.

Warren Buffett’s desire to sample more Japanese-equity flavor continues to boost the Tokyo market. The Topix closed 0.8% higher on Wednesday, matching Tuesday’s 0.8% bump, after Buffett indicated he intends to increase his holdings in Japan, and specifically its storied sogo shosha, or trading houses.

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Buffett via his Berkshire Hathaway holding company owns a decent chunk of each of the five biggest Japanese sogo shosha: Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. Berkshire first revealed holdings of at least 5% in an August 2020 filing, indicating it had spent US$6 billion on the stakes, then increased its holdings to 6.6% of all five in November 2022, and now announces it holds 7.4% of each.

“We’re very proud of that,” Buffett says in an interview with the Nikkei business daily. He will be meeting with those five trading houses this week “to really have a discussion around their businesses and emphasize our support.”

True to form for value-driven Buffett, the trading houses are very “real” businesses that are sprawling and complex but serve very essential purposes. With their roots in commodities and goods trading, they have expanded to become investment holding companies, too, much like Berkshire Hathaway in fact.

Buffet went on to indicate that Berkshire would be open to co-op investment with or alongside the trading houses. “We would love if any of the five would come to us ever and say, ‘We’re thinking of doing something very big’ or ‘We’re about to buy something and we would like a partner,’ or whatever,” Buffett said.

Although the trading houses are currently the extent of Berkshire’s holdings on the Tokyo market, Buffett says additional investments in Japan are “always a matter of consideration.” The five trading houses are his current focus but “there are always a few I’m thinking about.” This is his first trip to Japan since August 2011.

The trading houses are a kind of conglomerate specific to Japan, dating to the mid-1800s and Japan’s period of reopening to the world as the reign of the isolationist Tokugawa shogunate ended. The earliest trading houses were zaibatsu family-run conglomerates, with the trading house operating in-house to supply goods, transport and finance to the group’s various businesses. After World War II, another cluster of trading companies formed in the Kansai region to deal in commodities such as textiles or steel.

The trading houses played a major role in the overseas expansion of “Japan Inc.” in the 1980s, helping source goods and provide financing for companies that weren’t all that experienced internationally because of Japan’s 200+ years of closure to the outside world. As Japanese companies became more comfortable with their own overseas operations, the trading houses boosted their business in insurance, transportation, property development and project management — very much lines of business that Buffett likes.

The global scope of the conglomerates and the similarities with his own holding company are not lost on Buffett. “We feel that these five companies are a cross-section of not only Japan but of the world,” he says. “They really are so much similar to Berkshire. They own a lot of different things.”

However, the trading houses are perpetually lowballed in valuation, trading under 10x forward earnings, some would say for a reason. They are so diversified that they are hard to categorize, and critics contend their very nature is an oddity of Japanese history that no longer serves a purpose. Growth has been hard to come by for these giants, while their core operations are open to disruption to trade such as we’ve seen in the wake of the pandemic and due to the war in Ukraine.

Marubeni and Sumitomo in particular took write-downs to their operations in Russia during the tax year that ran through March. Profits when they come out are expected to drop for all five trading houses due to Russian disruption and pandemic effects.

On the plus side for a value investor like Buffett, the trading houses have been engaging in share buybacks, increasing the value of existing shares. And they pay very solid dividends indeed, as high as 5.01% for Sumitomo.

The share prices of the trading houses have all blossomed since Buffett bought into them. Part of that is the effect of other investors following Buffett’s lead. In the past year, both Marubeni and Mitsui are up by more than 30%, while Mitsubishi has advanced 15.6%.

They’ve all basked in Buffett light in the past two days. Itochu is up 4.8%, Marubeni is up 7.7%, Mitsubishi is up 4.4%, Mitsui is up 5.1% and Sumitomo is up 6.0%.

Buffett also discussed the sell-down of Berkshire’s stake in Taiwan Semiconductor Manufacturing Corp., the world’s largest chip foundry. Berkshire bought more than US$4 billion in TSMC stock between July and September 2022. But it ditched 85% of that holding in quick order, an unusual move for Buffett, who typically likes to retain core holdings for years if not decades. By the end of 2022, however, Berkshire held only US$617 million in TSMC stock.

Buffett said geopolitical tensions are a “consideration” in the divestment. He believes that TSMC is well-managed but that Berkshire has better places to deploy its capital.

One reason investors have been particularly excited about what Buffett has to say in Japan is that Berkshire Hathaway is marketing another offering of yen-denominated bonds. It’s expected to price those this week.

Berkshire did the same thing three years ago before buying the stakes in the trading houses. One underwriter told the Nikkei that these new bonds will be used to roll over existing debt. But savvy Buffett doesn’t like to tip his hand before he plays it. Watch for any indication that the money is going toward other companies in Japan, which would be sure to get a stock-price boost from the Buffett seal of approval.