Two powerful forces have driven China's growth in the past decade. A favorable demographic trend has cut China's dependency ratio to one of the lowest in modern history. China's baby boomers were born between 1950 and 1975. The one-child policy of the past three decades has amplified the natural demographic trend, making today's dependency ratio – which the World Bank defines as the ratio of dependents (people younger than 15 or older than 64) to the working-age population – unusually low. Also, the labor participation rate of China's women is similar to men's. It is partly due to low household wealth. That force may be reversing too. From now onward the dependency ratio is likely to rise. The demographic tailwind is turning into a headwind.
 
After China joined the WTO a decade ago, multinational companies shifted production to China from Europe, Japan and the United States. The redistribution of manufacturing capacity triggered a surge in China's share of global trade. This tailwind is responsible for the rapid growth in bank deposits and money supply. The fixed exchange rate amplified the impact of trade boom on money supply.
 
The debt crises in the West signal the end of China's trade boom. When their factories moved to China, these countries resorted to debt to sustain their living standards. As long as the market was willing to go along, the debt-driven consumption continued, which in turn fed China's export boom. As the debt bubbles burst, so did spending power. This is why China's export boom is over.
 
The Good, the Bad, the Ugly