The question that we are addressing is how the 3D Reset: decarbonization, deglobalization, demographics, how this is playing out in China, and how that affects us as global investors in the Chinese economy.
The Chinese have set a goal of achieving peak carbon by 2030 and a carbon neutral economy by 2060. I believe that they are deadly serious about those goals. We shouldn't be distracted by the Chinese Communist Party's unwillingness to submit to binding international commitments. That's part of a wider aversion to any erosion of their monopoly of political power in China. But domestically, they are very focused on delivering that "3060" carbon neutrality target. And this will drive a big continuing program of state subsidy and support for clean and green technologies in China.
We can also expect to see it over time, drive more and more regulation which aims to move businesses and move business models towards carbon neutrality. There's an interesting point here for big asset owners and investors in China that, by helping those big Chinese companies draw up carbon transition plans and by engaging with Chinese policymakers on how best to regulate, we, as investors, can actually make a big contribution to China's decarbonization process and a big contribution to the global public commons by doing that.
We know that China's population has just started to fall in absolute terms. The Chinese working age population has actually been falling for a number of years and we can expect to see a lot of talk from Chinese policymakers about the so-called talent dividend. This reflects the fact that the people coming into the workforce are much more educated than the people leaving the workforce. On average, 12 years of full-time education, as opposed to 7 years of full-time education for those who are leaving. This is part of a wider effort by the Chinese government to raise productivity in the Chinese economy in order to offset that headwind from demographic decline. There are other things they can do. They can raise the retirement age, which is quite low by international standards, especially for women, and they can continue to invest in industrial upgrading in order to increase the productivity of workers in the Chinese economy.
This is, by far, the most complicated D to talk about. Deglobalization affects China both on the international plane and domestically. Internationally, there is, of course, growing tension with the United States and a strong perception in China that the US now seeks to deny China access to certain critical technologies of the future. And this continues to drive a strong emphasis on self-sufficiency in China, in areas of critical technology where they might be vulnerable to Western tech containment policies in future.
We're also seeing shifts in Chinese investment patterns globally. Southeast Asia is becoming a much larger recipient of overseas direct investment from China and I think this reflects the fact that big Chinese concerns are looking to relocate elements of their supply chain and production facilities to countries which will not be subject to US sanctions. And they are looking further afield, of course, places like Mexico and indeed the United States itself.
There is also a domestic component to China's concerns about deglobalization. The Chinese leadership, in my experience, have always looked around the world and asked themselves: what are the political problems that could affect us if we don't act to pre-empt them? I think they see a backlash against globalization across Western democracies. They put this down in part to social instability and tension created by widening wealth inequality in our societies.
Certainly in terms of its rhetoric, the Chinese communist party is looking to limit rising wealth inequality in China under a heading of common prosperity and we can see this policy emphasis on limiting inequality in China. We can expect to see that continuing and when there are emerging business models which threaten to amplify inequality rather than limiting it, I think we will see the Chinese government seeking to regulate, to divert capital away from those kinds of business models.
I think investors need to be conscious of these overriding policy imperatives that the Chinese leadership sees, raising productivity, decarbonizing the economy, increasing self-sufficiency in key technologies where China might be vulnerable in the future, limiting wealth inequality. All of these areas will drive Chinese policy and regulation, and investors need to be wary of that. I think it's an argument not against investing in China, but it does mean that it's quite a political market and you need to be analytical, you need to be selective. It's an argument for careful, active investment strategies in the Chinese market, I would argue.
Learn more about the 3D Reset.