Timothy Beardson founded, majority-owned, and ran the largest independent investment bank in the Far East. He chairs the China Oxford Scholarship Fund -- supporting talented Chinese students pursuing postgraduate work at Oxford University -- and enjoys coaching young entrepreneurs. Today he joins the Fool to discuss his book, Stumbling Giant: The Threats to China's Future.

Will China overtake the United States as the next superpower? Beardson discusses the four demographic challenges that he says make that unlikely, and in fact will pose significant economic hurdles for the nation overcome if it is to sustain its economic growth in coming decades.

A full transcript follows the video.

Brendan Byrnes: Hi folks, I'm Brendan Byrnes and I'm joined today by Timothy Beardson. He is the author of Stumbling Giant: The Threats to China's Future. Thank you so much for your time.

Timothy Beardson: Pleased to be here.

Byrnes: I wanted to start with a quote you had in the book, which is, "Without significant reform, China is unlikely to replace America as the next superpower." Could you expand on that, and the reasoning behind that?

Beardson: Right. China has a lot of major problems in front of it. Most of those problems are soluble. The biggest problem is demography, and that's very hard to fix. But even if we live with China's demographic problems, if it could deal with all the others, then China could potentially continue to show growth, but at a lower level than we're used to seeing.

My concern is that there's not enough sign yet of the vigor and courage to reform that China needs to show.

Byrnes: Let's dig more into demographics. I know back in the '80s a lot of people were saying that Japan was the next superpower also, but they got crushed on demographics as well. I think I saw a stat where it said by 2020 there will be more adult diapers sold in Japan than baby diapers.

Could you talk about what demographics does to a country like China, and why that's such an inhibiting factor in their growth?

Beardson: Right. For me, China's demographic problem comes in four different phases. The first one is China's labor force is starting to reduce in size because the number of births was falling for the last 40 years. That's now coming through to the workforce.

The Chinese workforce therefore is seeing its wages rise by double digits every year. It's ceasing to be a cheap place to make competitive manufactured goods. Now China has to find a new economic model. It's becoming uncompetitive. It's got to try and develop an innovative approach to the economy, and that transition has not proved to be easy.

The second challenge is that China is an aging society. We're going to go from 100 million people over 65 today to, by 2030, about 300 million over 65. But compounding that problem, the Chinese family is getting smaller in relationship to the number of retired people.

Now a typical couple might have four parents alive and eight grandparents alive, but no siblings. That puts the real pressure on that they're not going to be able to do what Chinese traditionally did, which is look after the old people at home. Now it's increasingly going to be a problem for the state.

At the moment, 1% of old people are in institutional care. I think by 2030 that could be 50%. You could be going from a million to 150 million in 20 years.

China is a country with a big economy but a small budget, so I can see agonizing fiscal choices to be made by the Chinese government. "Do we build care homes for 150 million people, or do we build six more aircraft carriers?"

The third challenge is gender disparity. China, for the last 20 years, has had more boys than girls, 6:5. That's because if people are going to have fewer children, they tend -- in a rural, Confucian society -- to want to have boys.

What that means is we now have the most pronounced gender disparity of any country in the world, and probably of any society in history. We can forecast that over the next 20 years there are going to be something like 50 million men who will not have a wife, and those men are going to be the poorer, the less intelligent people in society.

They're going to be heading for the cities, and already that's beginning to show up in the urban crime statistics, and I think later that will start to affect social stability.

But the fourth problem is probably the biggest. The fourth problem for China is that the overall population is glacially increasing, and every forecast is that it will peak by the late 2020s at around about 1.4 billion people.

At that point it will start to go down. The total population will fall, from then to the end of the century. There are many different forecasts. The most cautious is that it will fall by one third. More robust forecasts are that it could fall by anywhere up to two-thirds.

I think the big take from this is that no society that I know in history has had steep falls in population for decades, and yet has been able to sustain high rates of economic growth. I think by the 2030s we're going to be saying China has had a good year if it's achieved maybe 2% growth.

What we've got to do is manage expectations and the economy from here to there.

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