Demographic Shifts and their influence on the economy - Part 3
Part 3 – Greying and
aging before it gets rich
In the 3rd part of
this series, we take a look at China. China has been the most dynamic economy on
the world stage during the last 40 years. It is now the second-largest economy
in the world and has largely been the growth engine for the rest of the world.
During these years it has also pulled more than 500 million people out of
abject poverty, a feat unparalleled in the history of the world.
China has been a very strong
economic performer and is set to overtake The United States during this decade.
However, it is still a middle-income country with an annual per capita income
of around USD 12,500. This is about 1/4th the level of any of the
developed economies. Aging is coming relatively early to China and the
consequences cannot be pretty.
China has a certain similarity
with Japan, in the sense that it hasn’t seen large scale immigration. However,
its internal distortions have been incredibly big. First, there was this “great
leap forward” during the period 1958 to 1962. A massive famine resulted (to cut
a long story short), which resulted in millions dying. The actual numbers are
not known but various estimates suggest a figure between 20 million and 40
million. This was significant because China’s population then was of the order
of 600 million. The next big intervention was the “one-child policy”
implemented in 1979. This was in effect till 2015. It played a big role in
skewing the demographics of the country.
First, given the preference for the male child in Chinese
culture, the policy resulted in female feticide (illegal) at a very large
scale. Over a few decades, it has resulted in a completely skewed sex ratio in Chinese Society. China has had a higher than normal sex ratio at birth
(SRB: ratio of live male births to female births, usually calculated by the number
of boys to 100 girls) since the early 1980s. The normal range of SRB is between
102 and 107 (United Nations, 1955). Since 1982 census data in China displayed a
rising tendency. Since 2000, the SRB has stabilized at around 120 male births
per 100 female births. The high SRB and its potential implications have aroused
considerable controversy in China itself. Indeed, China is now facing the
prospect of a huge number of men not able to find wives and these days
importing wives from other countries is not uncommon. One might add here, that
high SRB is notoriously high in many Asian countries (other than Japan), and by
choice, these countries have indulged in such actions. In China, because of the
policy of one child per couple, the same happened at a much more elevated scale.
Second, as in all other countries increasing urbanization
and fast economic growth resulted in fertility rates dropping. However, China’s
growth in income and urbanization was at an unprecedented pace and the drop in
fertility rates was also much faster than observed anywhere in human history.
Simultaneously, China also expanded its healthcare at a breathtaking pace and
longevity increased sharply. In many ways, these changes in China were similar
to other countries but compressed in half or one third time span.
China's fertility rate is estimated to be 1.7 today. It was 1.63 in 2010. Thus there has been an improvement here as public policies have focused on the problem. However, it's doubtful that it can improve and reach the replacement rate of 2.1 anytime soon. It was at 1.6 in 2000, 2.3 in 1990, 2.6 in 1980 (when the one-child policy was launched), 5.72 in 1970, and 5.76 in 1960. That's how drastic the change has been in China.
On the other hand, China's longevity is estimated to be 77
years now. It was 74 years in 2010, 71 years in 2000, 69 years in 1990, 67 years
in 1980, 59 years in 1970, 44 years in 1960 (in the middle of the famine
mentioned earlier), and 47 years in 1950.
As a result of all the effects discussed, the Chinese population
is beginning to shrink. According to many demographers, the official statistics
is underestimating this. China has now a population of 1.4 billion, which is
expected to peak at 1.46 billion by 2030 and then start falling.
By 2065, it is likely to be at the level of 2000, but much greyer. At present 12% of China is above 65 years of age. 30 years ago, this figure was 5.6% and in 1970 it was only 3.75% of the population.
China’s spend on welfare is rising and will continue to rise as the population gets more assertive and demands more benefits. As the data suggests, the working age population is unlikely to keep up with the growth in these spends and strains will start showing. China is not yet where Japan is and one can say that most of these problems are still 10-20 years away. However, the path is inexorably clear. There is time for corrective policy measures but their efficacy is untested and unclear. But then, China has always managed to surprise the world.
At present China spends much
less than OECD economies on welfare.
Data Source: OECD
‘Communist’ China spends
roughly 8% of GDP on social welfare programs, less than half the rate in the US
and most Western economies. With an annual GDP of $13.6 trillion, China spends
just over $1 trillion on social welfare or roughly $700 per person per year.
Meanwhile, the US spends roughly $12,000 and France spends about $12,600.
It is unlikely that China
will be able to continue for long at these low levels of welfare spending. The
challenges it faces are getting tougher.
UN Forecasts expect the
proportion of elderly to increase from the current 12% to over 20% by 2040 and
over 33% by 2060. The population pyramid is already not resembling a pyramid
and will soon resemble a cylinder. By 2050, it is likely to resemble an
inverted pyramid.
According to 2016 data from
the finance ministry, pension expenses rose 11.6 per cent to 2.58 trillion yuan
($409.4 billion), leaving the government with a shortfall of 429 billion Yuan. That
shortfall is estimated to have reached 600 billion yuan by 2018 and 890 billion
yuan in 2020 according to a report published in the South China Morning Post
quoting Wang Dehua, a researcher at the Beijing-based National Academy of
Economic Strategy.
China is taking measures and
these measures are going to have big impact on the economic structure. As part
of its efforts to address the challenge of old-age care, China has raised the
basic pension for retirees from enterprises, government agencies and public
institutions for 15 consecutive years.
It has also stepped up the
supply of nursing homes, eased market access for private and foreign investors,
and offered tax exemptions on community-based elderly care services.By the end
of 2018, China had 163,800 elderly care institutions and facilities, nearly
half of which were built with private investment, offering 7.46 million beds
for senior citizens. Community-based services and facilities covered all urban
areas and over half of rural communities (source – Xinhuanet.com, 2019).
The old-age industries have
expanded fast and attracted a large amount of social capital. China's elderly
care industries are expected to have a market value of 7.7 trillion yuan in
2020 and 22.3 trillion yuan in 2030, according to estimates from the Qianzhan
Industry Research Institute. However, about 84 percent of Chinese senior
citizens prefer to stay at home and receive elderly-care services in their own
communities, according to research jointly carried out by a national association,
the China Research Center on Aging (CRCA) and Tencent.
Not long ago, institutional
elder care was rare and limited to state-run institutions exclusively serving
childless elders, orphans, the mentally ill, and developmentally disabled
adults without families. Today the landscape is being reshaped by a new class
of private-sector facilities catering to elderly Chinese not being cared for by
adult children at home. These developments are revolutionary in a society that
for millennia enshrined the Confucian norm of filial piety and family care.
However, it is not necessarily affordable for large sections of the society and
the government steps in to fill the gap.
Some years ago, China launched
a series of policy initiatives to improve its health care and social security
systems. These include expanding basic health insurance for all through the
Urban Employee Basic Medical Insurance Scheme (since 1998), the New Rural
Cooperative Medical Scheme (since 2003), and the Urban Resident Basic Medical
Insurance Scheme (since 2007). In 2009 the New Rural Pension Insurance pilot
program started in 10 percent of Chinese provinces and was scheduled to roll
out nationwide to cover all rural elderly by 2020. The efficacy of these
policies will be seen only during the next two decades.
China and Japan have in
general been insular societies and haven’t seen significant immigration. In
contrast The United States and The UK have seen much larger inflows of
immigrants. Their age profile has therefore evolved very differently and they
are actually not facing the prospects of immediate declines in population.
Continental Europe has been slower on the immigration front and has a different
profile. Eastern Europe, on the other hand, is facing multiple challenges
because of slow economic growth, low economic base, and rapid ageing further
aggravated by emigration. We shall look at some of these regions in the
subsequent parts.
Part 1 – The key parameters that influence shifts
Part 2 – What has been the Japanese Experience
Part 3 – Greying and aging before it gets rich
Part 4 – The two dominant economies of the world over the last 150 years
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