Friday, April 14, 2006

The ageing of China and a methodological approach to countries' vulnerability to ageing

When we speak about China and demographics we often evoke the question of whether China will grow old before it grows rich. Many scholars and researchers have tried and are trying to answer this question and one of the more elaborate and interesting answers comes from The Development Bank Research Bulletin.

"China has one of the longest life expectancy among low-income countries. This was seen as a major achievement compared to Africa, but now it starts to become a problem. By 2040, the UN projects that the share of elderly in Chinese population will rise to 28%. By then, there will be 397 million Chinese elders, which is more than the total current population of France, Germany, Italy, Japan, and the United Kingdom combined. Among them 100 million will be over 80 years ago, who are very likely to be disabled in some ways.


Beginning around 2015, China’s post war baby boom generation will reach retirement age, and because of the one-child policy implemented since 1980, working-age population will start to shrink. By 2050, China will lose 18% of its workforce, assuming a fertility rate of 1.8, or 35% assuming a fertility rate of 1.35

Chinese leaders have to deliver economic development to create jobs for young people now, as well as prepare for elderly in the future; otherwise social unrests will certainly explode. “.....if you stop, you’re dead”, says the Chinese economist Fan Gang."

The post at the Development Bank blog has two references which are also worth mentioning:

The graying of the middle kingdom - Center for Strategic and International studies

"The age wave may pose an enormous challenge, but it need not cut short China’s astonishing rags-to-riches story—provided that China makes the right policy choices. The Graying of the Middle Kingdom argues that funded pensions are an important part of the solution. According to the report, they can help China care for a larger number of elders without overburdening the working generation. At the same time, they will broaden and deepen China’s capital markets and speed China’s integration into the global economy.

The stakes can hardly be exaggerated. If China fails to confront its aging challenge, it faces an uncertain economic future.

China rises to the occasion, the future can be one of growing prosperity and influence in world affairs. The Graying of the Middle Kingdom describes the risks and the opportunities clearly and concisely. We hope that you find it as informative and thought-provoking as we do."

(Disclaimer; the report is from April 2004 so you might know about this)

The 2003 ageing vulnerability index - Center for Strategic and International Studies

This one takes a little more scrutiny and care in my opinion. Basically, the paper presents a specific methodological approach to assess countries´ vulnerability to ageing. Now, I am by no means disqualifying the source but still my scientific alarm bells ringing, at least just a a bit. My point is simply that I do not want to take the paper's method and approach at face value. I have pasted the report's conclusion and empirical foundation below.

"The Index is compiled from indicators in four
basic categories, each dealing with a crucial
dimension of the challenge:

■ Public-burden indicators, which track the
sheer magnitude of the public spending
burden in each country

■ Fiscal-room indicators, which track each
country’s ability to accommodate the
growth in old-age benefits via higher
taxes, cuts in other spending, or public

■ Benefit-dependence indicators, which track
how dependent the elderly are on public
benefits and thus how politically difficult
it may be to reduce their generosity

■ Elder-affluence indicators, which track
the relative affluence of the old versus the
young — another trend that could critically
affect the future politics of benefit reform."


Aging Vulnerability Index

2003 Edition
Rankings from Least to Most Vulnerable

Low Vulnerability

Medium Vulnerability

High Vulnerability
12. SPAIN"


S.M. Stirling said...

Funded pensions won't help. It's simply rearranging deck chairs on the Titanic.

The working population still has to support those who aren't working; how the surplus is extracted doesn't matter as much as the amount.

Edward said...

"China has one of the longest life expectancy among low-income countries. This was seen as a major achievement compared to Africa, but now it starts to become a problem. By 2040, the UN projects that the share of elderly in Chinese population will rise to 28%."

Apart from the point I have made on Randy's post about any potential economic problems in China being everyone's problems given the scale of things, I would also add that these points all depend on how you define 'elderly'. This is the change in mindset we need to make.

The Japanese seem increasingly to consider the dependent population as the over 75 one, and that ceiling can move upwards. This would be the way for China to address this.

For it to work you need a highly flexible labour market, which China does seem to have, and the possibility of second (and why not, third) economically less remunerative careers starting after 50.

My guess is that relatively few people will be retiring at 65 in China.

I also agree with Stirling, the pensions issue is to some extent secondary (as long as you don't try to guarantee people something you can't pay (this is Europe's and not China's problem), what matters is people working longer, and working more productively longer.

In some senses this is easier for China as people are coming off a low base, and even reduced post 55 incomes can seem attractive in a context of gradually rising living standards. Italy's problem-set is very different, since you have people reducing incomes in the context of a flat (or possibly even downward trending) economy.

S.M. Stirling said...

When China's big 'bulge' hits retirement age, China will still be much poorer than the European countries are now.

And its economy will still be much more dependent on primary and secondary sectors, which require physical strength and endurance beyond what older people can manage.

There will be a lot of old peasants still in their villages.

S.M. Stirling said...

Note that _urban_ Chinese birthrates are not simply sub-replacement, but among the very lowest in the world -- around 1.

This puts them in the same category as Spain or South Korea, among the very-lowest-low.

And China is now 40% urbanized and will have a majority of urban residents quite soon, within the decade. In fact, it's only the (slightly) higher fertility of the villages that keeps China from being right up there with Japan today.

But those villages are emptying out, particularly of their young people.

This will drive continued sharp decreases in the overall TFR, even if urban rates rebound a little.

Add in the effect on the crude birth rate of the very sharp male/female imbalance on the under-25 age cohorts and you've got an extremely sticky situation.

Edward Hugh said...

"and you've got an extremely sticky situation".

I agree with this, and the bulk of what you say here. I would simply make two points.

1/ China is exports driven. I don't think this is going to change very much. There will of course be an increase in internal consumption, but it won't be sufficient to change the basic picture. People who are hoping otherwise are being utopian. You only have to look at Japan's trajectory to get some idea about what might happen, and it will all take place much more quickly than in Japan.

So this sticky situation will be exported. The IMF are living in cloud cuckoo land.

2/. The Chinese picture is also preoccupying for what it can tell us about what might happen in other fast developing economies. India, or Brazil, for example. The one child policy could be a red herring here. Anyway, some kind of neo-Malthusianism or other has been widely practised.

Obviously looking at Africa, and AIDS etc, availability of birth control is important, but the policy mix which goes with it is also important.

Frankly I think we could see a whole batch of sticky situations, and this is, well, preoccupying.