China Comment

Energy, Environment, and Economy

China’s Aging

The Dallas Morning News, the AP, and other news outlets often warn China’s aging will put significant breaks on its future economic development. I disagree.

Although China has some challenges to address regarding its aging population, aging alone will not be a significant drag on China’s GDP growth rate. Here, I examine some common fears about China’s aging populace, then I rebut the dire predictions.

Elder Population Explosion

Warnings about China’s aging population often start with the China National Committee on Aging’s claim that “[b]y 2020, China will have 400 million people age 60 and older, and 100 million older than 80. By 2050, a third of the 1.4 billion Chinese will be at least 60.”

This is a lot of elderly, and some commentators believe China may grow old before it grows rich. But a population of 400 million elderly still leaves nearly 900 million younger folk ready to work and contribute to increased productivity.

When the support ratio of young to the elderly dwindles from 5-1 to 3-1 or 2-1 that could feasibly cripple sustained economic growth in most economies. However, China is not a typical developed country that has fully exploited the human capital of its workers– China’s workforce is still developing.

Productivity and Economic Potential

Beijing is pushing energy efficiency, development of rural regions, and policies that will help move millions of Chinese out of the rural sector and into the urban. Amazingly, some “98 million to 128 million Chinese agricultural workers are surplus.” In “A Weak China?” I discussed how 30-45% of China’s population is still rural, whereas South Korea and the United States have less than 7%!

Economic growth comes when productivity, education, infrastructure, and efficiency are present. Even though China has been underdeveloped in all those sectors, it has posted remarkable 10%+ GDP growth for years. Ultimately, China still has a long way to grow.

Caring for the Elderly

China’s economic growth could slow if society is required to care for the elderly through imposition of social programs. However, unlike in the West, Beijing simply has not made the same massive social welfare program commitments. Although Beijing recently made some commitments, the Party’s pocketbook does not grant the same level of government-sponsored elder-care expected by Westerners. Instead, “66 percent of interviewed rural residents said they would rely on their children when they were old” (People’s Daily).

The lack of government obligations allows China to invest in infrastructure, energy development, and other productive, GDP-growing enterprises.

Because Chinese people know they must depend on themselves and not the government for elder care, they have traditionally saved a great deal of cash that could otherwise have been used to promote even faster Chinese GDP growth.

The Dallas Morning News, citing Cai Fang, “director of the Institute of Population and Labor Economics with the Chinese Academy of Social Sciences,” attempts to indicate that 1/4th of China’s economic growth came “from the productivity of a workforce with few dependents younger than 15 or older than 65… [and that] In “five years, that advantage will start disappearing, and a rising number of the elderly will slow down China’s economic growth,” according to Dr. Cai.

Although there may have been “few dependents” during China’s growth period, China’s savings rate has been one of the world’s highest, “totaling nearly 40% of the gross domestic product” as of 2004 (as noted by the McKinsey Quarterly). This could be because the Chinese traditionally plan ahead to their own elderly futures, expecting to use their own money instead of government subsidies.

The Chinese already have a good deal of cash saved, therefore it is odd to assume that those expecting to become elderly will divert significant additional money from the economy to retirement savings accounts. Individual Chinese are, in general, already prepared for financial disaster.

Demands of elder-care seem unlikely to directly affect Chinese consumer spending any more than their current 40% savings rate already has allegedly “depressed” consumer spending.

Health

Alarmist stories about China’s aging problems often cite how China’s elderly are compelled to work longer to ensure they will have enough money available for when they retire. This, however, seems to be an argument for continued Chinese growth rather than economic contraction. Assuming the elderly remain relatively healthy, they will have a longer time to contribute to China’s GDP.

The elderly’s health may be in question, given China’s environmental record, but there has been progress in China’s health care system and its confrontation of environmental problems.

Where There Will Be Problems

Admittedly, Chinese aging will create some problems. Those problems are, however, addressable.

* Rural Rust Belts. In Japan, which currently has nearly 21% of its population aged 65+, rural cities have been hollowed out. Aging will press hard against rural areas which may need to attract polluting industries in order to gain money that can be used to subsidize elderly populations. The young have moved to the coasts where economic opportunities exist. However, the young may return. The future of China appears to be in development of its internal market. It seems likely that for various reasons, the center of the country will experience significant investment growth from 2011-onwards. (A future article will examine this theory.)

* Older people will be alone, without anyone to support them, or to give comfort. This could lead to psychological problems, crime problems of people preying on the elderly, public health hazard problems, and stability problems (the banned F-G belief system was remarkably popular among the elderly.)

* Health concerns. It can be quite costly to pay for elder care and if the Chinese society ages poorly and develops chronic conditions that are expensive to treat, even the massive amounts they saved may not be enough to ensure fiscal security.

* Rising expectations for public health care could tie down government investment in productivity-creating enterprises. Although on average “retired Chinese [currently] get government help of little more than $50 a month,” there are demands for more government assistance.

According to the Dallas Morning News article, “[some] polls [they do not cite which polls or who conducted them] show 87 percent of Chinese now expect the government to take care of retirement income and health care… A startling share of Chinese now believe the primary responsibility for caring for the elderly should be with society as a whole – the state… And if the state fails to deliver on that expectation, it could be a real social and political crisis.”

Conclusion

China is aging and with age will come new challenges. However, China is well-situated to confront its challenges. Although the net size of China’s workforce will decline, the net productive urban manufacturing core will remain steady as over 120 million rural agricultural workers transition to other industries. China can improve its infrastructure, logistics supply chains and, energy efficiency. Even improvement to US-levels will result in millions worth of savings that will directly transition toward GDP growth.

In China, wisdom (infrastructure improvement, energy efficiency growth) certainly will accompany age.

Last Notes

* On Energy Efficiency: “In 2005, China’s energy consumption per unit of GDP was… more than three times the level of the United States, more than five times that of Germany and eight times that of Japan” (Xinhua); specifically, “the energy intensity of China in 2005… was 35,766 British thermal units per U.S. dollar. In the U.S., the Btu/dollar ratio was 9,113. In the U.K. and Japan, the figures were even lower, 6,145 and 4,519 respectively” (Forbes).

* In General: I realize there are almost limitless factors to consider regarding the future of China’s aging, so if you would like to discuss China’s aging, feel free to communicate in the Comments section.

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13 October, 2008 - Posted by | China Environment/Health, China Future | , , , ,

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