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China’s predicament: Getting old before getting rich (The Economist, 6/25/09)

There will be a lot more need for institutional care for elderly people in future, says Du Peng, director of the Institute of Gerontology at Beijing’s Renmin University. For the past three decades China has been operating a strict population-control policy, so there are now far fewer young people around to take care of the elderly. This state of affairs is usually referred to by the nifty formula “4-2-1”, meaning that the typical only child today will have two parents and four grandparents to look after—a bit of an exaggeration, but not that far off.

It has also become harder for families to live together because people move around a lot more than they used to. An estimated 150m migrant workers have left their rural homes for jobs in the big cities, though many of them might return home eventually. Most importantly, because of the low birth rate and rising life expectancy, the number of over-60s is expected to go up very rapidly, from about 166m now to 342m in only 20 years’ time. All this means, says Mr Du, that many more older folk will be living in institutions.

China is still a relatively young country, with a median age of around 30. But, uniquely among developing countries, it is ageing extraordinarily fast, so by 2050 its median age will have risen to about 45. Over the next few decades the ratio of elderly dependants to people of working age will rise steeply, from 10% now to 40% by 2050. From about 2030 the country will have more elderly dependants than children (see chart 8), whereas in most other developing countries the opposite will remain true for the next few decades. China’s pattern of ageing is very similar to that in Japan, Hong Kong, Singapore, South Korea and Taiwan. The difference is that in China this is happening at a time when the country is still relatively poor.

The man who lays claim to having invented the phrase “getting old before getting rich”, in the early 1980s, is Wu Cangping, an academic at the Population and Development Research Centre at Renmin University. At that time population ageing was receiving little attention, and he wanted to shock the government into preparing for it.

Recovery In China? Not So Fast: Instead of a turnaround, accelerating decline. (Gordon G. Chang , 06.26.09, Forbes)

For one thing, Beijing is funneling state cash to state businesses, and state financial institutions are diverting credit to state-sponsored infrastructure. China enjoyed average annual growth of almost 10% for three decades due to the development of the private sector, but now the government is renationalizing the economy with state cash. As the state sector--composed of monopolistic, inefficient and value-destroying enterprises--crowds out scrappy private businesses from the marketplace, the productive power of the economy will surely erode.

Second, state banks are blowing up their balance sheets as they shovel money out the door at Beijing's direction. In the first five months of this year, they lent 5.8 trillion yuan, exceeding their full-year quota of 5 trillion. Obviously, these institutions cannot keep up this pace. Not surprisingly, this government-directed lending is resulting in loans going to "beauty-show projects" and other unviable investments. Chinese banking authorities may say they are monitoring loan quality, but there is nothing they can do because the Politburo is calling the tune and goosing the economy. Unfortunately, China's banks are headed for another bad-loan crisis.

Third, the central government is borrowing far more than it contemplated just a few months ago. The World Bank predicts that this year China's budget deficit will be 4.9% of GDP, far in excess of the 3.0% forecast by Beijing, which just happens to be the internationally recognized safety limit. Yet we cannot rely on these ratios because China both exaggerates its GDP and hides tens of billions of dollars of military expenditures. Beijing will eventually have to end its fiscal stimulus program because it will not be able to pay for it as government revenues tumble, as they have been doing the first five months of this year. And please note: Foreign exchange reserves cannot, as a practical matter, be used to create domestic-currency growth.

Fourth, China's stimulus program is resulting in the building of new factories. Yet the Chinese people cannot absorb all that the country produces at this time, and so they will not be able to buy the resulting output of the new mills, mines and facilities. This puts additional pressure on China to increase its exports, but that is not possible in a world of collapsing demand, both in developed and developing nations. Beijing's stimulus program is only postponing the day of reckoning, and therefore ensuring that the inevitable adjustment will ultimately be worse for China.

So, as big as all of Beijing's spending programs are--they could end up being about 18% of GDP and the largest in the world on a percentage basis--they are not enough to stop the country's accelerating decline for more than a few quarters. China was once in a supercycle upward. Now it has turned a corner and is in a supercycle in the other direction. At some point, this will become evident, even to the World Bank.

MORE:
Into the unknown: The world has never seen population ageing before. Can it cope? (The Economist, 6/25/09)

Younger people today mostly accept that they will have to work for longer and that their pensions will be less generous. Employers still need to be persuaded that older workers are worth holding on to. That may be because they have had plenty of younger ones to choose from, partly thanks to the post-war baby-boom and partly because over the past few decades many more women have entered the labour force, increasing employers’ choice. But the reservoir of women able and willing to take up paid work is running low and the baby-boomers are going grey.

In many countries immigrants have been filling such gaps in the labour force as have already emerged (and remember that the real crunch is still around ten years off). Immigration in the developed world is the highest it has ever been, and it is making a useful difference. In still-fertile America it currently accounts for about 40% of total population growth, and in fast-ageing western Europe for about 90%.

On the face of it, it seems the perfect solution. Many developing countries have lots of young people in need of jobs; many rich countries need helping hands that will boost tax revenues and keep up economic growth. But over the next few decades labour forces in rich countries are set to shrink so much that inflows of immigrants would have to increase enormously to compensate: to at least twice their current size in western Europe’s most youthful countries, and three times in the older ones. Japan would need a large multiple of the few immigrants it has at present. Public opinion polls show that people in most rich countries already think that immigration is too high. Further big increases would be politically unfeasible.

To tackle the problem of ageing populations at its root, “old” countries would have to rejuvenate themselves by having more of their own children. A number of them have tried, some more successfully than others. But it is not a simple matter of offering financial incentives or providing more child care. Modern urban life in rich countries is not well adapted to large families. Women find it hard to combine family and career. They often compromise by having just one child.

Posted by Orrin Judd at June 26, 2009 6:55 AM