January 16, 2013
THE DRAGON HAS NO TEETH:
What Happens When China Goes "Gray"? (Mark W. Frazier, 1/14/13, The Diplomat)
Essentially what happened is that Beijing designed a pension system in the late 1990s that will leave households with much less to spend than many observers assume. Urged by World Bank economists and foreign pension experts, the Chinese government put in place a hybrid pension arrangement that relies on both traditional pay-as-you-go collections from employers and mandatory individual accounts, from which workers were to finance anywhere from one half to two-thirds of their retirement needs. (They also were expected to buy pension and annuity products from commercial providers). But that pension design has resulted in a double whammy: households consume less in order to save for retirement needs, while the government's long term pension debt is escalating rapidly because local governments raided the individual accounts to pay benefits to current retirees.The central government has tried to prevent local governments from tapping current pension assets, but has done so only by allowing them to accumulate further debt. Moreover, many local administrations bristle under the requirement that pension assets must be invested in low-interest bonds and bank deposits. Don't be surprised if future pension scandals like the one that rocked Shanghai in 2006 are exposed as local administrations seek a higher, though riskier return on their pension assets.As China's population ages, scholars and officials are seriously considering proposals to phase out the one-child policy that is beginning to curb the flow of new workers into the economy, as well as raise retirement ages (currently 60 for men, 5 or 10 years earlier for women). But such adjustments are just as politically difficult in China as in in Western democracies because, as it turns out, not wanting to work longer is a widely held preference. Many Chinese also view the relatively early retirement age as a way to make vacancies for the millions of young people who enter the labor market each year. If older workers continue working into their twilight years, young workers may encounter greater difficulty in trying to find employment. This would pose its own issues for the country.What does all this mean for the Asian, European, and American economies that trade with China? First, they should understand that China's aging problem is a slow-motion fiscal crisis.
Study Measures Impact of China's One-Child Policy (SINDYA N. BHANOO, 1/14/13, NY Times)
The Chinese policy that limits most families to having one child has had psychological fallout for the children born after it was instituted in 1979, economists report in the journal Science.The researchers asked two groups of people -- born just before and just after the policy was put into place -- to play a set of games using real money.In a game involving trust, test subjects were paired with anonymous partners. Player One was given 100 renminbi (about $16) and invited to pass it along to Player Two. The money would then be tripled, and Player Two could pass some of it back.Players born after the one-child policy was instituted were less likely to pass money along than the older participants.The researchers concluded that the "one-child-policy" players were less trusting, less trustworthy, less competitive and more risk-averse than the older ones.
Posted by Orrin Judd at January 16, 2013 1:25 PM
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