Mon, Aug 27, 2018 - Page 6 News List

In China, old people might be gold

By Herald van der Linde

In the not too distant future, China’s population will start to shrink. This will be an unprecedented demographic change in Chinese history in the absence of epidemics, famine or conflict. Eventually, China will lose its position to India as the most populous country in the world, something that the UN predicts will happen near the middle of the next decade.

This decline in population comes with social and economic challenges. When a population declines, the number of workers, as well as their output, might drop. This has led to some alarming predictions about China’s future growth potential.

However, it is not all doom and gloom. Far from it. High standards of living are attainable, despite significant population aging. This is not always widely acknowledged.

There are two common misconceptions surrounding China’s demographic transition — one regarding changes in household spending and a second regarding preparations for life in retirement.

To understand the first issue — household dynamics and consumption — consider China’s small household size and high female labor participation rates. The average Chinese household consists of about three people, compared with India’s four-to-five. This is the result of China’s now abandoned one-child policy and continued low birth rates.

Then there is the participation of women in employment.

Mao Zedong (毛澤東) once famously declared that women “hold up half the sky.”

In the 1970s, reforms were introduced to integrate women into the labor force by promoting education and employment opportunities. As a result, many Chinese women are employed and contribute to household income.

Thus, in the average Chinese household, more people earn an income, while there are fewer “mouths to feed” compared to, say, an average Indian household.

As they age, many Chinese parents now see their sons or daughters leave home and start making a life on their own. They become “empty-nesters,” and many of them are in a comfortable financial position. Their mortgage is often paid off and there is already a nice car to impress the neighbors.

About 47 million Chinese live in homes with an income exceeding US$50,000 per year. The number of these households is likely to grow and equal that of the US in the next two decades, reaching an estimated 222 million in 2038. People aged 40 to 64 account for about 40 percent of this high-income bracket.

This means that incremental consumption in China is increasingly driven by these older, affluent “empty-nesters.” They are moving from acquiring possessions to spending on experiences. Clustered in wealthy, aspirational eastern China, they are on the lookout for better homes, healthier lifestyles and a ticket to see the world.

Eventually, these older Chinese will retire. To some, this is a worry, given the absence of a well-funded pension system. Already, in parts of Asia, the absence of such a system is causing people to work longer and change their savings behavior.

South Korean and Japanese men face this reality and tend to work the longest — nearly 30 percent of South Koreans aged more than 65 are still employed.

To ensure continued consumption after the official retirement age, many will accumulate savings and build capital. This will be used to make investments in the domestic economy, allowing for economic growth. Think of pension funds investing in companies, buying bonds, issuing mortgages or buying commercial real estate. As a consequence, per capita income will grow faster.

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