Economy

The generation game

How demographic trends are shaping the future

Baby-and-flag

China needs a baby boom

“Fewer and better births, a service to the nation” was the command from the Chinese authorities not much more than a decade ago.

How times have changed: Beijing is now in a battle to boost the birthrate.

The Chinese have had a major rethink on population policy in the 10 years that WiC has been publishing. The latest forecast is that the population will peak at 1.44 billion in 10 years, by which time China is likely to have lost its standing as the world’s most populous nation to India. Then it starts to shrink quickly, despite the phasing-out of the infamous One-Child Policy three years ago.

The restrictions were never quite as rigid as the title implied as people living in rural areas were sometimes allowed more than one child, and there were other exceptions for ethnic minorities. However, the changes that now allow parents to have two children aren’t providing the boost the authorities hoped.

There was a spike in births the year after the rules were relaxed but the number of babies fell over the next year. The decline last year was more dramatic with fewer than 15 million births, or more than two million below the year before. In fact, it was the third-lowest total since the People’s Republic was founded in 1949.

That means that the propaganda for procreation will intensify in the years ahead. Young members of the Communist Party in Hubei have been leading by example with a “doing it starts with me” campaign, for instance, while other provinces are offering more practical support by doubling maternity leave.

Policymakers say that a baby boom would help to bolster the economy. But the problem is that the number of women of childbearing age is already due to drop by at least 40 million over the next 10 years because of the effectiveness of previous birth controls. Women are now much more educated and more active in the workforce, two more trends with a freezing effect on fertility. And of course the country is getting more affluent: cities like Shanghai, where incomes are highest, have some of the lowest birth rates.

All of that means that millions of families no longer want more than one child, even though it is no longer forbidden. The population seems set for a steeper decline.

More of a time bomb than a baby boom

Although the One-Child Policy is over, its legacy will shape society for years to come. One example is how it has exacerbated cultural preferences for boys, leaving the population tilted heavily towards men, with about 118 males for every 100 women. Leading demographer Nicholas Eberstadt talks about the subsequent “marriage squeeze” in which a fifth of men in their early 40s won’t havefound partners by 2030, up from just 4% twenty years ago. The projections are for almost 40 million unmarriageable men, known as guang gun or “bare branches”, because they are failing to extend the family tree.

Two is better than one: China drops birth limit

The situation is worst in the countryside – where poorer, less educated men are even more likely to miss out in the competition for brides – and the media is already talking about “bachelor villages” where the women have left to search for husbands in the cities.

The social consequences are unpredictable, although there are forecasts of a surge in loneliness and depression, and an increase in human trafficking and prostitution.

Concerns about the potentially disruptive impact of millions of disgruntled males could be another reason why the government is pushing ahead with social credit scores, an Orwellian-looking rating system that incentivises better behaviour from its citizens. Reportedly this programme is set to launch nationwide as early as next year and it will give people a score based partly on their finances but also on various aspects of their behaviour (the algorithm could end up being one of the most influential in history, given that it will impact the lives of more than a billion people). Those with lower scores will not be able to board high-speed trains, for instance, or fly.

It might sound far-fetched, but less in the context of the Big Data-enabled security apparatus that has already been implemented in Xinjiang to counter the perceived threat of domestic terrorism.

In March a deputy-governor of the central bank also predicted to reporters that its own credit system would be deployed in courtships to check the finances of potential husbands. “Now, future mothers-in-law will just say, ‘Show me your PBoC credit record’” he said.

Another byproduct of the birth control era is the ‘little emperor’ generation, or the cohort born after 1979. The focal point of one-child families, these children are said to have been over-indulged, making them more self-interested as adults. Yet the same group is now being re-titled as the ‘4-2-1’ generation because itwill have to support four grandparents and two parents in later life. Will the little emperors be ready for the sacrifices of caring for their older kin? There are signs that the government has its doubts, with the introduction of legislation compelling children to visit their elderly parents. For kids that don’t do enough, perhaps that will hurt their social credit rating too.

Old before rich

Another of China’s demographic time bombs is that its society has been greying so quickly. The sheer numbers are daunting enough: at least 438 million people will be 60 or more by 2050, according to United Nations forecasts, and about a quarter of them will be more than 80. But the population pyramid has shifted shape in not much more than a generation, bulging out at its summit before the country has had time to prepare.

The South Koreans had to address a similar situation twenty years ago but their GDP per capita back then that was at least three times China’s today. This is the scenario in which China is ‘getting old before it gets rich’.

The greying of the population will also see tens of millions more people susceptible to illness and disease. Two years ago we reported how the health system has hardly any focus on treating Alzheimer’s, for instance, which isn’t even recognised as a medical condition by many Chinese, despite almost 10 million people already diagnosed with the disease. China is home to half of global cancer cases and it has the largest number of diabetics too. It’s the same for Parkinson’s. Because of the aging trend, more than 5 million Chinese will suffer from the disease within a decade, accounting for more than half of the world’s patients.

Responding to trends like these requires huge investment in hospitals and care homes, and the training of millions more doctors and nurses. Younger relatives will still be tasked with much of the care, putting tremendous strain on the family unit. In the short term it could prove a boon for care providers and pharmaceutical firms from overseas, although the Chinese will push for self-sufficiency in providing the treatments that they need in their home market.

Maybe it will put more pressure on researchers to come up with new remedies and cures for the worst of the diseases. The country’s drug makers often come under fire for unsubstantiated claims about how their products ward off serious ailments. But what are the chances that the health crisis sees a real cure for cancer come from China too?

Who pays the pensions?

Another panic about the potential population crisis is that the costs of pensions and healthcare will be prohibitive, and that a shrinking supply of taxpayers won’t be able to support a huge number of retirees.

Men in China are allowed to retire at 60 and women can do the same at 55 if they are civil servants or 50 if they work in blue-collar jobs. These rules were introduced when life expectancy was a few months short of 66. Today people are living much longer and changes to retirement ages are imminent, although they seem likely to be phased in over 10 or 15 years, bringing retirement for both sexes closer to 65.

The pressure is greatest in regions where pension coverage is thinnest, including rust bucket northeastern provinces like Jilin and Liaoning, where more of the state enterprises have closed and the proportion of retirees is higher. However, pensions are going to need a wider range of funding on a national scale, which is one of the reasons why policymakers are pushing for more foreign participation in China’s bond markets.

Herald van der Linde, HSBC’s Head of Equity Strategy, Asia Pacific, calls for a more nuanced view of the chances of a crisis, however, arguing that the Chinese don’t have the expectation that retirement should be funded by the state. “They know they have to save for themselves, so they aren’t relying on the government for support,” he says.

The Chinese also stand out for how much they put aside for the future, while older people in other parts of Asia are working beyond their official retirement ages.

“What matters more is the ‘effective retirement age’,” he suggests. “Take South Korean men, who work the longest of any nationality. The official retirement age is 65 but nearly 30% of Koreans aged over 65 are still employed and the average Korean stays in some kind of employment until he is 72. Compare that to the average Frenchman, who works until he’s 58!”

That puts some of the talk of a pension crisis in a different light. Indeed, there is even an argument that a higher proportion of older people can be good for the economy because the senior generation has accumulated wealth that can be redirected into investment and spending.

438 million people will be 80 or older by 2050

“There is plenty of research that calculates that the beneficial impact from this wealth accumulation outweighs the negative effects of older people being some kind of burden on the rest of society,” van der Linde says. “It’s not something that is discussed much in the media but there is a strong argument that a higher proportion of older people can actually be positive for growth.”

The growing number of elderly is already starting to create business opportunities in the education sector, such as OAP universities. We profiled a group of ice-skating pensioners in WiC442 who described how they stayed fit and were keen on obtaining other new skills, for instance. New training schools are targeting people just like them – they teach everything from conversational English to basic computer repairs – and they are already proving popular. Courses are already oversubscribed: in Hefei in Anhui province the ratio of applicants to spaces is four to one, and in Shanghai there are six interested retirees for every slot for study.

Don’t forget the middle-aged

Talk of China’s population crunch focuses more on the young and the old than the age groups in-between. But the fortunes of the middle-aged (40-64 years) are just as fundamental to the economic future, including the millions of ‘empty nesters’ whose children have left home.

“The middle-aged have been overlooked in much of the forecasting, especially compared to younger millennials, who are easier to reach with online surveys and readier to respond if they get the right incentives. It’s different with older people in decent jobs, who are harder to target and less responsive in giving information,” van der Linde says.

Many middle-aged Chinese have benefited from a remarkably long run of income growth, plus the lesser financial burdens of raising only one child. They were big winners from housing reforms in the mid-1990s that allowed millions of people to buy their own homes as well. Much of this property was purchased at fractions of its market value because prices were capped at low multiples of household income. Ownership rates soared from around a fifth of households in the early 1990s to around 90% today (for the sake of clarity, this includes the farm properties held by migrant workers back in their rural birthplace). Of course, property prices have taken off, putting the new homeowners in a great position to profit from their once-in-a-lifetime opportunity.

Today these empty nesters make up about a fifth of the richest families in China. Some of the financial benefits are trickling down to family members (a helping hand for millennials wanting to buy their own homes and the empty nesters are also more involved in their grandchildren’s lives than their counterparts in the West). But millions of middle-aged people are looking to ‘trade up’ in their own spending too, which is spilling over into stronger sales in sectors like health and wellness, entertainment and travel. “They have paid off the house and the kids are gone. So they have more money to spend on new cars and longer holidays, or a better bottle of wine on an evening out,” van der Linde says.


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