The Chinese population is rapidly aging, due to a lower mortality rate and the one child policy. This will lead to a pension problem for the Chinese government and may reduce China's ability to compete in the future. At the same time, this creates a growing market for healthcare products and services in China.
Advances in healthcare and nutrition, combined with the one child policy, have led to rapid aging of China's population. Just as the rise of the Baby Boomers had placed an indelible mark on the U.S. economy, China's demographic shift to an older society will have a profound impact on the Chinese economy and investment opportunities in China. Western pharmaceutical manufacturers may be able to sell more offerings for older adults in China, while the Chinese government may need to alter its budgetary policy to accommodate heightened expenses.
One of the key factors in China’s population spurt, from slightly more than 500 million in 1949 to its present population (as of mid-2007) of 1.32 billion is its rapidly falling mortality rate. This increase in lifespan and the aging of China's population with over 11% of the population over the age of 65 in 2020, has future implications in healthcare costs, pensions, and the capacity of its workforce.Recently to fight this trend Shanghai ( the largest city in China) reversed its one child policy.
After World War Two and the Nationalist’s departure to Taiwan, peace largely reigned on China’s mainland, however one manmade event triggered a great population loss in China. Specifically, Mao’s homegrown industrial policy implemented during the Great Leap Forward (part of China’s Second Five Year Plan: 1959-1962) lead to somewhere between 14 million and 43 million deaths, mostly due to famine. Afterwards, China’s population continued to climb.
From 1990 to 2000 the average expected lifespan of the Chinese people had increased nearly three years, from 68.55 in 1990 to 71.4 in 2000. At the same time, the pregnancy and infant mortality rate decreased by 3.1 percent. During this time, childhood nutrition made significant strides, increasing both the average height and weight of Chinese children.
China’s mortality rate is bi-modal. Urban Chinese residents have an expected lifespan of nearly 6 years greater than rural residents. This may be attributable to greater access to modern healthcare in urban areas, as well as a higher income and thus higher standard of living of urban dwellers. There has always been a weight difference between children in rural versus urban area, although this has decreased somewhat in recent years, according to a 2005 report by the People’s Daily newspaper.
While diet and nutrition conditions for the rural and urban residents have improved dramatically over the last twenty five years, new ailments have begun to emerge. The occurrence rate of high blood pressure in rural areas has risen and the number of urban adults residents suffering from diabetes has risen from 4.6 percent to 6.4 percent. Researchers from Tulane University recently determined that more than 155 million adults in China have increased total cholesterol levels, and another 117 million have high levels of bad cholesterol.
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China’s lower mortality rate, when combined with the one-child policy, has resulted in a dramatic aging of China’s overall population. By 2005, citizens over 65 years of age rose to 6.96 percent of the whole population. According to the New England Journal of Medicine, the rapid decrease in China’s birth rate, combined with stable or improving life expectancy, has led to an increasing proportion of elderly people and an increase in the ratio between elderly parents and adult children. By 2020, over 23 percent of China’s citizenry is expected to be over age 65, resulting in a major challenge to China’s medical and social insurance system. A graph of China’s population in 2020, according to United Nations Population Division projections is shown below:
Family planning policies have become somewhat more relaxed in an effort to smooth out the population’s aging. In rural areas, couples have been allowed to have a second child if the first was a girl and minority groups can now have up to three children. In urban areas, if a couple is both from a one-child family, they are now allowed to have a second child, provided that it is at least four years later than the first child. Nonetheless, according to University of California at Irvine Sociology Professor Wang Feng, at present, 63 percent of Chinese couples are still limited to one child under existing policies.
Even if China had a greater population of young people to fund retirement for the burgeoning older class, pension coverage is available only to those employed in the government sector and large companies. Thus, children are responsible for the retirement of many parents. According to the Asia Pacific Population Journal, the lack of adequate pension coverage in China means that financial dependence on offspring is still necessary for approximately 70 percent of elderly people. This problem is nicknamed the "4:2:1" phenomenon, highlighting the idea that meaning that an increasing numbers of couples are now responsible for the care of just one child, but four parents.
The Population Development Review reported in 2002 that initiatives are under way to improve access to government pensions and to encourage saving for private pensions in an attempt to reduce the burden of the 4:2:1 phenomenon. The ability of urban parents who are only-children to have more than one child themselves may somewhat reduce this burden. The United Nations Population Division (UNPD) forecasts that the turning point for greater burdens - comprised of both child dependency costs and elderly dependency costs - on the working population is 2010. By 2050, the UNPD forecasts that Chinese workers will have a 70 percent greater elderly dependency burden than today, combined with a significantly lower child dependency burden.
In the UNPD’s "medium" scenario, the median age of China’s population in 2050 will be forty-five years old —about 15 years higher than today’s median population age. This means that over a third of the citizens of that future China would be sixty or older. According to UNPD projections, China’s population half a century from now would be more elderly than the future populations of countries like Denmark, Finland, and Norway, despite the fact that those Scandinavian countries are already "gray" today.
The difference is that China’s per capita income is significantly lower and it is already facing these “Developed Country” problems due to its implementation of the one-child policy. By comparison, other developing countries like India and Indonesia continue to boast high birthrates and are expected to have, on average, a younger population than China in the coming decades.
At present, China has a significant foreign exchange surplus and its citizens have a high savings rate. If China can invest its savings at a sufficiently high rate of return, this will help finance flow pension shortfalls thereafter.
Compared to many countries, China has a relatively low amount of debt outstanding. Official Chinese government debt is slightly more than 30% of GDP. Of course, astute observers are quick to point out that the Chinese government also bears the liability of fixing its banking system, which has proliferating non-performing loans to state enterprises. Fitch recently estimated China's non-performing loan at $673 billion, but it warned that, given vagaries in Chinese accounting and reporting, $673 billion is a low number. While some analysts estimate that China’s bank cleanup could cost as much as 20% to 30% of GDP in over the coming decade, there is still room for China to borrow more than it does at present, if necessary to cover its social welfare expenses, in the short-term, as the population ages. This could impact interest rates in the U.S.
Another source of income for the Chinese government is its assets. Unlike many other developing countries, the government owns the lion’s share of the country’s assets. As of 2003, China’s national and local governments held at least a majority share in more than 150,000 enterprises, representing an asset value (on a balance sheet basis) of nearly 10 trillion yuan. Given that many loss-making state enterprises were already shuttered in the 1990s, it is likely that many of these assets generate at least breakeven, and perhaps positive cash flow. As such, they may be worth more than 40% of China’s GDP if they were privatized. These asset sales could be a potent source of funds for the Chinese government to cover increased social costs from an aging population.
According to a recent survey by the Ministry of Labor and Social Security manufacturers in the Yangtze and Pearl River Deltas are reporting labor shortages of 10% or more. Many migrant laborers from inland areas are returning home after working several years on the coast and building a nest egg to invest back home. China’s breakup of rural communes in the early 1980s means that many rural families have a long-term lease on their own farm, thus migrant works have a destination to which they can return. Because many migrant workers are the only child in their families, there is an extra strong family desire for them to return home to live near family.
As China’s workforce ages, young workers will be even less available and China’s manufacturing and services sectors will be forced to keep existing workers for a longer tenure or find older workers. This could also slowdown the ability for China to be an outsource supplier for developed countries. Either of these approaches will raise labor costs. Ultimately, it means that China will no longer be able to rely solely on inexpensive labor to fuel its growth. Instead, China may only be able to grow in line with the growth of its labor force. China may try to respond by moving more into electronics and other medium-tech industries, however increased investment in China’s labor force and management cadre is necessary before such a transformation can be successful.