Ageing populations threaten Asia's growth

Asia’s impressive development has been fuelled, in part, by its young populations – a “demographic dividend” that has added as much as 1 percent to the region’s yearly economic growth. But that is set to change as the region’s populations age, reducing workforces and straining the health and social services of emerging nations.

A September 2011 Asian Development Bank (ADB) report warned that the changes – caused by falling fertility and increased longevity – must be properly managed to ensure future growth.

“Asia’s population is ageing at a speed unprecedented in human history,” wrote ADB chief economist Changyong Rhee in the Asian Development Outlook 2011.

“As the population dividend that fuelled Asia’s labour-intensive growth becomes a tax, the region must find more innovative ways to sustain its economic expansion, and to provide more comprehensive support to its elderly.”

China is among the countries most affected. National Bureau of Statistics census data from May shows China’s birth rate is declining and its population ageing even more quickly than predicted. About 13 per cent of China’s population is now over 60 – up from less than 9 per cent two decades ago. The elderly are expected to constitute a quarter of China’s population by 2030 and a third by 2050.

At the other end of the scale, the number of children (14 and under) has fallen by about 138 million to 222 million during the past 35 years. That number is forecast to fall a further 80 million over the next 35 years.

Initially, this decline in the number of children will free up money – children are costly in terms of schooling, healthcare and other resources, and they don’t contribute to GDP. The money saved by the decline can be redirected toward such things as reducing poverty and investing in infrastructure.

“China’s current age structure is now the most favourable in its history. Its population is heavily concentrated in the ages where people are most productive and have the highest earnings,” said Andrew Mason, an economics professor at the University of Hawaii and senior fellow at the East-West Center.

But within a decade, the number of Chinese in their 20s and early 30s would begin shrinking, as would the labour force as a whole, he said.

For several years researchers at the East-West Center have been working with Chinese academics, led by Peking University’s Professor Li Ling, to study the phenomenon. They have found that:

• because China’s market-based economy is relatively new, many institutions and systems that will become increasingly important, such as the rural health and pension systems, are not fully developed
• though China’s savings rates are high, its accumulated wealth may not be enough to fund the retirement needs of the elderly
• financial support for the elderly from their adult children is modest and may fall further.

Mason and fellow East-West Center researcher Sang Hyop Lee said Asia’s rapidly ageing populations could  bring into conflict two important national goals –  developing systems that offer economic security to the elderly, and the maintaining strong economic growth.

South Asia is the notable exception to the region’s low birth rate. India’s population growth has slowed, but remains high (18 percent) relative to China (6 percent). By comparison, South Korea’s population has stopped growing and Japan’s is falling.

India (current population 1.2 billion) is expected to replace China (1.3 billion) as the world’s most populous country by 2030. Significantly, India’s working age population is projected to keep growing long after China’s starts to fall. India will therefore enjoy the same demography – young population, growing workforce and declining birth rate – which analysts say once underpinned the economic performance of Japan, China and the “tiger” economies of Southeast Asia.

“With populations in those countries now rapidly ageing and their workforce populations set to shrink while India’s grows, the coming decades could see significant rebalancing in the geography of Asia’s economic growth,” said Mason and Lee.

However, Amitendu Palit, a senior research fellow at the National University of Singapore’s Institute of South Asian Studies, cautioned that translating such demographics into economic advantage would not be easy for India. For one thing, population density on the subcontinent is forecast to increase from 369 people per square kilometre to 476 by 2040.

“The obvious implications of an adverse land-per head ratio are greater pressures on natural resources and public goods. Inadequate supply responses on these fronts can easily erode much of the demographic dividend,” Palit said.

Southeast Asia also faces demographic challenges. In Indonesia, for example, the number of people over 60 is projected to increase fourfold by 2025. Migration to the cities will further weaken family support ties and expose a lack of government assistance in the form of pensions and affordable health care. Malaysia is likely to reach ageing nation status (where at least 15 percent of the population is over 60) by 2035.

The director of Universiti Putra Malaysia’s Institute of Gerontology, Dr Tengku Aizan Hamid, hinted at the magnitude of the task ahead by stressing the speed of population ageing in many Asian countries.

“France took 120 years to double its population of elderly to 14 per cent, while Singapore took only 18 years. Social institutions, however, are slow to respond to changes in demography.”

By Vaughan Yarwood

Images:
1. Tai chi at the Summer Palace in Beijing. (Sourced from Flickr under a Creative Commons Licence http://ow.ly/7QQPu)
2. Worker's in Mumbai. India’s working age population is projected to keep growing long after China’s starts to fall.