Re-appraising China’s fear of

population ageing

- ‘Getting Old Before Getting Rich’ at 30

Dr. Lauren A. Johnston, Melbourne Institute of Applied Economic and Social Research, Faculty of Business and Economics, University of Melbourne

Forth Health Policy Decision-Makers Forum Asia Pacific, October 21-22, 2016, Beijing

Preface

• Publicized headings:

– “Session 2: Should Healthcare Funding for Elderly be a Specific Concern?”

– Topic: “Healthy Aging and “Silver Economy”: A positive approach.”

• Specific research presented:

- Re-appraising China’s fear of population ageing: ‘Getting Old Before Getting Rich’ at 30

Structure

1. Getting Old Before Getting Rich (Wu, 1986)

1. Extrapolated Wu (E-Wu) framework

1. E-Wu transition matrices

1. Relationship between population ageing and the economy is not well understood Much more than just a function of the share of old;

Ageing population ≠ Ageing economy

1. Getting Old Before Rich (Wu, 1986)

• China’s family planning would produce rapid population ageing at early development stage

• Adverse consequences: – China would face wage pressures before catching up to the

productive frontier, inhibiting competitiveness/ability to reach the frontier at all

– High aged care and pension costs while a developing country – Precedent for getting ‘rich’ was a youthful demography (Japan,

Taiwan, Singapore, HK, etc.)

• But over time this has become a mantra: – Never re-examined or extrapolated

• An endogenous reflection of population ageing itself in inducing an ageing analytical base year lag?

• Conspiracy between Boomers and China?

– Re-exploring in collaboration with PKU’s CCHE

2.1 Extrapolated Wu

Population

Old Young

GNI per capita

High (rich) Ageing after rich

(RO) (Japan) Rich and youth-filled

(RY) (Brunei)

Low/middle (poor)

Ageing before rich (PO) (China)

Poor and youth-filled (PY) (Myanmar)

“Old” = share of population 65 years and over of ≥ 7% (2 others) “Rich” = World Bank high-income class (GNI per capita of $12,476, 2014).

2.2 Distribution of countries, 2014

Source: World Bank, World Development Indicators

2.3 E-Wu Over time

• Country transitions between groups over time

Where populations age faster than economies grow this could mean the probability of getting ‘rich’ is increasing in favour of ‘old’ countries

China may need to update its concern.

• Definitions

– ‘Rich’: high-income using World Bank definitions

• China’s goal of avoiding the ‘middle-income’ trap

– ‘Old’: three definitions:

• 1) Share 65+ >7%; <30% under 14; ratio old/young exceeds 0.3; (median age>30).

3.1 Transition matrix, 1990–2014 (%)

2014

RO PO RY PY

RO 100% 0 0 0

1990 PO 31% 69% 0 0

RY 31 0 46% 23

PY 2 14 2 82%

Most likely transition is from PO to RO—the very transition China is trying to make. Some 31% of 1990 PO group transitioned to RO by 2014 and 69% remained. That tis, the transition to high per capita incomes is more probable from a base of Population ageing than from a young population. China’s GOBR challenge may be easier to achieve than feared.

3.2 The new rich list - is old Year Country aging1 aging2 aging3

1988-9 Cyprus; Barbados & Malta Old Old Old

1994 Macao SAR, China Old Old Young

1994 Portugal Old Old Old

1995 Korea, Rep. Young Old Young

1996 Greece Old Old Old

2002 Antigua and Barbuda Old Old Young

2006 Czech Republic; Estonia Old Old Old

2006 Trinidad and Tobago Old Old Old

2007 Equatorial Guinea; Oman Young Young Young

2007 Hungary; Slovak Old Old Old

2008 Croatia Old Old Old

2009 Latvia and Poland Old Old Old

2012 Chile; Lithuania; Russia; Uruguay Old Old Old

2014 Argentina Old Old Old

2014 Seychelles; Venezuela Young Old Young

4.1 Review

• China’s thirty-year ‘getting old before getting rich’ fears appear more recently to be more of a historical North East Asian shadow

– Almost all non-OPEC countries entering the high-income group over recent decades were ‘old’;

• China is one of many ‘old before rich’ countries

• ‘Getting old before rich’ is not an incurable or rare disease

• Shift from ‘old before rich’ 未富先老 to ‘rich after old’ 先老后富?

4.2 Aging and economics

1. Literature/IMF take share of old to reflect economic footprint of old

• But economic context and nature of political empowerment of the old varies enormously across countries • Economic impact of the old will be very different

accordingly

Good news for responsible and fair ageing policy making; allow for nuance and country-specific/context ageing-policy targeting.

For developing Asia, with the right policy making this suggests economies can continue to develop and navigate aging.

4.3 Conclusions

• ‘Aging population’ is not the same as an ‘aging economy’ – An ‘aging population’ is a demographic indicator of

the share of old in the population

• An ‘aging economy’ should be understood as one that is being disproportionately affected by its ageing population (Johnston et al, 2016) – Eg. Possibly the case re the share of

entitlements/wealth accumulating to the Boomers; their share of consumption power, etc.

– Need to work on indicators of ‘aging economies’ so as to efficiently and politically sustainably fund aging populations

Thank you

• Thanks for your attention

• References: – Johnston, L. and Yang, M. (forthcoming 2017), China

Economic Review (2016 CES Annual Meeting Special Issue)

– Johnston, L., Liu, X., Yang, M., Zhang, X. (2016). 10. Getting Rich after Getting Old: China’s demographic and economic transition in dynamic international context. China’s New Sources of Economic Growth: Vol. 1: Reform, Resources and Climate Change, 215.

– Johnston, L. (2012). Getting Old After Getting Rich: Comparing China with Japan, East Asia Forum (Dec. 22).