Can China cope with its demographic bind?

As more of China's ageing consumers lock up cash to save for retirement, the success of economic and healthcare reforms will be crucial to defuse a looming crisis.

East Asia Forum

Auguste Comte, the father of sociology, famously said that "demographics is destiny". China now has an ageing population. The National Bureau of Statistics estimates that by 2015 there will be some 200 million Chinese people over 60, increasing to 300 million by 2030, and perhaps as many as 480 million by 2050. Average life expectancy is now 73 for men and 79 for women, up by more than 12 years since 1970.

The twin phenomena of enhanced longevity and the one-child policy, introduced in 1978, mean that China has seen the most rapid move from demographic ‘sweet spot’ to an ageing society. These days, discussions on how China will manage this transition are often referred to as the ‘will China get rich before it gets old?’ debate.

Here, China will inevitably see its economy challenged in two ways: a decline in the working population and a rise in fiscal deficits linked to increased government spending to cope with the ageing population. Healthcare spending, pensions, social welfare and long-term care will all be additional costs to China’s social system. They come at a time when China’s urban social welfare system, in terms of pensions, healthcare and labour-force reform (employer-funded retirement programs, mandatory retirement ages and so on), are still in a process of change.

Chinese people will face increased healthcare costs as they get older, meaning that they will increasingly need to make out-of-pocket spending from their pensions, to draw down on their life savings, or sell their homes in order to pay for expensive treatments for long-term, incurable illnesses that are gradually less likely to be covered by current healthcare insurance schemes. In addition to this, they will also be an ongoing financial burden on their families.

The general lack of appropriate state healthcare, despite reforms, means that many Chinese adults have to save heavily and plan financially to create their own safety net to deal with possible illness as they get older. This contributes to the large amounts of consumer cash locked up in savings accounts and out of the consumer economy. Chinese savers already suffer from ‘financial repression’. Low or non-existent interest rates, combined with a limited range of personal financial products available, mean that saving is a never-ending process for most Chinese and that, consequently, a secure retirement fund is difficult to achieve.

This is exacerbated by mandatory retirement ages that are low by international standards. Currently the retirement age to receive a pension is 60 for men and 50 for women. Beijing is considering raising these limits to create work for younger people but the concomitant strain on the pensions system is a concern. Worries over, for instance, ending work at 50 but not receiving a pension until the age of are 65, and therefore having to self-fund the 15 years in between, have alarmed many older people (and their children) on internet discussion forums.

The Confucian ethic of filial piety, expressed in caring for elderly parents, remains strong in Chinese culture. And it seems the government will largely rely on that continuing (and seek to strengthen it through education). The Ministry of Health has established a target that by 2020, 90 per cent of care for the elderly will be home-based (that is, within the family largely), 7 per cent community-based and just 3 per cent provided by nursing homes or hospitals. These percentages are thought to be based on the experience of Singapore, obviously a much smaller, wealthier country that has a longer history of healthcare reform and an active immigration policy to replace lost younger workers as the demographics move upwards. Singapore has struggled to provide this amount of home-based care, indicating that China faces a massive, if not impossible, task. This places the major emphasis of elderly care on offspring, who largely do not have siblings with whom to share the burden and expense.

Geriatric specialists also point to the fact that enhanced longevity among a greater proportion of the population will mean a greater incidence of health problems associated with old age. For instance, recent studies from China suggest that the country may have more than 9 million old people actually diagnosed as suffering from dementia, but that perhaps 93 per cent of cases are undiagnosed. However, at present there are fewer than 50 specialist dementia facilities nationwide in the PRC.

Chinese society does seem to be starting to respond to its ageing demographics. The government is slowly reforming the pension system while the savings rate remains high partly due to saving for retirement, or because people are setting aside funds to look after parents in their old age. Senior citizens’ homes and care facilities have started to appear, overwhelmingly in the private sector.

Despite this, old age will increasingly be a major strain on the Chinese economy. At a time when the government is seeking to boost personal consumption, increasing amounts of income and savings will have to be diverted into care for the elderly, geriatric healthcare and medicines. While the quality of life of China’s elderly will become a key ‘quality of national life’ indicator, the strain on family budgets will also see the cost of old age trickle down the system, forcing many to make hard choices between, say, paying for their child’s overseas education or their parents’ care.

China cannot escape its demographic bind. All China can do is realise it and make the best preparations possible. Providing quality of life for China’s elderly will require the current economic reforms to successfully create jobs, maintain wage rises, allow for continued savings and permit a more regulated and participatory tax base to allow for additional government spending on geriatric care. It is impossible to divorce China’s demographics from its macroeconomics – a secure and pleasant old age will, for most Chinese, depend on continued economic growth.

Paul French was the founder of the Shanghai-based market research publisher Access Asia (now part of Mintel International). He is now an independent China analyst and author based in Shanghai and London. French is the author of various books on China including Fat China: How Expanding Waistlines are Changing a Nation (Anthem Press, 2010).

This article appeared in the most recent edition of the East Asia Forum Quarterly‘Leading China where?’.

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