The Chinese Dragon Collects its Pension

First published in Canvas: 9th October 2012

While it is common knowledge that Europe has an ageing, declining population, it is a lesser known fact that China faces a similar problem. As European governments struggle to put in place adequate healthcare provisions for retiring baby boomers, so the Chinese face an increasingly top heavy demographic pyramid. It is predicted that China’s working age population (15-64) will peak in 2015, before entering a slow decline. By 2025, 13.4% of the population will be 65 or older. By 2050, it will reach 23.6%. At precisely the time China needs a youthful population to secure the economic and social gains of the past thirty years, it will be faced with an increasingly ageing population.

The issue is complicated. The ‘One Child Policy’ implemented by the Chinese Government has reduced the fertility rate in China to 1.7 children per woman, compared to 2.04 in the United States and 3.07 in India. Life expectancy has also increased dramatically in the past 50 years, from 40 years in 1950-55 to 71.5 years in 2000-2005. As a consequence of this demographic shift, and the absence of a social security net, an increasing number of young Chinese are responsible for the care of two parents and four grandparents. By 2050, this support network will be eroded, as the “support ratio” of working age adults per citizens over 65 narrows from 10:1 in 2000 to just 2.6:1 in 2050 . Though the government can still call on a pool of around 80 million rural workers to plug the gap in high-productivity urban jobs, relying on them is unsustainable. The rural population is declining, and those who remain are needed to produce the nations food.

Compounding these trends is the fact that the Chinese population is becoming increasingly imbalanced. Recent statistics show a gender ratio at birth of 119 boys to every 100 girls. One expert, Nicholas Eberstadt, explained that this imbalance cannot be explained by poverty or lack of education, but a more complex meeting of extremely rapid development and pronounced economic progress and “a collision between an immensely strong cultural preference for sons, new regimens of sub-replacement fertility, and a diffusion of ultrasound and other technologies that permit prenatal gender determination.” China, Eberstadt states, faces a looming crisis: a poor social safety for the elderly beyond the family, meaning that a great number of people will have to work into old age. “China’s ageing problem,” he concludes, “has the makings of a slow-motion humanitarian tragedy.” [1]

Faced with the choice of funding the retirement of its population, or having to contain growing levels of poverty and unrest, the Chinese government are wisely beginning to act toward the former. In August 2012, the Vice Premier Hui Liangyu, the director of the China National Committee on Aging, claimed that China had not adequately prepared a response. Improvements in the pension, medical insurance and elderly care, he claimed, were all vital to meet their material and cultural needs, as were the mechanisms for including the elderly in social life. The 12th Five-Year Plan, he claimed, would develop a guiding ideology to speed up the establishment of a Social Security system, and new living spaces designed to support the needs of the elderly. [2]

The issue of living space is growing. The Confucian tradition of the younger generation of adult children taking care of elderly parents has long threatened to become unsustainable, as the rural youth move to cities and become economically empowered. [3] A recent poll by CCTV, the state broadcaster, drew widespread attention for its findings that about 33 percent of people surveyed visited their parents just once a year, and nearly 12 percent said they had not been home “in many years.” This being an unavoidable consequence of difficulty of commuting from the provinces to the big cities. [4]

In the past three years, the government has extended basic health-care access to more than 95 per cent of its population, at a cost of 850 billion Chinese Yuan (CNY) (roughly 133.5 billion US-dollars), a revolution that hopes to achieve universal health-care by 2020. Additionally, the government has invested 63 billion Yuan to support the construction and improvement of nearly 30,000 county level hospitals, central township clinics, and village clinics. Across China, basic medicines are sold at a fixed price, to prevent hospitals from overcharging patients. The same legislation has seen 30% reduction in the price of basic medicines. Of course, the costs of maintaining such a system will inevitably rise as the population ages. [5]

China’s demographic problems are felt to differing extents in other BRIC nations. At present, India has the largest group of 0 to 14 year olds (32.1 per cent), followed by Brazil (27.9 per cent), China (21.4 per cent), and Russia (15.3 per cent). In 2020, the average Indian will be only 29 years old, compared with the average age of 37 years in China and the US, 45 years in Western Europe and 48 years in Japan. Overall, it is predicted that the number of people older than 65 in Brazil, Russia, India and China will rise by almost 50% to 295 million by 2020, and reach 412 million by 2030, according to projections by the United Nations, while the pool of 15 to 24 year-olds, the mainstay of the manual workforce, will fall by 61 million by 2030. [6]

There are options available to the Chinese to negate the effect of a declining population and stimulate a second economic dividend. Firstly, by spending more on each child, they can produce a healthier and more productive workforce that is better educated. Secondly, a stronger pension fund could better support economic development and security for the elderly, to redistribute the wealth accumulated by state owned enterprises. Thirdly, better employment opportunities for older workers can increase output and encourage life long learning. Alternatively, China could respond to pressure from investment banks in the West by ending its ‘one child policy’ which could encourage a baby boom, as well as a rebalancing of the gender pool; albeit potentially at the costs of unsustainable increases in population. [7]

The next 20 years will therefore be a crucial period. Before the end of 2012, the next round of reforms will be announced. They are likely to continue a basic concept already in place, called Nine-Seven-Three: 90 percent of old people will remain at home; 7 percent will enter affordable, government-sponsored care, and 3 percent will live in private facilities. “The most difficult thing for China is that it will face the problem within the next 40 years” stated Yuan Xin (a professor and director of the Aging Development Strategy Research Centre and government committee member overseeing the policies) in an interview for the New York Times. “The government cannot take on this whole burden,” he said “It has to be shared by the government, by society, families and by individuals…It’s a new road for us, and we are ‘feeling the stones as we cross the river.” [8]

Further reading:

[1] http://www.fpri.org/ww/0505.200407.eberstadt.demography.html

[2] http://www.reading-news.us/news-2149129-Hainan-has-more-than-1100-centenarians-Chengmai-longevity-indicators-of-high.html

[3] Danan Gu, Matthew E. Dupre, and Guangya Liu, “Characteristics of the Institutionalized and Community-Residing Oldest-Old in China,” Social Science and Medicine 64, no. 4 (2007): 871-83.

[4] http://www.nytimes.com/2012/09/11/business/global/rise-in-chinas-aging-poses-challenge-to-beijing.html

[5] http://www.ilo.org/global/about-the-ilo/newsroom/features/WCMS_188582/lang–en/index.htm

[6] http://www.bricsindia.in/brics-report.pdf

[7] http://www.chinadaily.com.cn/opinion/2012-07/10/content_15563350.htm

[8] http://www.nytimes.com/2012/09/11/business/global/rise-in-chinas-aging-poses-challenge-to-beijing.html

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