China’s Changing Demographics – Old Age Becomes a Key Factor for China January 2014 Paul French



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China’s Changing Demographics – Old Age Becomes a Key Factor for China

January 2014

Paul French

This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of ECRAN and can in no way be taken to reflect the views of the European Union.




This project is funded by the European Union



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This project is implemented by a Consortium led by Steinbeis GmbH & Co. KG für Technologietransfer



Executive Summary

Auguste Comte, the father of sociology, famously said, ‘demographics is destiny’. China’s current demographic situation will have a profound impact on the future of its developmental project. Crucially, decades of economic development and demographic control are causing unprecedented alterations in the ratio of retired to working people in China. Development has brought urbanisation and increased longevity, meaning that the over 50 age group is more populous, more urban, and older than ever before. Demographic control in the form of the ‘One Child Policy’ has also contributed to increasing the ratio of old to young by causing the working age population to shrink. This has resulted in a ‘4-2-1’family structure, where each working age child has two retired parents and four living grandparents.

In the past, working-age children have generally taken care of their retired parents and grandparents in the home. In China’s new demographic reality this will no longer be possible due to the increased number of retired people per household; the increasing severity, frequency, and duration of illnesses as these people age; and the lack of working-age siblings with whom to share the financial and logistical burden. China’s nascent social welfare system is currently unable to provide for the healthcare and pension needs of the aging population. Further reforms are necessary, as requiring retirees and families to self-fund their retirements could slow China’s development. Reforms will continue to be hampered by financial difficulties related to corruption and the smaller tax-paying workforce, so the Chinese government needs to take a creative approach to providing for its aging population. Importantly, the government should recognise that care of the elderly must increasingly be done by trained aged-care professionals, whether at home or in specialised facilities.

China’s Changing Demographics – Old Age Becomes a Key Factor for China

1) Introduction

1.1) The Key Demographic Trends

China’s demographics are in the midst of a period of enormous change - what is often called the country’s “demographic time bomb,” a rapid ageing of its 1.3 billion population tied to the three-decades-old one-child policy. According to the China National Committee on Ageing, some 200 million Chinese adults will be over age 60 as of 2013. China, of course, is still the world’s most populous nation, and has the second-highest number of young people in the world, behind India (a country with a very different family planning regimen and no one-child policy), but the country is moving from being overwhelmingly young and rural to becoming a country that is, in the majority, older and urban. The National Bureau of Statistics has indicated that it expects (even with the ongoing liberalising of the one-child policy) that China’s population number of 12-19 year-olds will drop by a significant 18.2% from 2010 levels by 2020. China’s teenage population is set to decline further still to approximately 9.1% of the total population in 2050, from 13.8% today. Estimates as to the future projection of China’s elderly (classified as over-60) population vary and the latest statistics from China’s National Bureau of Statistics are outlined in detail in Table 2 below. However, as a rough guide, China’s National Bureau of Statistics estimates that by 2015 there will be some 200 million Chinese people over 60 while, according to predictions from the United Nations, nearly three out of 10 Chinese people will be older than 60 by 2040. This means that elderly people in China will be one of the largest single groups in the world numbering approximately 300 million by 2030 and perhaps 480 million by 2050. Elderly Chinese will also be one of the largest single groups of older people seeking to access post-work retirement financial products (pensions) and geriatric healthcare. This marks the decline in the number of economically active people in China, and an increasing proportion of elderly dependents.

The twin phenomena of enhanced longevity and the One-child policy, introduced in 1978, means China has seen the most rapid move from a demographic “sweet-spot” to an ageing society. This move towards an ageing society will have serious ramifications for China’s government, economy, markets and the people themselves as they are forced to adjust to a national economy with a smaller available working population and higher rate of retirees and elderly citizens. Discussions on how China will manage this transition from a youth-based to an elderly-based society are today often referred to as the “will China get rich before it gets old?” debate. Inevitably China will see its economy challenged by both 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, long term care – all will be additional costs to China’s social system. This comes at a time when China’s urban social welfare system is still in a nascent stage – pensions, healthcare and labour force reform (employer funded retirement programmes, mandatory retirement ages, etc) are all still in a process of change.

Table 1: CHINA POPULATION STATISTICS, 2013

Birth rate 12.31 births per 1,000 population

Death rate 7.17 deaths per 1,000 population

Sex ratio (at birth) 1.14 male/female

Infant mortality rate 15.62 deaths per 1,000 live births

Population growth rate 0.481%



Source: National Bureau of Statistics

1.2) Greater Longevity

Chinese people are living longer; already, increased longevity means that Beijing and Shanghai are among the ‘oldest’ cities in Asia after Japan’s. Of course, increased longevity is good news, but it will inevitably place more burdens on the healthcare system. Long-term care and provision for the aged and their age-related diseases will place strains on a system already being challenged by increasing instances of pollution-related diseases. According to China’s National Bureau of Statistics, average life expectancy is now 73 for men and 79 for women, up over 12 years since 1970.

China’s longevity has certainly increased, though not as much as might be expected after 30 years of reform and economic growth. From 1990 to 2008, life expectancy in China rose 5.1 years, to 73.1, according to a World Bank (WB) compilation of United Nations (UN) data. Nearly every other big developing country, be it Brazil, Egypt, Ethiopia, India, Indonesia or Iran, had a bigger increase over that span, despite much slower economic growth. Since 2000, most of Western Europe, Australia and Israel, all of which started with higher life expectancy, have also outpaced China in terms of average life expectancy age. This slower-than-expected growth in life expectancy is due to a combination of conflicting “wealth benefits” and “wealth deficits” – according to the UN, “With rising incomes in China, people could afford better food, clothing and shelter. But they were also exposed to more disease because so many of them were moving to cities. In addition, China’s demographic statistics have been uniquely affected by the one-child policy, which introduced decades of centrally imposed fertility restrictions.

Table 2: THE POPULATION OF THE OVER-60S IN CHINA, 2000, 2005, 2010 AND 2015

2000 2005 2010 2015

As a % of the Chinese population 10.66 13.01 14.85 16.91

Number of people (million) 132.5 167.4 198.0 233.1

Number of women (million) 66.6 85.5 100.2 117.0

% women 50.3 51.1 50.6 50.2

Number of people (million):

60-64 39.4 50.7 66.4 85.6

65-69 37.2 42.7 45.9 51.8

70-74 27.9 34.5 37.7 38.0

75-79 16.1 22.0 26.7 32.3

80-84 8.2 11.8 14.1 16.7

85-89 2.8 4.2 5.8 6.7

90-94 0.9 0.3 0.4 0.5

95+ 0.1 0.2 0.4 0.5

Total 132.5 167.4 198.0 233.1



Source: National Bureau of Statistics (NBS)

1.3) The One-Child Policy

Launched in 1979 after the population topped one billion, the one-child policy remains the most ambitious of the Communist Party’s many attempts at social engineering. The government believes the one-child policy curtailed population growth by 400 million extra births, but implementation has always been patchy. The policy has been most effective in cities rather than the countryside, and consequently the number of one-child families is far higher in urban China than rural China: above 80% in most tier 1 and 2 cities. In urban China, residents have faced heavy fines and can lose their jobs if they have a second child. In addition, many urban couples now state that they prefer to have fewer children, citing societal norms, the high cost of raising children, and lack of space as explanations. But in the countryside, where parents depend on children to help them and support them in their old age, resistance has been widespread and continual.



1.4) Job Done: The End of the One-Child Policy?

When the one-child policy was introduced, it was intended to last for only one generation, long enough to control the nation’s population explosion, but short enough to avoid distorting the age structure beyond all repair. In 2004 the National Strategic Research Project Group on Population Development was formed to advise on the next course of action. When its report was published in January 2007, the recommendation was simple: do nothing. The main conclusion of the report was that for the population peak to be controlled at around 1.5 billion, the national gross birth rate over the next 30 years needed to be ‘stabilized’. Unsurprisingly, the policy has not always been popular, and the recent nationwide population census led to an influx of babies abandoned at orphanages, as people feared penalties which can include fines in urban areas, or the family’s house being bulldozed in rural areas. The government has attempted to ameliorate the unpopularity of the policy using inventive campaigns to encourage family planning. Rural families in some areas have been paid not to have more children, while in other areas advertising campaigns were used. One example of a sign that appeared in villages read, ‘If you want to get rich, have fewer kids and raise more pigs’.

In 1995 Beijing approved a pilot project in six rural counties where family planning workers would try to limit births by expanding health services for women, providing more information about contraception and allowing couples to make their own decisions. Then in 1998 the UN population agency encouraged China to take the experiment a step further, providing funding and training to 32 rural counties that agreed to eliminate the birth permits, targets and quotas associated with the One-child policy, and stop promoting abortion as part of family planning. According to Chen Shengli, a senior SFPC official, health workers across the country have been impressed by the results of the UN project. Xie Zhenming, a senior official at the government-affiliated China Population Information and Research Centre who campaigned for the changes, estimates that cities and counties accounting for nearly a quarter of China’s 1.3 billion people have eliminated birth permits and quotas over the last five years.

Faced with fast-paced demographic change, Beijing has been slowly repealing the one-child policy in China’s major cities (though to a far lesser extent than in the countryside) by introducing various exemptions. According to the latest government statistics, 36 per cent of the population is still required to follow a strict one-child policy in the richer coastal provinces, while in 19 of the poorer provinces 53 per cent may have a second child if their firstborn is a girl. Those families that belong to ‘national minorities’ follow looser regulations, while there is no family planning policy at all in Tibet. Despite this it seems that the model three-person household will remain the dominant form of family unit for some time to come among the rising urban middle class. A Shanghai Academy of Social Sciences survey in 2012 found that over 90% of Shanghai couples are now eligible to have more than one child, but that 45% of families had ruled it out as an option due to cost, apartment size and the fact that three-person families are now the norm. In late 2013 it was announced that China would make substantial changes to its one-child policy (see 1.5 below); however, the policy had been in a process of some relaxation for a number of years with various exclusion categories being introduced prior to the 2014 changes.



Table 3: URBAN EXEMPTIONS TO THE ONE-CHILD POLICY, 2012

* If both parents are from one-child families (i.e. both parents have no siblings)

* Both parents are university graduates

* The first child is severely handicapped or disabled

* If an RMB50,000 (US$8,000) fee is paid (applies to migrants to urban areas)

* A Chinese citizen is married to a foreigner

* Twins

* Adoption



* Registered as an official category of ethnic minority (and therefore exempt entirely from the one-child policy)

Source: State Population And Family Planning Commission

1.5 The End of the One-Child Policy?

In late-2013 the Standing Committee of the National People's Congress (NPC) passed a resolution allowing couples to have two children if either parent is an only child. This is an extension on the previous guidelines (as listed in Table 3 above) that allowed for a second child if one parent was an only child and urban registered. The new guidelines allow for any couple who are both from single child households to have a second child. It is expected that this new reform to the one-child policy will be rolled out gradually and incrementally around the country, with provincial authorities entrusted to make their own decisions on implementation according to the local demographic situation. While this new relaxation will mean some additional births (and, it is hoped, a reduction in forced abortions and abandoned children) many analysts do not expect large numbers of urban couples to opt for a second child due to financial issues. According to Zheng Zhenzhen, at the Institute of Population and Labour Economics in Beijing, less than 2% of parents cite the state’s policy as the reason they have only one child. With the population already ageing rapidly, while any additional children will increase the potential future labour pool and the ability of the extended family to provide care, it will not in any way be an immediate panacea to the current problems of elderly care or the state’s growing pension burden.



2) Key Results of China’s Demographic Change

2.1) China’s Shrinking Workforce

The IMF forecasts that China’s present labour surplus of about 150 million people will decline to 30 million by 2020. According to IMF predictions, China will reach its Lewis Turning Point, where development begins to trigger inflation because the industrial sector can no longer source labour from the agricultural sector, in 2025. Further, the IMF projects that by 2030 China could have a labour shortage of 137 million workers or more. Coupled with the aforementioned increase in the proportion of non-working retirees, this will mean a swing in dependency ratios. According to Michael Beckley of Harvard Kennedy School’s Belfer Center for Science and International Affairs, the fiscal cost of this change alone may exceed 100 per cent of China’s GDP.

It may be the case that China’s economy can continue to grow with a reduced workforce, however a reduction in the number of tax-paying workers does mean that the cost of care for the elderly and financial provision for their welfare is placed upon the shoulders of a small number of working age Chinese. China’s core working-age population, those aged between 20- to 39-years-old, is already shrinking. China’s National Bureau of Statistics reported that the number of working-age Chinese fell by 3.5 million in 2012. The phenomenon of China’s shrinking workforce has obvious implications for government spending projections, and the reduction in the available pool of labour helps explain the 12% to 15% jump in wages across China in the past decade. Crucially for elderly care provision, the ratio of workers to retired people will decline from about six to one in 2013 to approximately two to one by 2040. This will be roughly equivalent to Western Europe now.

It is worth noting that China’s government can take steps to slow the arrival of the Lewis turning point, even though the IMF warns the “looming demographic changes are large, irreversible and inevitable in the medium term”. In 2014 the authorities have, as mentioned above, significantly relaxed the one-child policy. However, there are other measures available to the central government. For instance, they could also encourage greater labour-force participation, especially by loosening restrictions on people moving around China to allow an easier flow of the underemployed to where there are shortages and demand. It is also government policy to try and move the economy up the “value curve”, boost productivity and encourage the services sector to expand. However, the fact is that there will be fewer tax payers in the coming years and that the ratio of working to retired citizens will become increasingly skewed towards retired people.



TABLE 4: PRIMARY REASON FOR RETIREMENT, 2012

%

Reached statutory retirement age 78

Due to ill health 8

To become a full time carer for spouse/partner/family member 4

Early Retirement (voluntary) 2

Other reasons 8

Source: China Health and Retirement Longitudinal Study, 2013

2.2) Elderly Citizens’ Housing Requirements

In terms of housing needs, China’s ageing population can be divided into two groups. The first group, comprising the majority of elderly Chinese, is composed of those who own their apartment, occasionally with mortgages (approximately 20% of over 50s in urban areas) but more often outright. In some ways this group, which does not have ongoing rent commitments, can be seen as fortunate. However, many of its members bought older apartments that require costly renovation and maintenance. Additionally, some retirees will begin to find their current homes unsuitable as they age and will need to change to more accessible, low maintenance accomodation. Given China’s skyrocketing urban property markets this may be difficult (see section 2.2.1).

The second group contains those who were unable to take advantage of the property privatization of the late 1990s [and have effectively missed out on the opportunities of the economic boom of the past 30 years in China]. Many of these elderly and retired people are supported by, or live with, their grown-up children in multigenerational homes (though may retain mortgages on other properties). Others live in rented apartments, though (as Table 5 shows) this is now becoming a minority of retired urbanites. While their rents may often be subsidised by the government, army, former work units (danwei) or other bodies, rent still represents an ongoing cost that erodes their savings and/or pension power.

TABLE 5: PROPERTY FINANCIAL STATUS OF RETIRED URBAN CHINESE, 2012




%

Property being purchased on a mortgage

21




Property being purchased on a mortgage (self-paid)




9

Property being purchased on a mortgage (paid by children)




12

Property owned outright

73




Property owned outright (self-paid)




65

Property owned outright (paid by children)




8

Other arrangement

6




Total

100




Source: China Health and Retirement Longitudinal Study, 2013

NB: renters are included in “other arrangement”

Based on this information, housing can be seen as a relatively minor concern for the majority of China’s ageing population, compared to the need for adequate healthcare and pensions. Already rates of home ownership for urban Chinese are high in the tier one and tier two cities – approximately 87% for the over-50 age group (though a percentage of these are multi-generational family homes) - and the vast majority will live in an owned property (albeit with perhaps others of their family). The strong tendency of Chinese adults towards having some kind of secure property ownership before they reach retirement age indicates that housing will not be a major issue for China’s burgeoning elderly in the future. One area that warrants further study concerns the accessibility and suitability of owned housing. A significant proportion of those elderly who own their homes could potentially need to move to a new house as their health and mobility deteriorate with age. For example, a third of over-50s home-owners inhabit public-built apartments, invariably the property they bought at deep discounts when the state sold off its vast public housing stock in the 1990s. The suitability of these old-style apartments for elderly persons should be the focus of future research.

2.2.1) Downsizing Housing Needs

In Western Europe’s more developed private property market the concept of downsizing housing at retirement is well established. In general retirees need less space once their children have homes of their own. Selling a larger property to buy a smaller one is thus a common way for European retirees to release capital tied up in the larger property. This adds to the financial pool that can be invested into products such as improved healthcare plans, life insurance and retirement savings.

In China, downsizing is a newer and less common phenomenon. This can be partially explained by the novelty of the privatised property market, the norm of intergenerational homes, and generally smaller apartment sizes, however these factors alone do not seem to explain the results of recent retirement surveys. Interestingly, three in ten adults have expressed a desire to live in a larger house when they retire. The reasons for the existence of this significant minority group should be further studied; one possible explanation is that the tight property market causes these retirees to foresee a need to accommodate adult children who do not yet own a home of their own. Still, financial considerations may be the final arbiter of downsizing decisions. The same surveys have found that approximately one in five (22%) future retirees (regardless of whether or not ideally they would like to move to a larger property upon retirement) would ultimately opt to downsize anyway. The major reason for this is to eventually release the capital from a larger property in order to help with future expenses.

A final element to the post-retirement downsizing issue is that one in five urban future retirees would like to retire to the countryside. This reflects the high rate of migration to China’s cities over the last 30 years and the fact that many people would like to move back to their home villages when they stop working. Naturally property prices are significantly lower in rural areas so releasing the profit from a sold urban property to buy rural, and using the leftover to fund retirement, is a potentially viable alternative pension strategy for many. However, healthcare and other services for the elderly are less advanced and accessible in many rural areas so returning to the countryside may not always prove possible in reality. Alternatively, high numbers of “returnees” could create pressure in rural areas for better geriatric care and services.





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