Slow down China - how the ageing population in China may put the brakes on growth

By Anita Yang

The big issue that will be one of the Chinese government’s biggest challenges may not be unrest in rural areas, calls for democratic reforms or environmental damages stemming from factories dumping its chemicals into the country’s rivers, but its elderly population.

Although images of graying grandmothers may hardly seem threatening, it is not an exaggeration to state that one of the biggest challenges for the Chinese government in the coming decades is to decide how it will care for its ageing population.

Currently, China has a population of over 180 million elderly people. It is predicted that by 2035 there will be an estimated 280 million elderly or the equivalent of 1 in 5 Chinese. Today, the average life expectancy in China is 74 years, an increase of 25 years in the past 5 decades.

The trend of a growing ageing population is hardly unique to China. Increased longevity due to improved living standards, breakthroughs in science and technology as well as increased access to medical care are causing governments around the world to scramble to find resources to care for its elderly. The UN estimated that the total number of people over 60 will increase from about 600 million in 2000 to almost 2 billion in 2050.

However, the difference is that China, with the world’s largest population, is grappling with a unique ‘growing old before growing rich’ phenomenon. In pursuit of economic growth, the central government has largely neglected development of its social security and pension system. As a result, today these systems are largely weak or non-existent in some areas of China, particularly outside of Beijing, Shanghai and more prosperous cities where additional resources have been spent on elderly care. Gaping inequalities between the new rich and poor has meant that only the minority are able to afford costly medical services. In the rural areas where over 60 percent of China’s population resides, more than half of the elderly do not enjoy medical insurance and only 4.8 percent receive pensions.

Impact

This neglect and lack of foresight has severe short and long term implications that are far reaching for China’s economic growth and social stability.

First, a rapidly ageing population may hurt China’s chief competitive advantage – cheap labor. Despite the current recession, even provinces such as Guangzhou, the industrial heartland of the country which employs millions of unskilled factory workers from other parts of China, are finding it difficult to recruit workers. The immediate cause of this shortage is that millions of these migrant workers are returning home to the interior where a half-trillion dollar government stimulus program is creating new jobs in this long-neglected region of the country. However, this shortage is masking a much larger problem which is that longer life expectancy along with China’s strict one-child policy is on course to effectively ensuring that there will be fewer workers to supply labor to keep China’s engine running. The UN estimates that the population growth in China will plateau at 1.46 billion by 2035 with increasingly less working people for every older person.

Secondly, rapidly growing demands for medical and specialized services for the elderly will continue to overwhelm an already weak social security system straining existing resources. China currently only has 2.5 million beds at elderly homes for the estimated 8 million elderly people seeking accommodations. Another example in China is that it is home to 6 million sufferers of Alzheimer’s – a third of all Alzheimer’s patients in the world. Hospitals have been overwhelmed and there not enough facilities to treat these patients.

To stem pressure, some cities are pushing to extend the retirement age of 55 for men and 50 for women. In Shanghai, the country’s “grayest” city where one-fifth of the population is over 60, city officials are urging local companies to persuade aging employees to stay on the job longer. In the last two years, the city had to inject $618 million into the public pension system to keep it solvent. The amount of resources needed, particularly in a country with the China’s population, is immense. Even in the US where a third of the government’s federal budget is dedicated to its social security and medicare fund system – funds that were expected to pay for older Americans – it is expected that money will run out by 2017 and 2037 respectively.

Ultimately, the threat of social instability particularly when a generation of unskilled workers will soon retire or find themselves unemployable with little or no access to regular income or assistance is at the forefront of the government’s concern. For the lucky few, many whom were former state-owned enterprise workers receiving monthly, even this is often inadequate. Monthly pensions differ depending on province as well as whether one are an urban or rural resident. For example, in Gansu, pensioners may get as little as 900RMB a month (USD132) in comparison to the 1832RMB (USD268) with their richer Beijing counterparts.

Critics have pointed to China’s one-child policy implemented in 1980 which has not only succeeded in restricting population growth but has also guaranteed that the burden of supporting elderly parents and grandparents would often rest solely on the shoulder of one child. While families once relied on several children, especially the eldest son, to support them in their old age, it is not the case now. An estimated 80 million (of the nation’s 167 million 60+ population) older adults live alone. This impact is exacerbated by the exodus of young people into the cities leaving their parents behind as well as changing traditional views on filial obligations.

Opportunities

While the government has initiated more persistent efforts in strengthening the current system, progress has been slow. Despite a pension program that had started in the 1990s, the current pension plan has only reached about 15 percent of the population (205 million people). To speed up progress, the government has recently introduced a rural pension insurance scheme in Northeastern China which would enable a minimum of 1800RMB per month after retirement. This scheme is aimed at reaching initially at least 10 percent of the rural population.

To shift its burden, the government has increasingly promoted private sector development in delivering elderly services in the country. Countless elderly homes, many of them unregistered, have cropped up across China as well as businesses in the healthcare, pharmaceutical, financial services, manufacturing and retail services industries looking to jump into this lucrative market. Yet demand is still outstripping supply including the shortage of qualified nurses and caretakers.

Conclusion

However, while the private sector can play a tremendous role in providing much needed products and service catered to the elderly, the issue is still one of affordability for many of China’s elderly, over half of whom are living below the poverty line in rural areas. The issue is that reform in this area, like so many challenges in China, is tied to the ability of the central government in addressing large income gaps between the rich and the poor as well as between urban and rural areas. For China to keep running its economic engine, it must not forget its duties to the very people who have and are continuing to lay the country’s foundations today.

Anita Yang is Programme Manager at the Global Institute For Tomorrow.