The theme of the next few posts is global imbalances, so let's start things off with two articles about China. First, The Financial Times wonders if China's rapidly aging population will cause slower economic growth in the future:
Why China stands to grow old before it gets rich, by David Willetts, Commentary, Financial Times: ...One reason for China’s stellar growth is that it is at a demographic sweet-spot. The massive reduction in infant mortality achieved by China’s barefoot doctors in the 1960s and 1970s is now yielding a surge of young workers – an extra 10m working-age adults per year. China’s challenge now is just to absorb them into the labour force. ... There are few pensioners and there are not many children either. The rabbit is indeed in the middle of the python. As early as 2015, China’s working age population will actually start falling. By 2040, today’s young workers will be pensioners – in fact the world’s second largest population, after India, will be Chinese pensioners. ... The desperate rush for economic growth is fuelled by fears that China could grow old before it grows rich. ... Imposing the one-child policy ... is having an extraordinary effect. If you can have only one child it becomes highly desirable to have a boy. The rule is not as strictly enforced as it was, but you can now see its effect on the second child, which in the eyes of many Chinese really is the last chance to have a boy. For every 100 female second children, there are 152 males. Overall, there are now about 120 boys for every 100 girls in China. ... China is going to have to attract large-scale female immigration or many of its young men will leave. ... So China is going to be full of old people and rather earnest, frustrated young men. It will be one of the most dramatic and unusual demographic changes the world will have seen for a very long time, and Chinese leaders now would do well to plan for such a future.
Next The Los Angeles Times discusses how economic insecurity, lack of an effective social security system, underdeveloped financial and mortgage markets, and high educational costs cause the high savings rate in China:
Anxiety Drives Chinese Fixation on Frugality, by Don Lee, LA Times: ...China's economic reforms have vastly improved living standards, but the last two decades also have seen a dismantling of the socialist "iron rice bowl" that provided basic health and welfare from cradle to grave. The result is that many Chinese today feel more insecure about their future than their parents' generation did. Chinese families are saving about half of their income. ... [M]ost experts expect China's savings rate to stay high for years to come because of the need to prepare for a large dependent elderly population. ... China, like other nations in East Asia, has a long tradition of thrift. Analysts say it may be linked to Confucian values that encourage thrift and production rather than consumption. China's propensity to save also reflects its agrarian society, where people face more risks of fluctuating incomes and their long work hours leave them with little leisure time to consume. ... pensions, for those who have them, tend to be modest. China's healthcare system is broken; insurance is inadequate for most everybody. Many employers in China don't provide insurance ... In the event of a serious ailment, ... "even an entire life savings may not be enough. So they dare not spend." Zhuo Yunbao recently had a scare when his father was hospitalized with a stroke. He says his father may need a pacemaker, but that's not covered by the state insurance for the elderly. The family is saving for more than a rainy day. They want to buy a car. A few years from now, Zhuo says, maybe they'll look at moving into a bigger home. ... More than anything else, though, the Zhuos are squirreling away for their son's education. ... Like many young Chinese parents, the Zhuos want to send their son abroad for college. They have their sights on England or the U.S., where four years of tuition could reach $125,000. The family has saved a little more than 10% of that. "We have a long way to go," Zhuo says.