By John Richardson
EVERYONE should know by now that China faces a demographic crisis that, unless addressed, guarantees much lower GDP growth for many years to come. This
explains the urgency of economic reforms designed to escape the “middle income trap”.
But here are some disturbing statistics from the Asian Development Bank about other countries in Asia in a report called Tattered Safety Net – Pension Reform For Asia’s Elderly:
- In Vietnam, government projections indicate that the percentage of the population that is elderly will grow from 9% in 2009 to 26 percent in 2050.
- In Singapore, the United Nations projects that the number of people aged 65 and older in will increase 207%, from about 460,000 in 2010 to 1.4 million in 2030.
- In Malaysia, the elderly population has grown at a faster rate than the general population for every decade since 1970. Contributing to this is the fact that between 1970 and 2005, life expectancy in the country increased by 10 years.
What should also be of concern is that even countries with a potential demographic dividend of youthful populations are a long way short of adequately paying for their retired people.
In India, for example, the pension system for civil servants and salaried employees in the private sector covers only about 14% of the workforce. Most of India’s workers are employed in the informal sector and are excluded from the benefits of a regulated retirement income system.
And in Indonesia, 100% of government workers receive a pension but only 14% of those in the private sector have such a benefit.
South Korea is another country confronting a rapidly ageing population, but 70% of people over 65 do not receive a pension – even though, of course, this is a very rich country. With a fertility rate of just 1.21 children per mother in 2014, those aged 65 and over will make up 40.1% of the population in 2060.
And returning to China, as just about everything has to do these because of its importance to the global economy, here are two more very worrying statistics: China already has more elderly people than the whole of Europe combined, and yet China has only 2.1 nursing home beds for every 1,000 seniors.
You can turn this the other way around, of course, and quite rightly say that this an enormous area for growth. Just imagine in China alone, for example, the extra demand for synthetic fibres for all the bedding needed to raise the number of nursing home places to reasonable level. With China, also, you also know that when its government puts its mind to something, progress can be astonishingly quick.
But you simply have to view ageing populations in Asia in the same way of you have to in the West: That until or unless the challenges have been fully met, you must build into your scenarios significant downside potential for growth.
Clearly, the ADB thinks that a lot more work needs to be done, given these comments in the same report:
To address the situation, and maintain the gains made in the last few decades, Asian countries need to develop pension systems that offer coverage and benefits that are reliable and fair.
As longevity increases, and older people want to work, more flexible retirement ages also need to be introduced.
Governments in the region need to build strong, capable institutions staffed with professionals who can efficiently handle the data collection, record keeping and other nitty gritty functions of a strong pension system.
In addition, government regulation of such systems needs to be modernized and made more efficient. Rigorous financial controls and transparency are vital ingredients for a system handling large amounts of government funds that are vital for the well-being of many in society.
The parameters of existing pension systems – including retirement age, contribution rate and benefits – need to be rationalised in light of the national economic and demographic situation.
Policy makers in the region can also make decisions that take the pressure off national pensions systems. Policies can be instituted to encourage a higher birth rate, to encourage more work opportunities for elderly people who want to work for longer, and provide tax breaks for children to support their parents.
What worries me is that over the last few years, economic incentives have been so badly distorted by China’s huge economic stimulus, along with that from the West’s central banks, that some countries in Asia might well have put the issue of dealing with its ageing populations very much on the backburner.
Why bother to take the politically difficult decisions of raising taxes to pay for pensions and increasing retirement ages when your country was awash with cheap capital . Anyway, everyone kept telling you over and over again that the Asian future was bright because of “the rise of its middle classes”?
Again, though, to be positive the opportunities are huge for the chemicals industry in satisfying the basic needs of decent healthcare, and a decent standard of living, for Asia’s greying population.
Helping to provide other basic needs in Asia and in the developing world in general, such as greater access to potable water and sanitation, should also be the cornerstone of every chemicals company’s strategy as the New Normal develops.