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A woman tidies the hair of 106-year-old Liang Guangru at a nursing home in Beijing. The government says China will face a crisis in caring for its elderly unless it can shore up its and social security funds before an explosion in its rapidly aging population. (JASON LEE/REUTERS)
A woman tidies the hair of 106-year-old Liang Guangru at a nursing home in Beijing. The government says China will face a crisis in caring for its elderly unless it can shore up its and social security funds before an explosion in its rapidly aging population. (JASON LEE/REUTERS)

Don’t look now, but China has its own demographic dilemma Add to ...

Tired of hearing how the developed world is aging and that is going to create a whole host of problems for everyone? Let’s worry about something else for a change – like how the developing world is aging, and that is potentially even worse. Well, maybe it’s not a worse problem, but as a complement to the increasingly geriatric developed world, the aging of countries such as China is hardly a good thing.

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Let’s backtrack a bit and put things into perspective. In case you missed it, North America, Europe and a bunch of other regions had a baby boom after the Second World War, and a lot of children were produced. Those children are now old, and they are getting older as we speak. Pretty soon, as a group they will be done with paying taxes on employment income and will be all about cashing government support cheques (or at least checking their bank accounts online to make sure that their entitlements are being deposited on time).

Fair enough – but problematic in an economic sense. Not only do older people contribute less to government coffers, but they also cost more in terms of social services and health care. They also consume differently, which is an issue in lots of ways as well. Older people sell their homes, they do not buy new ones. They do not rush to IKEA or the Art Shoppe or wherever to stock up on rooms full of furniture. Not only do they shop carefully, but they have more time to do things like cook their own food. They have time as opposed to money – and that is a bit of an economic disaster.

Of course, economists and planners have known all this stuff for decades, and corporations have, too. That’s why the auto companies have been confidently planning to sell everything from cars to chocolate bars in “new” markets such as China and India, which are young-ish and also becoming increasingly wealthy. It has all worked fairly well in a global economic sense too, since growth in places such as China has been able to offset stagnation in the likes of Europe. That has held up prices for commodities as well, which ultimately benefits exporters like Canada.

So back to the bad news: Those “new” markets – in particular economic powerhouse China – are also getting old. Not as old as Western Europe, maybe (where the United Nations estimates that the median age will be almost 44 by 2015), or even North America (where it will be 38), but pretty close. The UN estimates that China’s median age will be 36 by that year – up from under 30 in 2000.

It should not really be a surprise to anyone; urbanization, together with the one-child policy, are going to lead to less children. But the speed at which China and other Asian populations are aging is a bit stark.

So what does it mean in practical terms? Well, remember all those eager village dwellers who were anxious to head for Chinese cities, staff the factories and make things that could be sold real cheap in Canadian dollar stores? They are looking for different work if they can get it, and if they cannot, they want to get paid more. So the Chinese-made goods that North Americans love to buy for a dollar may soon cost several dollars. On top of that, older people will slow the Chinese economy in the same way that they will in North America – and Chinese policy makers may be even less prepared to deal with it.

A new report by Citigroup’s economics department puts the whole phenomenon into a broader perspective, and puts some numbers to it. In their view, “deteriorating demographics” are going to trim 3.25 percentage points from Chinese annual real gross domestic product growth over the next two decades. That is huge – and if it is not offset by growth from somewhere else, it will be enough to put the whole economic picture in jeopardy.

It is not cheery stuff, although in no way does the demographic picture mean that the world is doomed in an economic sense. As Citigroup notes, there is still time for policy makers to make some positive changes, perhaps making it more palatable for older workers to stay in the labour force longer. Some nice productivity gains – which mean you can do more with less – would work as well.

Demography does not have to be destiny. But you need some pretty aggressive moves to make sure that it is not.

Linda Nazareth is a Senior Fellow at the Macdonald-Laurier Institute. Her book Economorphics: The Trends Changing Today into Tomorrow will be published by Relentless Press in January, 2014. www.economorphics.com

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