The silver lining of ageing populations in emerging markets


The year 2018 marked an epochal demographic turning point: Earth became home to more people aged 65 years and over than children under five, for the first time ever.


In this newly grey world, rich countries are generally richest in senior citizenry — but this won’t last. In recent decades the fertility rate has typically also fallen in developing countries, and at increasingly lower per capita incomes. Life expectancy has been increasing similarly.


Middle-income developing countries — including G20 members Argentina, Brazil, China, Russia and Turkey — are closing in on the rich world’s senior citizen population share. Thailand, Tunisia and Sri Lanka are among dozens more that will join them in future decades as the silver tsunami spreads.


Realising the investor gold and avoiding the pitfalls of this ageing process requires some nuance. One area requires understanding the remarkably different lives of representative retirees across different countries. Failure to do so may, moreover, even contribute to economic stagnation.


Masaaki Shirakawa, former governor of the Bank of Japan, almost remorsefully noted recently that failure to have appreciated earlier the nature of his own country’s demographic challenge is likely to have contributed to both a downward economic and demographic spiral over the past quarter of a century — arresting which is now even more difficult.

最近,日本银行(Bank of Japan)前行长白川方明(Masaaki Shirakawa)几近懊悔地指出,未能及早认清日本面临的人口挑战的性质,很可能导致了过去25年日本经济和人口的螺旋式下滑,现如今要阻止这一趋势变得更加困难。

True to stereotype, Chinese policymakers have, however, been looking ahead for more than three decades to China’s own ageing-related economic challenge. After opting to implement the draconian One Child Policy in 1980, it fell on the shoulders of China’s policymakers to forecast and plan ahead for the consequences, positive and negative.


Most prominently, as far back as the 1980s, Renmin University demographer Wu Cangping, now in his own ninth decade, realised that with given fertility and life expectancy forecasts there was no feasible growth rate that would prevent China getting old before it could hope to get rich.

最引人注目的是,早在上世纪80年代,现年90多岁的中国人民大学(Renmin University)人口学家邬沧萍就意识到,在给定的生育率和预期寿命预测下,现实的经济增速不可能阻止中国在变富之前变老。

The associated phrase in Chinese, wei-fu-xian-lao, was adopted to convey the risks and help Chinese economic policymakers go all out to best ensure that China’s “premature” ageing future — now its present reality — would not derail its economic modernisation agenda.


Hence, from the 1980s, it seems China not only implemented an experimental economic development strategy, the “opening and reform” agenda, but something closer to a long-run economic demography transition strategy. That is, an agenda that would see a sustained development over time not only of the economy but also of weighted demographic resources and productivity potential.


Examples of China’s longer-term “premature” ageing strategy include, first, that Beijing made sure to extract the maximum benefit from the temporary demographic dividend window provided by low wage-driven export growth and low construction costs.


Second, government officials made only modest pension promises even to the large, relatively lowly remunerated cohort born in the 1950s and 1960s. Third, with an eye on the then horizon, when China would have to rely on fewer workers, it sought to ensure that a sizeable share of its rising income was invested in scaling up the next generation’s human capital via intensified education, a process made easier by the reduced number of children per household.


Finally, with an eye on future international growth, China’s policymakers have also deepened political and economic ties, of late via the Belt and Road Initiative, with “young” and “poor” countries likely to reap future demographic dividends that boast emerging consumer markets.


As a result of this perhaps under-appreciated strategy, China’s human capital is now heavily biased in favour of its younger working-age cohort. As a consequence, and as a result of China’s growth itself, this cohort also enjoys employment conditions and wages far better than those enjoyed by their parents and grandparents.


In comparison, the same structural shift in human capital is less evident — if not reversed — in Japan, which got old after it got rich. Hence, its millions of retirees represent a larger loss to the economy. In turn, it would be expected that population ageing itself weighs differently on the economies of China and Japan.


The investment opportunities, similarly, will also be unique. For example, where cruises may form part of a sensible silver tourism marketing strategy in OECD countries, where the older cohort tend to have higher levels of disposable income and be time-rich, in “poor-old” China, the average globally mobile tourist is more likely to be younger and looking for adventure.


In the meantime, investors who can offer pragmatic and affordable solutions to help make China’s poor-old masses more comfortable might expect a significant return. Similarly, investors offering means through which Japan’s prime-aged workers and youth can more easily realise the same, if not higher, living standards as those enjoyed by their parents and grandparents, or means of helping them to support their super-ageing elders, are also likely to find a ripe market.


For other emerging markets, it may be too late to recreate China’s long-run approach and may not be feasible, or even sensible to try.


For the poorest and youngest countries, however, most of which are in sub-Saharan Africa, the approach offers a factor to consider in attempting to forge a period of sustained development. For all countries, even those that are already high income, a continuous balancing, not only of the economy, but of economic demography, appears to be imperative. In an era of epochal demographic change, this may also be the approach favoured by long-run-focused investors.


Despite the process of adjusting to ageing beginning more than three decades ago, even China faces a precipitous economic tightrope as its workforce declines as a share of population and its elderly population share rises rapidly.


At the forefront is the backdrop of an increasingly complex global geopolitical whirlwind around its ascent up the technological value chain. It is, at least, relatively well prepared for that challenge.


Compared with Japan and other longstanding high-income countries that are ageing rapidly, China may also enjoy some structural dividends, such as the noted favourable skewing of education in favour of the smaller prime-age cohort, and relatively “cheap” pensioners.


To that end, upper-middle income may not yet be “rich”, but it appears China has reached one frontier. That frontier, something of a spin-off from the draconian One Child Policy, is how well both its government and populous are ready for the vast and intensifying implications of ageing.


In that regard at least, it is Japan playing catch up to China. “Younger” countries should ensure they do not waste their youth.


Lauren A Johnston is a research associate at the China Institute, School of Oriental and African Studies, University of London, and founding director of New South Economics, an economic research and strategy consultancy

本文作者劳伦•A•约翰斯顿(Lauren A Johnston)是伦敦大学(University of London)亚非学院(SOAS)中国研究所的助理研究员(research associate),他也是专注经济研究与战略的咨询机构New South Economics的创始董事