Ageing, wealth gap pose threat to China

Deteriorating outlook for population growth may put drag on the country's expansion amid 'bad spread' of people's wealth, CVC warns

PUBLISHED : Thursday, 14 November, 2013, 12:59pm
UPDATED : Friday, 15 November, 2013, 1:42am

Private equity firm CVC Capital Partners said the mainland's slowing population growth and high concentration of wealth among a minority of its people posed key challenges for the world's second-largest economy.

"Everybody knows that China is not booming on the baby front," said Steve Koltes, a co-founder and co-chairman of the London-based firm, which has about US$50 billion of assets under management.

Speaking at an industry forum yesterday, Koltes said the country's population expanded at a paltry 0.5 per cent last year, slowing substantially from a rate of 5.8 per cent in 2010 and 11.7 per cent in 2000.

The deteriorating demographics outlook has alarmed policymakers as an increase in aged people comes amid a decline in the number of workers.

There had been talk of easing the country's one-child policy as the highly unpopular law, which has restricted couples to no more than one child for 31/2 decades, is condemned as a breach of human rights.

But hopes have been dashed again as no meaningful policies for the country's demographic reform were released after the third plenary session.

The unfavourable outlook for population growth might trim 3.25 percentage points off the mainland's annual economic growth by 2030, compared with double-digit growth in past decades, Citi economists said.

Beijing projected people aged above 60 would form 30 per cent of the population by 2050 from 14.3 per cent last year.

Koltes also said more than two-thirds of the country's wealth were held by 1 per cent of the population, worse than the United States, where 1 per cent of the people held one-third of the country's wealth.

The privileged groups on the mainland, including the well-connected princelings and the offspring of powerful business tycoons, have boosted public calls for a crackdown on massive corruption and the introduction of more open governance.

Koltes said he did not know whether the "bad spread of wealth" was philosophically or ideologically wrong, but it had implications.

He said although the mainland had a state-run economy, the diversity of its demographics meant the country was an "agglomeration of economies" in which different wealth metrics and strengths must be taken into account when doing business.

CVC, which owns Hong Kong Broadband Network, an internet service provider in the city, is working on a deal to buy a majority stake in upscale mainland restaurant chain South Beauty for US$300 million.

The global big picture is pretty "scary" with the private equity titan highlighting the fiscal fiascos in Europe and Japan.