As China ages, will its economy shrink?
Graeme Maxton believes complex changes in people’s spending patterns, unpredictable in the aggregate, will have huge implications economically, politically and socially
What happens to an economy when the population gets older? Does it shrink, because old people do not spend as much, or expand because the medical and elderly-care sectors grow?
These are vital questions if you have long-term interests in Hong Kong or the mainland as both are among the fastest ageing populations in the world. The number of people over the age of 65 in mainland China and Hong Kong will more than treble in the next 35 years to almost 330 million. At the same time, because of the one-child policy, the total population will decline by around 200 million.
This means that the number of people in greater China will fall by roughly 15 per cent while the number under the age of 65 will decline by more than a third – from around 1.25 billion today to just over 800 million in 2050. Those are very big changes and they will have a very big economic impact.
But how? Few people understand the implications of an ageing population properly, simply because humanity has almost no experience of the phenomenon, certainly outside Japan. As a population ages, large numbers of people who once worked become economically inactive. Instead of paying for their own costs from their earnings as they once did, they depend on their savings, as well as on money from their families or the state.
As Asians age, more of their savings may head offshore
Longer life spans must mean longer working lives
Their spending changes, too. The retired do not need to travel as they once did, so they buy fewer train tickets and less fuel. They tend to eat less. In the rich world, the elderly spend 25 per cent less on the things they typically consumed before, but more on health care and their families. By the time people reach the age of 85, their conventional consumption has fallen by half.