The greying of Asia

Two developments this week highlight how populations in key Asia-Pacific countries are becoming older, and the challenges accompanying this trend. Indeed, it could be the most acute economic problem facing the region.

In Japan on Monday, the opposition leader was forced to follow a senior government official in resigning because each had failed to pay obligatory contributions to a state pension scheme. Japan's workforce has been shrinking for nearly a decade and those who are employed know that the scheme's liabilities far exceed its income. Young contributors believe that the pension plan will be bankrupt by the time they retire.

In Australia on Tuesday, the government announced a raft of family support and childcare measures to encourage the young to have at least three children. With women marrying later and having fewer children, only immigration is keeping the population above the replacement rate.

In places like Japan, Australia, South Korea, Singapore and Taiwan, rapid economic development, better education and changing values have been followed by sharp declines in birth rates, a shrinking workforce and an increasing proportion of elderly people. The region's four biggest economies - Japan, China, South Korea and Australia - are all afflicted by this greying phenomenon. The Japanese population of 127 million barely changed last year. Unlike Australia or Singapore, Japan is averse to bringing in immigrants. One-third of the population is expected to be aged 65 and over by 2050. In China, nearly 300 million people, or more than one-fifth of the population, will be over 60 by 2025.

Such trends will affect demand for goods and services. With fewer people working and more retired or in part-time employment, revenue will decline. This will strain public finances, forcing cutbacks.

Some analysts believe that greying will hit China especially hard. Nicholas Eberstadt, a political economist at the American Enterprise Institute, says that the tempo of population ageing in China is very nearly as rapid as anything in history, and is exceeded only by Japan. But he notes that there is a crucial difference between Japan's recent past and China's prospective future. 'To put the matter bluntly, Japan became rich before it became old; China will do things the other way around,' he wrote in Policy Review.

When Japan had the same proportion of people aged 65 and above as does China today, its level of per capita output was three times higher than China's. Moreover, although China's population will not be as elderly as Japan's by 2025, its ageing process is expected to generate acute problems of a kind Japan does not have to face.

While Japan's national pension system is vulnerable, China's is largely non-functional. China's one-child policy has doomed nearly all elderly parents in the future to dependence on a single child. The combination of more arduous employment and less healthy ageing will leave fewer elderly Chinese productive than their counterparts in Japan.

Mr Eberstadt argues that without a national pension system in China, and with only limited filial resources to fall back on, paid work will be essential for economic security for many older people. But employment in China will continue to be more physically punishing than in Japan and other counties in the region. He worries that as hundreds of millions of Chinese experience this triple bind over the coming generation, it will generate a set of economic, social and political constraints on China's development that have not yet been fully appreciated in Beijing - much less abroad.

Michael Richardson, a former Asia editor of the International Herald Tribune, is a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore. The views expressed in this article are those of the author