China’s Demographic Dividend

The possible benefits of TEMPORARY Population Growth

Spurt

What drives China’s Growth?

• Reform and Restructuring• Urbanization and Industrialization• Demography Dividend and Education• Savings and Capital Formation• Globalization

Reform and RestructuringFrom Communist to Socialist with Chinese CharacteristicsFrom Central Planning to Market Driven EconomyFrom Closed-Door policy to Open-Door PolicyFrom Dictatorship to “Centralized Democratic” Decision MakingPrivatization

What Drives China’s Growth?

• Reform and Restructuring• Urbanization and Industrialization• Demography Dividend and Education• Savings and Capital Formation• Globalization

What Drive China’s Growth? Urbanization

-- 1.5 million per month

Industrialization

-- Raise productivity

-- Monetize economic activities

Urban / Total Population(%) 2000 2005 2010 2015 2020 2025 2030

Australia 87.2 88.2 89.1 89.9 90.6 91.3 91.9

China 35.8 40.4 44.9 49.2 53.2 56.9 60.3

Hong Kong 100 100 100 100 100 100 100

India 27.7 28.7 30.1 31.9 34.3 37.2 40.6

Indonesia 42.0 48.1 53.7 58.5 62.6 65.9 68.9

Japan 65.2 66.0 66.8 68.0 69.4 71.1 73

Korea 79.6 80.8 81.9 83.1 84.2 85.2 86.3

Malaysia 62.0 67.6 72.2 75.7 78.5 80.5 82.2

Pakistan 33.2 34.9 37.0 39.7 42.8 46.3 49.8

Philippines 58.5 62.7 66.4 69.6 72.3 74.6 76.7

Singapore 100 100 100 100 100 100 100

Thailand 31.1 32.3 34.0 36.2 38.9 42.2 45.8

Vietnam 24.3 26.4 28.8 31.6 34.7 38.1 41.8

Asia 37.1 39.7 42.5 45.3 48.1 51.1 54.1

US 79.1 80.8 82.3 83.7 84.9 86.0 87.0

Latin America 75.3 77.5 79.4 80.9 82.3 83.5 84.6

Western Europe 75.3 76.1 77.0 78.0 79.1 80.4 81.7

Source: United Nations, CLSA Asia-Pacific Markets

http://www.nytimes.com/2013/06/16/world/asia/chinas-great-uprooting-moving-250-million-into-cities.html?_r=0

http://www.nytimes.com/video/world/asia/100000002279849/in-china-a-staggering-migration.html

What Drives China’s Growth?

• Reform and Restructuring• Urbanization and Industrialization• Demography Dividend and Education• Savings and Capital Formation• Globalization

What Drives China’s Growth?

• Reform and Restructuring• Urbanization and Industrialization• Demography Dividend and Education• Savings and Capital Formation• Globalization

Background this and next 3 slides

The demographic dividendExplained in 4 parts

Part 1: Preliminary Steps•Country enters stage 2 of Demographic Transition•Results in large increase of children•Dependency ratio increases•Little to no change in elderly population life expectancy

Part 2: Window of opportunity opensMechanics of situation•Country enters stage 3 of Demo. Trans.•Children decline as proportion of population (see diagram)•Dependency Ratio declines•Little to no change in elderly proportionWorker bulge appears (see diagram)Wise Country follows pro-development policies •Moves to creates Employment opportunities•Pursues international export strategy

Part 3 Dividend Period•For about a generation the country rapidly grows and prospers•Workers support fewer dependents and tend to invest their growing surplus•Country’s policies insure ample employment, investment opportunities, and greater consumption

Part 4 Window closes – but country developed•After a generation workers age and begin to retire•Stage 4 of Demographic transition entered•Dependency ratio climbs based mainly on elderly (see diagram)•As Dividend ends •Growth of economy slows but continues

Countries at various parts of the Demographic Dividend

The demographic dividend in words

The demographic dividend is a window of opportunity in the development of a society or nation that opens up as fertility rates decline when faster rates of economic growth and human development are possible when combined with effective policies and markets. The drop in fertility rates often follows significant reductions in child and infant mortality rates, as well as an increase in average life expectancy.

As women and families realize that fewer children will die during infancy or childhood they will begin to have fewer children to reach their desired number of offspring. However, this drop in fertility rates is not immediate. The lag between produces a generational population bulge that surges through society. For a period of time this “bulge” is a burden on society and increases the dependency ratio. Eventually this group begins to enter the productive labor force. With fertility rates continuing to fall and older generations having shorter life expectancies, the dependency ratio declines dramatically.

This demographic shift initiates the demographic dividend. With fewer younger dependents, due to declining fertility and child mortality rates, and fewer older dependents, due to the older generations having shorter life expectancies, and the largest segment of the population of productive working age, the dependency ratio declines dramatically leading to the demographic dividend. Combined with effective public policies this time period of the demographic dividend can help facilitate more rapid economic growth and puts less strain on families. This is also a time period when many women enter the labor force for the first time.[1] In many countries this time period has led to increasingly smaller families, rising income, and rising life expectancy rates.[2] However, dramatic social changes can also occur during this time, such as increasing divorce rates, postponement of marriage, and single-person households.[3]

End of Demographic Dividend

More Kids Dip

One Child Policy

More Elderly

China’s Case

Following Japan

Peak Years of “Cheap” Workers

“Scissors” crisis of aging

Dependency Ratio

Kids

Old

Replace Brawn with Brains?

Demography and EducationDemography Dividend

China’s Baby-boomer Generation

Young and Educated

With money, Will spend

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

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2010

New ly enrolled Fresh graduates

mnCollege Enrollment

Brain power: US vs China

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1999 2000 2001 2002 2003 2004 2005 2006 2007

USA China

(No.) Science and engineering PhDs

Source: National Science Foundation, China National Bureau of Statistics, CLSA Asia-Pacific Markets

What Drives China’s Growth?

• Reform and Restructuring• Urbanization and Industrialization• Demography Dividend and Education• Savings and Capital Formation• Globalization

Saving is Virtue!

Waiting to make deposit

Total Deposit

Total Household Deposit in China US$5.13 Trillion

Household Savings / Disposable Income

0 10 20 30 40

USA

Philippines

J apan

Taiwan

Australia

Thailand

Indonesia

South Korea

Malaysia

India

Hong Kong

Singapore

China

(% )

Source: Euromonitor, CLSA Asia-Pacific Markets

Higher Savings Ratio,

Higher Capital Formation,

Higher Growth Rate

What Drives China’s Growth?

• Reform and Restructuring• Urbanization and Industrialization• Demography Dividend and Education• Savings and Capital Formation• Globalization

Globalization

China Accounts for 10% of Global Trade

Drivers for the Growth in Next Decade?

• Reform and Restructuring should continue, but no more low hanging fruits• Urbanization and Industrialization

another two decades to go• Demography Dividend and Education

no more labor growth, productivity to go higher• Savings and Capital Formation

need less savings to drive domestic consumption• Globalization

slower export growth, trade balance

No More Double Digit Growth

0

2

4

6

8

10

12

14

16

1980

1982

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1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

GDP grow th

%

But, Power of Compounding

0

5000

10000

15000

20000

25000

30000

US

$ B

illi

on

Year

GDP Comparison

China

US

India

Key Assumption China India U.S.

Real GDP 7% 6% 2%

Inflation 3% 4% 2%

Currency Appreciation 2% 1%

Uneven Spatial Development