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How will Asia deal with going grey before it gets rich?

While Asia remains one of the fastest growing regions in the world, inequalities are widening within and between countries.

Rapid demographic changes mean that many parts of Asia may grow old before they become rich – a trend that goes far beyond questions of economic prosperity, and affects human security and well-being.

Although the region’s longest “developed” country, Japan, doesn’t have to worry about going grey before getting rich, it must instead work out how to continue to fund the retirement that its citizens have come to expect as its society ages rapidly.

Speaking on the second full day of the joint Salzburg Global-Nippon Foundation program ‘People, Peace and Planet in 2030: Shaping Inclusive and Sustainable Growth’, Noriko Tsuya, Professor, Department of Economics at Keio University, Tokyo in her lecture ‘The Impacts of Population Aging and Decline in Japan: Demographic Prospects and Policy Implications’, said: “Japan is a forerunner in almost every area demographically... Almost every Asian country is going to follow its pattern.”

It is for this reason that the case of Japan is being so closely watched by many countries in the region, especially its biggest economy, China, as well as many of the large economies of Europe, which are facing similar challenges.

The demographic challenges facing Japan are vast. Not only is its post-war “baby boomer” generation hitting retirement, meaning over 23% of the current population are over the age of 65, but it is also facing a shrinking replacement rate with one of the lowest birth rates in the world.

This means that not only is Japan facing a future with fewer workers to contribute taxes to its social security schemes, but it will also have far fewer people to care for the elderly.

Japan’s current population is approximately 128 million; this is forecast to fall to below 100 million by 2060, with 40% of this population predicted to be over the age of 65.

Since 1990 Japan has subsidized adult day care and other services to help families care for the elderly at home, and keep working and contributing to the social security system at the same time.

However, the number of contributors (all workers aged 20-65) to both public pensions and “long term care insurance” (workers aged 40-65) are falling rapidly, as is the “family care ratio” of available women (as these are typically the workers who choose to forgo work in order to care for their aging parents) to care for these retirees, who are also not only growing number but also living much longer. 

Thanks to modern medicine, today’s 65 year olds are now more youthful than 50 years ago, but like in many countries, neither the pension-contribution age nor the retirement age has been adjusted to account for this.

These trends have long been forecasted, with some Fellows of the session asking the question: why haven’t any major policy changes been enacted?

Simply put, many policy-makers have put off dealing with this crisis for future generations to handle, in turn exacerbating the problem.

The options available to Japan (beyond the obviously unpalatable policy of mass euthanasia of its elderly) are limited: both raising the birth rate and increasing immigration pose great problems.

In a society where women play a significant role in the workplace, discouraging women to pursue careers and instead have multiple children is politically unpalatable.

Marriage rates are low, with those who do marry unlikely to have more than one child due to the multiple reasons on general high cost of living, the additional costs of raising a child, the energy needed to assist the child through the rigorous Japanese education system, and the late start in having children meaning many women are not able to conceive more than one child. 

More must be done to help women pursue both a career and motherhood, said Dr. Tsuya.  Also contributing to the low birth rate is the low rate of marital sex.

Recent research has indicated that 45% of Japanese women aged 16-24 are ‘not interested in or despise sexual contact,’ suggesting that even if having children were more financially feasible, the low rate of sexual intercourse both within and outside of marriage could be a hindrance which cannot be overcome through more favorable work/life balance policies directed at women.

“Replacing population by international migration is if not impossible, extremely difficult,” added Dr. Tsuya.

According to the UN, the number of migrants needed by Japan every year by 2050 to keep the population at the level it was in 2000 would be 343,000.

Given the (unofficial) preference for Japan to keep its ethnic and linguistic homogeneity, this would prove difficult given the lack of available ethnic Japanese overseas to immigrate to Japan.

Even if Japan were to accept any and all immigrants, further social and business policies would be needed to help these immigrants to be welcomed and integrated into Japanese society and encourage businesses to hire foreigners.

It is not yet as demographically skewed as Japan, but China’s rate of aging is even faster. The world’s second and the region’s largest economy is projected to take just 18 years for its population to increase from 10% to 20% of 65+ year olds by 2035; Japan took 20 years to reach the same percentage. 

Singapore, which has the region’s lowest birth rate behind Hong Kong, is aging the fastest; the city-state is forecast to reach the 20% mark by 2026 – just 13 years since 10% of its population were over 65.

This rapid aging is likely to cause China to “go grey before it gets rich” and is creating greater disparities between the industrial east and more rural west of China, the urban and rural populations at large, and the rich and poor, warned the day’s second speaker, Bo Peng of Shanghai Jiao Tong University, in his talk “Aging in the City: Case of Shanghai.”

Besides its working population growing older, the one-child-per-family policy has seriously exacerbated the aging problem as there are far fewer people to care for older generation.

This is particularly noticeable in the countryside, where the movement of young Chinese migrants to the cities is leaving even fewer people to care for the aged population, as well as reducing available taxes for local government to provide services for their elderly. 

The urban rich are finding ways to supplement their pensions, such as generating additional income through private rentals.

But this is obviously not an option for the poor, either in or out of the cities. To meet this growing demand, the Chinese government is now considering selling public assets to pay for public pensions.

It will not only be up to the central government and families, but also local communities and private business to help manage and house the growing aged population.

While 90% of the aged population in China is cared for by their families, there is a growing need for local community-based and state-run institutional care home facilities.

In the case of Shanghai, some small scale private care homes have opened. This is something China is going to need far more of if it is going to meet the growing demand and reduce the waiting time to enter such care homes, some of which have waiting lists of more than 20 years.

Many of the other countries in the region have not yet reached the aging rates faced by Japan and China, but if they want to avoid the same issues, they need to think now about how they will tackle this challenge, and not delay as their older neighbors have done.

Singapore has taken the unusual approach of introducing an official matchmaking service, helping its highly educated (and most often ethnically-Chinese) population find spouses and have children.

Beyond national incentives to have children, regional migration policies might also help countries which have a young and growing population ease the pressure on their resources as well as provide much-needed labor in aging countries.

Ultimately, the Asian ‘miracle’ will not be measured in incomes but in outcomes, shaped by the way countries implement inclusive and more equitable growth – growth that includes sustainably looking after all parts of its society, and not just its workers.