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May 07, 2012

China has an aging population and gender imbalance but not as bad as many fear

the American Enterprise Institute has a working paper - World Population Prospects and the Global Economic Outlook: The Shape of Things to Come (43 pages)

The Census Bureau predicts that China’s population will peak in 2026, just 14 years from now. Its labor force will shrink, and its over-65 population will more than double over the next 20 years, from 115 million to 240 million. It will age very rapidly. Only Japan has aged faster -- and Japan had the great advantage of growing rich before it grew old.

Three million hidden births per year

The Telegraph UK and other sources are reporting that 3 million babies are hidden in China each year. This is according to research by Liang Zhongtang, a demographer and former member of the expert committee of China's National Population and Family Planning Commission.

Since 1978, China’s government has limited each couple to one child in a bid to stem the growth of the world's largest population. To police the law, neighbourhood committees keep a close eye out for any pregnancies, and Family Planning officials have the power to force women to have abortions and sterilisations, as well as to monitor their contraception.

The policy does not apply to everyone. In the countryside, parents are allowed to try for a second child if their first is a girl. Couples who are both single children themselves are also allowed to have two children. A growing number of rich Chinese also pay fines in order to have a second child.

Examining China’s census figures, Mr Liang came across discrepancies that proved the subterfuge. “In 1990, the national census recorded 23 million births. But by the 2000 census, there were 26 million ten-year-old children, an increase of three million,” he said. "Normally, you would expect there to be fewer ten-year-olds than newborns, because of infant mortality," he added.

His findings suggest that the one-child policy may not have the grim consequences that have been widely predicted. According to China’s own figures, the traditional desire among Chinese families to have a boy, coupled with the one-child regime, should produce a surfeit of 30 million men by 2020, with many parents allegedly using ultrasound to guarantee the sex of their child.

Mr Liang said the imbalance was “definitely not as severe as the statistics suggest”. Instead of aborting female foetuses, Mr Liang's research suggests that the families have the girls, but do not declare them. The families wait until they are six or seven and by then, the local governments tend not to care as much.

60 million hidden births over 20 years puts China's working age population into a small gain for 2030.






Reducing and Reversing Net Migration

China has a net migration rate of -0.33 per 1000. This has fallen from -0.40 per 1000 ten years ago. Similar reductions would mean an average of -0.25 per 1000 over the next 20 years. This shift would be a reduction of 108,000 people (mostly young people) per year leaving China.

Taiwan had net emigration before and now has a neutral level. Hong Kong and Singapore have net immigration.

If China is wealthier on a per capita basis and China is on track for $20,000 per capita GDP PPP by 2020, they will have fewer people leaving and they will be wealthier than some other Asian countries. This would result in bringing in young workers.

China's 30% Hidden Economy

China’s households hide as much as 9.3 trillion yuan ($1.4 trillion) of income that is not reported in official figures, with 80 percent accrued by the wealthiest people according to a Credit Suisse Equities Research Study.

* the money is mostly illegal or quasi-illegal equates to about 30 per cent of China's gross domestic product
* The average urban disposable household income in China is 32,154 yuan, or 90 percent more than official figures
* top 10 percent of China’s households take in 139,000 yuan a year, more than triple the official figures.

A new paper, Who Shrunk China? Puzzles in the Measurement of Real GDP by Robert C. Feenstra, Hong Ma, J. Peter Neary, D.S. Prasada Rao argue that IMF’s estimate of China’s GDP for 2005 was 50% too low. (37 pages)

Their analysis is important, not just because it is carefully done, but also because Professor Feenstra will be leading the effort to produce the next generation of the Penn World Table GDP (PPP-based) estimates.

Between 2005 and 2010, the International Monetary Fund (IMF) had overstated the increase in the relevant PPP prices in China, and hence understated the increase in GDP between these dates by 20 percent. Conceptually, the “mistake” that the IMF made (and continues to make) is to project these PPP prices based on the evolution of the macroeconomic real exchange rate (changes in a country’s nominal exchange rate vis-à-vis the dollar deflated by changes in aggregate prices between that country and the US dollar).

This implies China’s 2010 GDP PPP exceeded $17 trillion and in 2012 will reach $20 trillion.

So China is also richer than official statistics indicate.


Higher levels of young people and less gender imbalance means more children

The hidden children and fewer young people leaving means more child bearing age people and less of a low birth rate problem further out.

Other Societal Adjustments

I am expecting

* China to increase any retirement age
* Improvements in medicine, public health to improve the health and vitality of all older people around the world
* More low cost robotics to enable more independent living and productivity from older people
* China will loosen up and reverse the child policies, similar to what Singapore has done to try to encourage more children. Singapore is finding it difficult but the shift and economic incentives rather than disincentives will shift the birth rate by 0.1 to 0.3 for 2020-2030.

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