DEMOGRAPHICS

**The views expressed in this and other papers associated with the NIC
2020 project**

**are those of individual participants. They are posted for discussion
purposes**

**only and do not represent the views of the US Government.**

DEMOGRAPHICS

What will be the fiscal and immigration effects in North-East Asian
nations (especially Japan) go down the demographic curve? What will be
the effects on savings and consumption -- and therefore on trade and
financial flows? Will social welfare and pension costs depress national
defence budgets? Will older populations be less willing to contemplate
or conduct military operations?

**1. Increase Greying Population by 2020.**

By 2020 East Asia and South East Asia population will all have **life
expectancy** above 70 year, with Japan, China-Hong Kong and China-Macao
above the 80 years level.

Most Asian countries have a life expectancy level between 70-80 years,
except for Cambodia (66 years), Timor-Leste (62 years), Laos (66 years),
Myanmar (68 years) and Vietnam (69 years) and other similar currently
latecomers in development. These are also countries that have suffered
serious armed conflicts and serious political disturbances that have
delayed their development processes.

Asian population age and sex structure follows the standard structure of
a triangle moving slowly and gradually into the direction of a trapezium
with narrower base. The countries that are further developed, like
Thailand (2000) have a bulge at the age level between 15-35 years level.
Moving towards the Japanese age and sex structure with a larger bulge at
the 35-75 years level (2020). This changing population age structure
makes the Japan experience an important lesson that deserves special
attention for Asia.

  ----------------------- ----------- ----------- ----------- -----------
  Since 1950 **Japan's                                        
  elderly** people of 65                                      
  years-plus has                                              
  experienced rapid                                           
  growth:                                                     

                                                              

                          1950        1980        2000        2020

  Total Population        83.6        116.8       127.0       125.6
  (million)                                                   

  Population age 65+      4.1         10.6        21.7        35.3
  (mill.)                                                     

  Pop. Age 65+ as % of    4.9         9.0         17.2        28.1
  total                                                       

                                                              

  **China's elderly**                                         
  people of 65 years plus                                     
  show the following                                          
  growth:                                                     

                                                              

  Total Population        554.8       998.9       1.275.2     1.429.5
  (million)                                                   

  Population age 65+      24.8        47.4        87.3        166.7
  (mill.)                                                     

  Pop. Age 65+ as % of    4.5         4.7         6.8         11.7
  total                                                       
  ----------------------- ----------- ----------- ----------- -----------

Source: UN Economic & Social Affairs, *World Population Prospects, the
2002 Revision, Volume II Sex and Age Distribution of Population,* UN New
York 2003.

In 1950 both countries have similar proportion of population above 65
years of age, but the number of elderly people have risen faster in
Japan as compared to China. There is a significant difference in income
per capita growth between the two countries during the process of aging.
Japan has gained significant progress during the years 1950-2000 that
has brought their people's income per capita at US\$ 32,601 (2001).

Japanese economic growth has improved health and education that improves
the quality of life that makes a longer length of life possible.

This differs with China, who is still struggling to get over the hump
into the economic take off. Although increasing, China has is still at
the low-income level country with a per capita income of US\$ 911
(2001). China must meet the growing elderly group of population while
struggling with competing demands from the younger age group to be
accommodated with a meagre income level.

This also implies that the way these countries are coping with the aging
problem is rather different. Japanese economic capacity, albeit facing
difficulties in meeting the needs of an increasing aging population, is
much stronger to carry the burden as compared to the Chinese economy.

**2. Impact of Sex Ratio.**

Significant is also the decline in **sex ratio** between the populations
in most Asian nations. A typical trend is the expected trend of decline
of sex ratio, i.e. the number of males per 100 females, in Japan from
96.2 (1950) to 93.5 (2020). Woman outlives man. Above the 65 years of
age the number of older women grow faster than older men in 2020.

The trend among women in East and South-East Asia is to have smaller
number of children. Nucleus family gradually replaces extended family
patterns with parents as the centre. This is especially true in fast
growing economies, like Japan, Singapore, and Thailand. But it also
means that the elderly people cannot be depended on their small number
of children for their continuous support for living. It is here that the
capacity of government to develop national pension system becomes
crucial.

Meanwhile Chinese population has since 1950 already a male dominated sex
ration of 108.1, which is slightly changed to 103 (2020). Most countries
have a sex ratio of less than 100. With a growing economy and rising
income, this may lead towards female workers migration from neighbouring
countries, especially speaking the same language, that may end in
"contract marriages" as has been the case in "enclave economy"
development in extractive industries. Sex related activities might
accompany the increase clustering of male workers in industrial centres
and urban area. It may also lead towards marriages outside China,
especially for those who used to go abroad. In general this male
dominated sex ratio may create repercussions in China's social life
development. Gender issues may need special efforts to obtain the right
treatments it deserves.

With a growing male dominated population factor, China will be best
equipped to engage a labour based economic development. Population
density in China by 2020 is 149 people per sq km opens the possibility
to enrich natural resources and use labour force to add its value.

But Japan's population density is 332 people per sq km, with continued
growth in the elderly people. This raises the need to develop
opportunities to employ elderly people not so much for their manual
strength but rather for their intellectual capabilities. It implies that
Japan must move away from the traditional labour based industrial
development and moves into "brain service industries" to make maximum
use of the experience, wisdom and intellectual capacities of the
age-growing people of Japan, which makes adding value to natural
resources through human resource development in Japan a much pressing
needs than it is in China. The rising competitive advantage of the
countries surrounding Japan makes it impossible for Japan to maintain
industries that requires cheaper labour. Japan's greying population
makes it a necessity that Japan changes its economic structure away from
highly subsidized agriculture with a declining number of farmers, into a
highly skilled service sector that can employ the elderly whose
intellectual capabilities are still in tact.

The growing number of youth, especially women, in Southeast and
South-Asia put pressure on the growing and industrialized countries to
make migration more lenient. With globalisation the free flow of goods
has been introduced, followed by the flow of capital. This is to be
followed by 2020 with the free flow of technology and free flow of
labour. It may start with the growing demand for opening up intellectual
property rights for health and basic needs. The need for flow of labour
will be initiated in services that cannot be provided by the country's
own people, because of aging. This flow of labour may be induced by
virtue of common language, common religion and common culture.

This will stimulate the need to acquire the knowledge and ability to
speak Chinese, India and Malay, which is complementary to English.

**3. Economic Implications.**

With a small proportion of elderly people combined with a larger number
of current earners has made many Asian governments not yet pressed for
developing old age security system. Furthermore the prevailing customs
and traditions in which children takes care of their parents have made
the need for caring the elderly not a high priority for governments. If
however the overall trend is that aging of Asia populations becomes
increasingly important, it will be useful to look into the way Japan is
encountering this issue today and in the future.

An OECD 1996 study has estimated that the net present value of the
unfounded liabilities in the Japanese national pension system is at 70%
of their 1994 Gross Domestic Product. This is clearly not sustainable.
If no radical changes are made, the Japan's annual deficit may well
approach 7% of GDP by 2025, and the total "pure aging effect" on public
finances for 2000 to 2030 could be a debt equal to 190% of 2000 GDP.
Population aging in Japan may negatively affect the actuarially unviable
state of the country's national pension system and the looming
liabilities for its public health sector.[^1]

As it now stands apparently "the greying of the Japanese people" has not
been considered as a mainstream consideration in the overall
macro-economic policies, as well as in the various Japanese sectoral
development. With the greying of the Japanese people, its economy needs
adjustments, to accommodate for the changing fiscal revenues. The
prevailing "pay as you go system", in which retirees are supported by
current earners cannot be sustainable, especially if the number of
retirees grows faster than the current earners as the consequence of
changing age structure and aging of population.

Many Asian nations' employment policies have an "anti aging remuneration
policy". The mandatory retirement ages level is low and it ranges
between 55 to 60 years. It is even lower for women. The intention is to
create employment for the young. The seniority system that is linked
with growing ages of the employed, does not match rising productivity
with lowering costs. There are no incentives for retraining and
upgrading in education. In brief the prevailing system is not geared to
meet the changing condition of an aging population.

Savings rate in many Asian countries are increasing, reflecting the
awareness of the elderly people to prepare for their retirement age.
Japan's rate of saving is still high, especially to meet the need of the
elderly who has no children to fall back for support. But with a slow
growing economy and a low rate of return on savings and investments, it
becomes clear that the prevailing system is not equipped to meet the
growing aging population of Asia.

Changing long term conditions into a growing greying population require
the need for mainstreaming the needs of greying population into the flow
of macro-economic and sector policy development. Several steps need to
be considered.

*First,* a policy to prepare for a changing supply of aging labour
through creating facilities for re-education and re-training to be
matched with changing demand for labour. It implies that the mandatory
retirement age level, the automatic seniority system that is linked with
aging, need change. Employment options must be made more flexible and
part-time employment especially for women need to be opened. The
rigidity in many labour laws needs to be reviewed.

*Second,* a policy that affects the demand of aging labour by gradually
moving the nation away from highly subsidized and distorted domestic
economy towards a more open economy making maximum use of the nation's
competitive advantages in a global economy. The pool of aging people is
trained making maximum use of their experiences and wisdom, that can
also be made available in less skilled Asian countries. Policymaking is
now also considering how to make optimum use of retired skills in a
global economy. This also implies that migration policies must meet the
needs of such flow of skills among Asian countries. With aging, certain
services that the aging people needs can also be met by inflow of these
skills from other countries, such as nursing. A more flexible migration
policy will be needed to meet the growing change of aging population.

*Third,* pension program may be costly for developing Asian nations.
Governments need to create incentives to turn the tide against rising
individualism, domination of nucleus family and small family houses that
gives no room for older parents. Singapore and Malaysia have already
taken measures to make children legally responsible for the support of
their elderly parents. Many East and Southeast Asian countries provide
adult day care and support services to assist adult children to care for
their elderly parents. Malaysia and Singapore have revised public
housing policies to accommodate for multi generational living
arrangements. Malaysia also provides tax incentives to family for
elderly care.[^2]

While these steps are necessary, they are however not sufficient. With
an increasing global economy the development of a more secure financial
architecture that is able to prevent high and unpredictable waves of
monetary fluctuations must be in place to cope with the needs of the
increase numbers of elderly people of Asia for a secure return of their
savings and investments. The rising needs for a secure financial
architecture may well raise the incentives for moving towards a single
monetary unity type of arrangements among the extended ASEAN by 2020.

**4. Towards Multilateral Cooperation.**

Social and pension costs will increase and require a bigger share of the
nation's budget. A sharper priority setting in budget spending is
required, especially for non-welfare related expenditures.

The complexity of the world situation in 2020 makes it impossible for
any single nation to meet their security needs unilaterally. Conflicts
that will require military operations will be so cumbersome,
sophisticated and expensive that the need grows towards a multilateral
approach in settling not only economic issues but political and military
conflicts as well. Regional cooperative arrangements, such as ASEAN,
SEARC and others, as well as international organizations, especially the
United Nations, will be increasingly important. It is in this context
that there is a strong desire to improve the United Nations and raising
the Asian representation in the Security Council. Spurred by the high
costs of military operation and recognizing the existence of conflict
areas in Asia, such as between North and South Korea, India and Pakistan
and others, the UN is expected as the main vehicle to settle these
conflicts through multilateral arrangements by in due course towards
2020.

One important burning conflict that must be settled **before** 2020 is
the Korean issue. In due course of 2005-2020 the South Korean economy
will be growing much faster than North Korea in an environment where
Japan and China will change. In terms of numbers of population, level of
education, quality of health and rate of economic growth, South Korea
will expand faster than North Korea. This creates pressure for the North
Korean people to "jump over the wall" and to leave North Korea. An open
armed conflict however is not feasible and an intervention by UN is most
likely. The merging of two Korea in a modified form of federalism may be
feasible before 2020. The solution of this problem may make Northern
East Asia a centre of Asian growth.

The existence of large supply of labour and potential consumers, the
availability of natural resources and the easy access through
transportation, makes China, India and Indonesia prospective nations to
become the "locomotive" of global development in the coming decades,
provided these countries are able to reach for good governance.

China is aspiring for reaching a welfare level symbolized by "one car
per family" in 2020. This aspiration at once indicates that in addition
to raise the Asian nations' level of prosperity, also important becomes
the path of development that these nations will follow. The "one car per
family" goal needs to be met by a different pattern of development that
is more sustainable. Among others by shifting from a fossil fuel based
technology towards a clean renewable energy based technology. Otherwise
this "business as usual" pattern of development may have its negative
impacts on raising the carbon dioxide level of emissions that affects
global warming and climate change at the detrimental costs of Asian
developing countries. Bangladesh, Laos, Indonesia, the Philippines will
suffer increase frequency of floods. Many islands of Asia may well be
sinking. Climate change may negatively affect food and agricultural
production. In brief, this goal of "one car per family" can only be
justified if it is reached along the path of sustainable development.

With Asia is launching development in this different path of
sustainability; the global world will also have the chance to meet a
more prosperous and sustainable livelihood for all humanity by 2020.

[^1]: ^1^ Nicholas Eberstadt, *Power and Population in Asia,* essay
    adapted from "Strategic Asia 2003-2004", National Bureau of Asian
    Research, mimeographed.

[^2]: ^2^ East-West Center Research Program, Population and Health
    Studies, *The Future of Population in Asia,* Honolulu, East-West
    Center, USA, 2002.