The Diaper Index – Asia growing older, faster

A DEFINING moment? It was with great unease that Japan – and Asia as a whole – in 2012 recorded for the very first time higher sales of diapers for adults than those for babies. The reality of that much-anticipated ‘silver tsunami’ is well and truly here . . .

Ageing iS a global problem, but Asia is growing older faster than the rest of the world.
Ironically, Asia helped sow the seeds for its ageing problem with its population control policy in the early days of economic development.
The policy was adopted by countries ranging from tiny Singapore, with its two-child policy (since abandoned), to China with its one-child policy (now under review).
Others had a more benign form of control in the name of family planning programmes, which have worked effectively in countries like Indonesia to lower the fertility rate.
At a time when the working age population was growing in Asia, controlling population growth was a sound policy, contributing to a lift in the standard of living. Families had fewer young dependents to support, and this, in turn, helped raise per capita GDP.
Asia successfully harvested its so-called demographic dividend — abundant and cheap labour which churned out consumer goods cheaply, spawning a modern phenomenon known as consumerism.
Now, the demographic dividend — which, in a few short decades, catapulted the region from poverty to middle-high incomes — is rapidly coming to an end. And earlier development policy has come at a price.
According to the Manila-based Asian Development Bank, Asia’s population is ageing at a speed unprecedented in human history. Asia’s elderly population is projected to reach 927.7 million by the middle of this century, making it the oldest region in the world.
And the ADB’s Chief Economist, Rhee Changyong, says that as the population dividend that fuelled Asia’s labour-intensive growth dwindles, it will become a demographic “tax” in the future.
Between 1981 and 2010, says the ADB, the large working age population boosted growth rate per capita GDP by more than one per cent in Thailand, Korea, Indonesia and Vietnam.
During that period, the boost was 1.16 per cent each year to China’s per capita output growth. But because of ageing, this positive contribution has already turned a negative in China — a 0.31 per cent drag on annual growth between 2011 and 2030.
“Projections indicate that, between 2011 and 2030, the annual growth rates of per capita GDP of Hong Kong, China and Singapore will be one per cent lower,” says the ADB in its update on ageing in Asia. Today, Japan has the oldest population in the world, ranked number one by the Global Agenda Council and the World Economic Forum in their Global Population Ageing report published last year.
Korea is still a few years behind — at number 55 in 2012 — but is rocketing towards 16th place in 2030, and will be sixth in 2050.
Singapore was ranked at number 57 in 2012, and will move to 13th position in 2030, then to 10th by 2050. In that year, Hong Kong will be just two places behind Singapore at number 12, with China at number 30.
Thailand, currently ranked number 63, will move to 56 by 2030 and to 45 in 2050. The number of people aged 65 and over in Thailand was just 3.5 per cent of its population in 1975. By 2010, that had risen to 7.9 per cent.
In terms of numbers, the largest cohorts of elderly are actually in China. Latest statistics show that there are 126 million over the age of 65 — almost the entire population of Japan.
In 2006, Goldman Sachs controversially produced a research note that asked provocatively: Will China Grow Old Before Getting Rich?
In its analysis, the investment bank suggests that, by the time China becomes an “aged society” in 2027, it will probably be considered a developed country — but with considerably lower per capita income than the US or Japan.
Wang Feng, Director of the Brookings-Tsinghua Centre for Public Policy in Beijing, wrote last year that profound demographic changes in China are redrawing the parameters of the country’s future. These changes include a substantial decline in the supply of young labour, the escalating financial burden of caring for the elderly, and weakened family support — caused largely by its one-child policy.
While in most countries demographic changes are easily anticipated, the same could not be said of China, he says. The 2010 Chinese census showed that population growth has slowed far more quickly than most observers expected.
“By 2010, nearly 14 per cent of Chinese citizens were over 60, and nearly one in 10 was over 65. China is already an ageing society.” he wrote. Over the next 20 years, says Wang, China’s ratio of workers to retirees will drop precipitously from roughly 5:1 to just 2:1.
Such a drastic change implies the tax burden for each working age person must rise by more than 150 per cent, assuming that the Government maintains its current level of tax income, he says.
According to the Goldman Sachs note, the dependency ratio will ultimately reach 70 per cent in 2050, implying that every 10 working age persons will have to support up to seven dependents (young and senior) in 2050. The ADB says Japan, Korea and Singapore are projected to reach high levels of elderly because of very low fertility rates leading to heavy falls in the population share of working age adults.
Japan is now setting records yearly in the size of its population decline — currently 125.7 million, down from 127.5 million in 2012.
Singapore implemented a two-child policy in its early days of development, but quickly reversed the policy with incentives to encourage couples to have more children. That carrot has not been enough to tempt Singapore parents to have more children. They blame it on the high cost of bringing up a child in Singapore. But the more highly-educated Asians are, the least likely they are to have a large family.
Singapore’s fertility rate was 6.4 per cent in 1950. It dropped to 1.3 per cent in 2010, but it will start to improve — rising to an expected 1.7 per cent by 2050 after active Government intervention. For now, the City State relies on temporary residents and migrants to boost its workforce. Any drop in the labour force and investment can affect economic growth adversely unless factory productivity improves commensurately — or the drop in the labour force is matched by migrant labour.
However, the negative impact of slow output growth on per capita income will be mitigated to some extent by declining population growth, according to the UN Economic and Social Commission for Asia and the Pacific (UNESCAP) in a report on the economic impact of ageing.
The level of real GDP in Japan is expected to drop by a cumulative 20 per cent over the next century, owing to a shrinking population and associated lower employment levels. Per capita GDP is expected to drop by about five per cent across ageing Asia, according to UNESCAP. Real economic growth rates could also drop in Hong Kong, China, Korea, Singapore and Taiwan during the third quarter of the 21st century, UNESCAP projections say.
The number of elderly is growing across Asia — in part due to greater longevity — the happy result of better standards of living, healthcare, improved nutrition and state-of-the-art medicine in developed parts of Asia like Singapore.
After Japan, people born in Hong Kong will have the distinction of living the longest among their Asian neigbours.
Life expectancy in Singapore was 59.3 years in 1950, rising to 80.3 years in 2000, and is projected to be 84.3 in 2050. The picture is the same across Asia, including Myanmar, where life expectancy was 33.4 years in 1950, and is now projected to be 75.3 years in 2050 — still the shortest in Asia.
But longevity also comes at a cost.
The International Monetary Fund says few governments or pension providers adequately recognise longevity risk. “Where they do, they find it is large.”
The IMF says that if individuals live three years longer than expected — in line with under-estimates in the past — the already large costs of ageing could increase by another 50 per cent, representing an additional cost of 50 per cent of 2010 GDP in advanced economies and 25 per cent in emerging economies.
UN agencies, which have looked at the economic costs of ageing, also warn that the fiscal implications of ageing will be felt strongly and much earlier in such countries as Australia, China, Korea, Singapore, Sri Lanka and Thailand. Public pensions in many Asian countries are unfunded and operate on a pay-as-you-go system. In most cases, the pension benefits are defined. The ADB’s Chief Economist, Rhee Changyong, has said that the region must find more innovative ways to sustain its economic expansion and to provide more comprehensive support for its growing elderly population.
The Bank says that, for all Asian countries, demographic transition also presents opportunities for greater cross-country co-operation, enabling countries with surplus labour to supplement those with a labour deficit. It calls for changes in migration policies to make cross-border movement of people easier.
On the demand side, there will be growing demand for labour-intensive services such as old-age health-care, and institutional, social and home-care services in the next 50 years.
Demand for educational services could drop, with the population of school-age expected to decline in the next few decades. All that said, however, there could well be hidden surprises. South Korean statisticians were dumbfounded when they conducted their last census to find that the population was half a million higher than the previous census.
On careful analysis, they found that the growth came because of women brought in from China, Vietnam and the Philippines in recent years to be wives for rural Korean men.
Countries like Australia and the United States, which have active pro-migration policies, are, indeed, getting younger – in  that they are sliding down the rankings of global ageing. (see charts above)