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 Restructuring From Communist to Socialist with Chinese Characteristics From Central Planning to Market Driven Economy From Closed-Door policy to Open-Door Policy From Dictatorship to “Centralized Democratic” Decision Making Privatization

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 million per month Industrialization -- Raise productivity -- Monetize economic activities

Urban / Total Population (%) Australia China Hong Kong100 India Indonesia Japan Korea Malaysia Pakistan Philippines Singapore100 Thailand Vietnam Asia US Latin America Western Europe Source: United Nations, CLSA Asia-Pacific Markets

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 dividend Explained 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 opens Mechanics 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 proportion Worker 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 passing through the demographi transition that opens up as fertility rates decline when faster (super charged) 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.

The demographic dividend in words The demographic dividend is a window of opportunity 1.fertility rates decline due to economic growth 2.Demographic transition heads into stage 3 and eventually stage 4 3.Super charged development possible when increased labor combined with effective policies and markets. 4.The drop in fertility rates follows reduced child/ infant mortality rates, 5.and 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. At first for a period of time this “bulge” is a burden on society and increases the dependency ratio (more kids). Eventually this group begins to enter the productive labor force. With fertility rates continuing to fall (headed towards stage 4 of Demo. Trans.) and older generations having shorter life expectancies, the dependency ratio declines dramatically.dependency ratio

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]demographic shiftfertilitychild mortality [1] [2] [3]

China: End of Demographic Dividend More Kids Dip One Child Policy More Elderly China’s Case

Following Japan & China Peak Years of “Cheap” Workers

“Scissors” crisis of aging What’s happening here?

Dependency Ratio Kids Old

Replace Brawn with Brains?

Demography and Education Demography Dividend China’s Baby-boomer Generation Young and Educated With money, Will spend College Enrollment

Brain power: US vs China 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 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

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

But, Power of Compounding Key Assumption China India U.S. Real GDP7%6%2% Inflation3%4%2% Currency Appreciation2%1%

Uneven Spatial Development