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China’s Demographic Dividend
The possible benefits of TEMPORARY Population Growth
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What drives China’s Growth?
Reform and Restructuring Urbanization and Industrialization Demography Dividend and Education Savings and Capital Formation Globalization
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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
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What Drives China’s Growth?
Reform and Restructuring Urbanization and Industrialization Demography Dividend and Education Savings and Capital Formation Globalization
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What Drive China’s Growth?
Urbanization million per month Industrialization -- Raise productivity -- Monetize economic activities
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Urban / Total Population
(%) 2000 2005 2010 2015 2020 2025 2030 Australia 87.2 88.2 89.1 89.9 90.6 91.3 91.9 China 35.8 40.4 44.9 49.2 53.2 56.9 60.3 Hong Kong 100 India 27.7 28.7 30.1 31.9 34.3 37.2 40.6 Indonesia 42.0 48.1 53.7 58.5 62.6 65.9 68.9 Japan 65.2 66.0 66.8 68.0 69.4 71.1 73 Korea 79.6 80.8 81.9 83.1 84.2 85.2 86.3 Malaysia 62.0 67.6 72.2 75.7 78.5 80.5 82.2 Pakistan 33.2 34.9 37.0 39.7 42.8 46.3 49.8 Philippines 62.7 66.4 69.6 72.3 74.6 76.7 Singapore Thailand 31.1 32.3 34.0 36.2 38.9 42.2 45.8 Vietnam 24.3 26.4 28.8 31.6 34.7 38.1 41.8 Asia 37.1 42.5 45.3 51.1 54.1 US 79.1 82.3 83.7 84.9 86.0 87.0 Latin America 75.3 77.5 79.4 80.9 83.5 84.6 Western Europe 76.1 77.0 78.0 80.4 81.7 Source: United Nations, CLSA Asia-Pacific Markets
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What Drives China’s Growth?
Reform and Restructuring Urbanization and Industrialization Demography Dividend and Education Savings and Capital Formation Globalization
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What Drives China’s Growth?
Reform and Restructuring Urbanization and Industrialization Demography Dividend and Education Savings and Capital Formation Globalization
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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
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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
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Part 3 Dividend Period For about a generation the country rapidly grows and prospers Workers support fewer dependents Country’s policies insure ample employment, investment opportunities, and greater consumption
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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
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Countries at various parts of the Demographic Dividend
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The demographic dividend in words
The demographic dividend is a window of opportunity in the development of a society or nation that opens up as fertility rates decline when faster 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.
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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. For a period of time this “bulge” is a burden on society and increases the dependency ratio. Eventually this group begins to enter the productive labor force. With fertility rates continuing to fall and older generations having shorter life expectancies, the dependency ratio declines dramatically.
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This demographic shift initiates the demographic dividend
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]
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End of Demographic Dividend
China’s Case One Child Policy More Kids Dip More Elderly
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Following Japan Peak Years of “Cheap” Workers
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“Scissors” crisis of aging
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Dependency Ratio Old Kids
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Replace Brawn with Brains?
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Demography and Education
Demography Dividend College Enrollment China’s Baby-boomer Generation Young and Educated With money, Will spend
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Brain power: US vs China
Science and engineering PhDs Source: National Science Foundation, China National Bureau of Statistics, CLSA Asia-Pacific Markets
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What Drives China’s Growth?
Reform and Restructuring Urbanization and Industrialization Demography Dividend and Education Savings and Capital Formation Globalization
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Saving is Virtue! Total Deposit Total Household Deposit in China
US$5.13 Trillion Total Deposit Waiting to make deposit
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Household Savings / Disposable Income
Higher Savings Ratio, Higher Capital Formation, Higher Growth Rate Source: Euromonitor, CLSA Asia-Pacific Markets
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What Drives China’s Growth?
Reform and Restructuring Urbanization and Industrialization Demography Dividend and Education Savings and Capital Formation Globalization
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Globalization China Accounts for 10% of Global Trade
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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
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No More Double Digit Growth
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But, Power of Compounding
Key Assumption China India U.S. Real GDP 7% 6% 2% Inflation 3% 4% Currency Appreciation 1%
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Uneven Spatial Development
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