Will an Aging Population Defang China? 

By Niall Ferguson, Los Angeles Times

China

October 1, 2007

As its immense population gets older, its influence on the world is expected to wane.

New York was hot last week. I don't just mean the temperature. I mean that the world's capital was the hot ticket. The opening of the United Nations General Assembly is traditionally a time of motorcade madness, when streets are blocked by triple-parked limos. But now that the Clinton Global Initiative convenes in the same week, it's practically impossible to get a decent hotel room. Not being a Hollywood planet-saver or an Irish philanth-rocker, it was all I could do to get a drink at the bar of the Mandarin Oriental.

To get everyone nicely warmed up, the Iranian president, Mahmoud Ahmadinejad, gave a series of loopy speeches. Then, at Bill Clinton's gathering, Al Gore gave his umpteenth speech about the coming "planetary emergency." If only we could all stop being driven around in limos and flying around in private jets, we might actually do something about reducing those CO2 emissions! But then, how would we get to New York for these A-list boondoggles?
It was all going just fine, with not a cloud in the September sky, when those nasty generals in Myanmar decided to rain on our parade. The country's self-installed rulers gunned down Buddhist monks who had ventured to demonstrate against their corrupt regime. And they seemed able to do so with impunity because they control some of Asia's largest reserves of natural gas, which China will continue to buy no matter how many economic sanctions the United States imposes.

On Wednesday night, the U.S., Britain and France proposed a U.N. Security Council resolution that would have condemned the Burmese government and tightened sanctions. The Chinese blocked it. So much for the United Nations. So much for global initiatives headed by ex-presidents. Whether it's political freedom you want or a curb on carbon emissions, the New York glitterati can propose, but it's the Chinese who dispose. 

The rise of China is the single most important historical phenomenon of our time. A fifth of humanity is on the march -- or, rather, behind the wheel. Yet there is a need to look closely at Chinese power before concluding that it is all over for the West and our dreams of a free world with a stable climate. A few weeks ago, I wrote about the environmental damage China is inflicting on itself in the breakneck dash for industrialized wealth. Now let's consider the demographic side of the story. 

On close inspection, China's population of 1.3 billion may not be as big a source of power as many commentators assume. According to U.N. projections, the world population will increase from 6.5 billion to 9.2 billion between now and 2050. But China will account for just 4% of that increase. The most rapid growth will be elsewhere. In sub-Saharan Africa and the Muslim world, the population will more than double; India's will be up 46%; and the United States, up by more than a third. India's population will overtake that of China around 2025.

As well as ceasing to be the world's most populous country, China will become almost as elderly a society as Europe. Today, less than 8% of China's population is 65 or older. By 2050, that proportion could rise to as high as 24%. The equivalent figure for Europe is 28%, and for the U.S., 21%. In sub-Saharan Africa, by contrast, the proportion will rise from 3% to less than 6%.

One way of understanding what this means for China's economy is to calculate a dependency ratio, conventionally expressed as the total number of elderly as a percentage of the working-age population. Right now, the figure for China is 11%, compared with 18% in the U.S. By 2050, however, the Chinese figure may be as high as 39%. 

Most economists assume that having a lot of dependents is a bad thing. The tax burden on workers must rise to pay for the rising number of retirees, and this acts as a dead weight, slowing down growth. The effects on financial markets are more complicated, depending on how the old behave (do they keep squirreling money away or "spend the kids' inheritance?"). But the consensus view is that we should worry about going collectively gray. 

It's not entirely true, mind you, that high dependency rates are economically bad. Children don't work either, and they are pretty expensive to raise. 

But the critical point is that oldies are even more expensive than kiddies. For one thing, with the average female life expectancy forecast to rise from 78 to 84, our second childhood may soon be longer than our first. Even more important, though doctors are remarkably good at keeping the human body going, they are much less good at maintaining the human mind. Old age has, to be sure, the benefit of experience. But the wisdom of years isn't much use if you're going gaga. That is one reason why aging Japan has a stagnant economy. 

China is doomed to age, then, and almost certainly doomed to slow down economically. If ecological catastrophe doesn't stop the speeding Asian dragon in its tracks, then creeping senility will.

But this analysis raises a broader question about the generational conflicts that seem certain to arise. Elsewhere I have written about the prospect of a new "age war," taking the place of the old class war, as an ever larger band of retirees seeks to have their incomes supplemented by the tax payments of an ever smaller workforce.

Perhaps the great global division will not be between Muslims and Judeo-Christians or between East and West, but simply between the Old World and the Young World. Though not as youthful as African countries, India, Iran and Myanmar -- to name just three -- have, and will continue to have, significantly lower old-age dependency ratios than the countries permanently represented on the U.N. Security Council. 

And while there will still be enough young men to take to the streets of Young World countries, as in Myanmar, the streets of the Old World will be like those of New York: clogged with limos as the great and the good -- and the geriatric -- go impotently gaga together.

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