The aging phenomenon has been a dominant feature of Western economies over the past few decades, but Asian economies will age the most rapidly in the next phase, with China, Thailand, Korea, Singapore and Hong Kong set to age fastest. Standard Chartered Bank’s global research team has assessed the policy responses of countries in the region that most urgently need to tackle challenges related to aging.
The bank’s report also analyzes the timing and impact of aging on gross domestic product growth and its implication for household savings. While many advanced economies have a high share of the 65-plus age group in their population, emerging markets currently represent twothirds of the world's elderly. The United Nations forecasts that the share of those aged 65 and above in emerging markets will rise to almost 80 percent by 2050. China already has 131 million seniors, more than double the combined older generations of the three most-aged economies in the world: Japan, Italy and Germany. South Korea and Singapore are set to become "hyper-aged" societies (defined by the UN as those in which seniors make up more than 21 percent of the population) by 2030; they are already "aging" (seven to 14 percent of the population is 65 and above). Thailand and China will become hyper-aged by 2035. Asia and other emerging-market regions are getting older faster than previously has been seen. It will take China and Singapore 25 years to progress from an aging society to an aged society, according to UN projections. By comparison, it took the UK 45 years, the US 69 years and France 115 years.
The acceleration of aging means some societies will get old before they reach high-income status. This could create challenges, including limiting their ability to move up from middleincome status. Thailand and China are likely to face this challenge in the next few decades. The macroeconomic impacts of aging on an economy are varied, the most direct and significant of which is through labor supply. Standard Chartered estimates that after decades of positive contributions to GDP growth, demographics will become a drag by 2020 for China, Korea, Hong Kong and Thailand and by 2025 for Singapore. The bank says that growth in China's labor force contributed more than 1.5 percentage point to GDP growth on average between 1996 and 2000, and over three percentage points in the early 1980s. By 2030, based on current demographic trends, the shrinking of the labor force will reduce GDP by 0.25 percentage point. However, the report shows that modest improvements in the quality of labor can delay the impact of aging on GDP growth. For example, the negative effect for China could be postponed by 10 years.
Equally, on the positive side, the senior consumer market in emerging economies has considerable growth potential, leading to estimates that spending by the 65-plus age group in some major emerging markets (including the Brics along with Indonesia, Malaysia, the Philippines, Mexico, South Africa and Turkey) could increase by more than 400 percent to USD4.4 trillion in 2030 from USD800 billion in 2015.
Demographic trends are challenging Asia's traditional family values system. China is facing a "4-2-1" phenomenon, whereby an only child is responsible for two parents and four grandparents. Institutional support is not yet in place to respond to the rapid rise in aging. Pension systems remain unsustainable despite recent policy reforms. In China, the nationwide pension system may run a deficit as early as 2030; Thailand will likely run a deficit from 2041. By then, the pension systems in Korea and Vietnam should also run small deficits. Policies to raise fertility rates have been widely adopted in Asia to tackle the effects of aging. They have so far proven unsuccessful. Fertility rates for the major economies - including China, Thailand, Japan, Singapore and Korea - remain well below the population replacement rate of 2.1. Initiatives to raise female labor participation are likely to have the largest immediate impact in offsetting the drag on labor-force and GDP growth from aging. Child-care provision in places like Japan and Korea has had a positive effect, but their impact has generally been modest, hampered by entrenched social norms. Measures to upgrade seniors' skills are prevalent only in advanced Asian economies such as Korea, Japan and Singapore.