TIOL - COB( WEB) - 925
JUNE 20, 2024

By Shailendra Kumar, Founder Editor

FOR our planet, Climate Change is just one Gordian knot. Demographic decline is another but much more, head-scratchingly, devastating! How? It means lesser tax revenue, shrinking economic growth and more importantly, lesser innovations! Several Studies have established that greying population leads to sapping innovations and lower entrepreneurship rate. The twin problems for our world are declining fecundity rate and the growing silvery swathe of global population. As per the UN, 2.1 is the replacement rate to maintain status quo in population-size. Anything less means the birth rate is not keeping pace with the death rate. Ergo, a slide in the population-size. The fertility rate was below 2.1 in 98 countries as per 2010 data. This number has leapfrogged to 124 in 2021 and is projected to be 136 by 2030. The world is indeed heading for a demographic catastrophe of sort! The median Japanese is now 50, followed by Italian (48), German (45), French (42), Chinese (40), American (39), Brazilian (33) and Indian (28). The median age of global population of 9.8 billion will be above 36 by 2050. In terms of sheer number, it would be above two billion silvery chunk. The only youngish exception will be Africa which would account for one-quarter of the global population by 2050.

Reacting to sharp decline in the fertility rate, the Japanese Prime Minister Kishida Fumio recently commented with a heavy heart: "The country is on the brink of being unable to maintain social functions". The case of South Korea is more 'radioactive' than Japan with 0.78 fertility rate which means that the next generation will be less than half of the size of its parents! Intriguingly, the baby bust phenomenon is not confined to the rich world. It has permeated to middle-income countries also - Singapore (1.0), Thailand ( 1.3) and Brazil (1.6). The fecundity rate for almost entire East Asia and Europe has slipped to below 1.5. This means that the cohorts of these countries would witness their population contracting by 37% by 2050. More perplexingly, India's fertility rate has also gone below 2.1 and is projected to keep plummeting. In the age bracket of 21 to 30, there were 78 Crore people where fertility rate was below the replacement rate of 2.1 in 2021 and this number would squeeze to 62 crore by 2050. Curiously enough, Studies have found that there is a sort of global convergence in women's aspirations for careers. Both, educated and less educated or semi-skilled women, nowadays think alike so far as baby-making goes. In a nutshell, the top 15 economies in the world have reported fertility rates below 2.1. Oui! In effect, this would have damaging 'recoiling effect' for the global economy. The greying, the last leg of the human life-cycle, is going to eclipse the soaring medical and pension bills across the board!

The economic fall-outs of the baby bust is not only fiscal in terms of shrinking tax-base but a lack of labour for the factory workforce would have butterfly effect on other factors of production and overall size of the GDP. Worse, there would be fewer investment opportunities against mountainous pile-ups of savings by the retirees. This would mean lower real interest rates, which would have seminal implications for the markets across the world. Noted psychologists point out that less number of younger people means lesser chances of innovations! They attribute it to 'fluid intelligence' which younger cohorts possess and is much needed to spawn new ideas and solve new problems. After 30s, it declines sharply! And older people are known to possess what is called 'crystallised intelligence' - a kitty of knowledge and wisdom accumulated over time. Another study corroborates such explanations by observing the patents-related data obtained from the WIPO - Patenting rates crescendo in researchers' late 30s and early 40s and then slides gradually through 40s and 50s. Japan is a live lab case - it was leading applicant of patents in 35 global industries in as recently as 2010 but by 2021, it is a leader in ONLY three of them! It has dropped behind not only China which has topped the tally but even America in these identified industries. To reverse the declining fertility rate to some extent, most countries hinge on the shoulders of fiscal policies. Singapore offers lump-sum grants of USD 8300 for the first two children and USD 13000 for one more besides tax credit and other childcare subsidies. Poland and Hungary also offer tax benefits besides flat payments. Dozens of other countries also offer similar sops but no incentive is effective enough to halt the hurtling slide!

Although greying is a worldwide natural phenomenon but its pace is not uniform. Between the two powerful growth engines for the global economy the People's Republic of China and America, China is the one which is heading for a demographic disaster. Worse, it is rapidly ageing even before the escape velocity of its overall development and growth lands it in the developed world category. Comparing it to Japan whose population began falling in 2008 when its per capita income was USD 47000 unlike China's USD 21000. Twenty one per cent of China's population is presently above 60 - close to 30 Crore! If they were to carve out their own country, that would be the fourth most populous after the USA! And this would be scary 38% by 2050 - a neat 52 crore cohort. Yuck! Here comes the double whammy! China's total population dipped for the second year in a row in 2023. Apart from the death toll of COVID-19 which is guesstimated to be 15 lakh, its population plummeted by more than 20 lakh in 2023. And this is after an attractive basket of state-sponsored incentives to women to go for second and third child. Working women, according to multiple surveys in China, have a clear preference of not going for child at all or second child if one has already got one because of back-breaking cost of rearing children. Though the local governments trained their eye-balls on rural China but this is not working as much as the Janus-faced President Xi Jinping would like it to be. China's birth rate now stands at 1.2 - miles below the replacement rate of 2.1! Close to 95 lakh babies were born in 2022 but it was less by 10% as compared to 2021. Interestingly, China has about 15 Crore one-child families today. Secondly, historical preference for a male child has left China with three crore fewer women than men. Voila! There would be no next generation even for millions of married Chinese!

China's factory workforce which it badly needs to accelerate its 'oversupply' strategy to maroon the world with its cheap goods, has already been shrivelling for almost a decade. Chinese cohort aged between 21 to 30 is already down to 18 Crore in 2021 from its peak of 23 Crore in 2012. It is projected to be less than 10 Crore by 2050! The fact that its major slice of population is ageing, which also means shrinking economy and ballooning pension and healthcare expenditure, the Xi Jinping regime is planning to raise the retirement age to delay the inevitable! Chinese women retire at 55 if they work in offices or 50 if one works in a factory and men at 60. No decision has yet been taken but the CCP says it would be raised gradually. The life expectancy in China has gone up to 80. Unfortunately, China does not have a robust pension system like the rich countries. Secondly, it puts burden on employers to chip in a modest sum in addition to the employee's deduction but it is poorly complied with. For those who are not salaried, a new private pension scheme was launched last November but that is not doing well. Bankers have proposed bigger tax breaks for this scheme to succeed but the root cause is - an average Chinese does not trust its financial markets nor the government. After the collapse of its property market, people prefer just storing their savings in bank accounts rather than investing the same in the market. Secondly, China does not permit its pension funds to be invested offshore. So, they are projected to be hollowed out by 2035! For China, it is going to be uncertain future to look after the elderly! It has, at present, 3.5 Crore citizens above 80. This number would be four times by 2050. How would China manage resources to care for such a large chunk of silvery population when its clunky tax base would also be shrinking along with the economic growth which has already gone past its peak!

To overcome the impending demographic destiny, China has taken a leaf from South Korea and has been deploying robots at factory floors. It has now 400 robots per 10,000 workers. It has enhanced production of industrial robots and captured almost 70% of the global markets. However, experts observe that robots cannot help slake the number required to sustain the economic growth and perform other societal functions. What about immigration? Immigration is a proven tool-kit to overcome paucity of labour. America and EU are liberal for both skilled as well as semi-skilled immigrants. But China follows a draconian policy. Though it had unfolded a three-tiered points-based system for employment visa but it scantly issues visas under Class-C. China targets only highly-skilled workforce. Between 2004 to 2016, it issued 10-year visas to only 11000 applicants under its Green Card system which, foreigners, say, is too complex and demotivating. As per records, it has barely 0.1% foreign-born residents against 19% in Germany and 15% in America. What showcases its orthodox and paranoid attitude toward immigrants is its ballyhooed national campaign warning Chinese girls not to have foreign boyfriends who could be spies! In a nutshell, China is utterly ill-prepared to deal with the impending demographic disaster which is going to eat up its future growth. Secondly, its wizened societies can only look for miserable future for a lack of meaningful pension policy. Yup, automation may help it to an extent but overall destiny looks gloomy and doomed! The 'Road to Nowhere'! But it still does not answer the larger question - Will Mr Jinping euthanise his dream to envelope Taiwan into mainland China? Let's ponder over it! Ciao!