One economists said, you know, John is probably best described as an unruly teenager. I love that, and that's why we're so busy, you know, everything from its market, the treat of what's happening on the ground. It's a bit like that teenager. There's just so much to keep an eye on. Hello, and welcome back to Bloomberg Benchmark, a podcast about the global economy. It is Thursday, February tenth. I'm aki Ito, acting Tokyo Beer chief with Bloomberg News.
Tori and Dan sadly aren't going to be joining today. Dan's traveling in Arizona right now, and Tori is being the good global citizen that she is and volunteering for the evening. But I have a very special guest with me here and the current is on the line from Hong Kong. Hi Enda, Hi, Hey, how's it going very well? Thank you good? You know, and along with being the nicest person I've ever talked to, who I've actually never met in person, you're Bloomberg's chief Asia economics correspondent. Tell
us what you do every day? Well, actually, it's such an exciting canvas here and you know, as you know and our listeners know the Asian economy is changing before our eyes, and there's so much going on, so much changing that we're trying to get our head around and to understand in terms of what it means for Asia, what it means for the for the rest of the world, of course, not least China. So my role involves everything from news gathering and analysis through to editing and TV
and of course doing the Benchmark podcast. I love it well, you know, and then we have you on the show today because we're talking about China, which has you know, just completely dominated the headlines since the beginning of the year, and obviously that nervousness has spread throughout the world. I think it's been a pretty hectic start of the year for you, hasn't it. Yeah, it has, and at all
points to China, accum. You know, what's going on there in the world second biggest economy is an unprecedented economic transformation, the scale which we haven't seen before. And as China grows and changes, the world will start feeling those growing pains. And one economists said, you know, China is probably best described as an unruly teenager. I love that, and that's why we're so busy, you know, everything from its market, the treat of what's happening underground. It's a bit like
that teenager. There's just so much to keep an eye on. I love it. Well. I guess beyond those, you know, immediate emergencies that we're seeing in the day to day headlines, there's kind of this longer run crisis that's simmering below the surface. And that crisis is China's rapidly Asian population and what's already a shrinking workforce. And I think this is something that you talk about all the time, and
it's a crisis that other countries, I guess have entered. First. Japan, where I am right now, is a really good example of a country that's grappling with all these consequences in real time right now. But China's going to be there pretty soon over the next few decades. So and should we go through some of the key numbers first to set the stage. Sure, yeah, I guess you know, we can start with the population. So China's currently home to one point three eight billion people, which makes it the
world's biggest country by population. But I read that this isn't for long. That India is going to overtake China in the early twenties. Gosh, and if that happens, would China no longer be the world's largest country for like the first time in history. Well, that's that's what the
indications are at a moment. Ay, Yeah, that's amazing. And I guess it's working age population already started shrinking in And I laughed when you talked about China being a teenager right now, because you know, the media and Asian ninety was twenty two years old, and right now the median age is thirty seven, so maybe a little older than a teenager. But by twenty fifty, the median age is going to be fifty years old, so solidly middle aged.
And this is really interesting. By then, the average person in China is going to be actually much older than the average person in the US, in Canada, the UK, all of Skandinavia and a lot of other developed economies. H Well, look, maybe China is on course for a midlife crisis. You know, this all comes back to the fertility rate AKA, which at the moment is one point
five five. That's one of the lowest in the world, and that's well below the rate that you need to maintain a content population, right, So, and I guess behind all of this is one of the biggest social experiments in history, which was China's one child policy that became a two child policy last year. Can you talk about
how these policies came about? Sure, Look, obviously, Key, it's a very sensitive and difficult topic in China, and it's also very personal one for all the people who have been impacted by it, and you could see that from the outpouring of emotion when China dropped the one child policy late last year and went for the two child policy.
As you say, it all began the late nineteen seventies and has been very to describe as one of the most ambitious demographic experiments that the world has ever seen. Partly it started because in nineteen seventy nine, Thankoping was worried about the writing population in China and he was worried about what impact of writing population would have on
the nation's scarce resources. They thought the best thing to do would be to limit population growth, and the thinking was that way there would be enough to go around for everybody. But of course, ultimately that policy is only undermined the growth and the working age population shrank last year for the first time in two decades, and now we're about to see the cohort of senior citizens grow rapidly. So that's what the net result has been of China's
one child policy. Right, And to confirm China only allows parents to have two children. Right, It's not like there's been a lift on all restrictions altogether. Now, there has been a gradual easing of the one child policy over recent years, but it officially came to an end last year as the new five year Plan has been developed
and now formally a two child policy. I guess we should talk about why economists are worried about this demographic trend of uh an Asian and shrinking working age population. Do you want to walk us through that? Sure? Well, look, it's important actually because when you fear people in the workforce, you have few people to grow the economy, and you have fewer people spending. And you know what, an aging
society is actually pretty expensive. And I think before I came on, I just looked up some more bank numbers and it might be worked having a look at some of these World Bank numbers to understand the gravity of the issue in China. These are the figures that struck me the number of babies promited as a result of
the policy. So we went from twelve point one per one thousand people in and that was from a post reform peak of twenty three point three in the in the late nineteen eighties, and so that's effectively that's effectively half and it's below the US rate of about thirteen. Malaysia has eighteen and Vietnam has um has the sixteen, So that kind of gives an indication of the scale of the problem they have on on the birth rate.
But of course we know that China also has on the other side of the ledger might be hard to believe for other parts of the world, but they have rising wages and labor shortage in some areas, so they're already losing out a competitiveness because of of shortage labor force.
And when you throw an aging population an aging workforce into the mix, this demographic challenge is really not a challenge of China needs right now, right right and and one thing you know we've definitely seen here in Japan is just a budget that's stretched to the complete max um to be able to pay for these fewer adults working to support the growing number of retirees. What's China's government debt situation like right now, do you think it's going to be able to take it? Well? Okay, so sure.
Physically China is probably in a stronger position than Japan. It's central government that is quite low. But the overall and I should say that the savings right the household savings rate is relatively high, but you know, the overall economy is under quite a lot of debt right now, both a corporate level and state on enterprise level and
the local government level. So it's not like, you know, China is altogether swimming in money that they can unleash and give their retirees a kind of a golden lifestyle.
But I think I think the problem is that ultimately an aging population will cost money, and that will cost China money, and that will boost healthcare costs and put bigger burdens on the younger people and on the young families in China to support their their lrelis now, the United Nations projected the number of Chinese people age sixty and older with more than double in the next twenty five years, four and one million by that group share
of the population will be around up from around last year. So just think about the costs associated with that, and with an aging society, with the various illness and disease that's associated with it, and the burden that puts on young people. That's that's something of a taking time right, right, And how old are you right now? Okay, so you're totally young, so I can say this in front of you. But there's also you know, just that an older population
leads to a less dynamic economy. It's one of the reasons why I love living in San Francisco, in the San Francisco Bay Area, which is just full of so many young people, you know, throwing out these crazy ideas. Most of them are terrible, most of them are going to fail, but occasionally, you know that one crazy idea of sticks and changes the world, and you can't really imagine happening that a lot in a country with so
many older people. That's right, I mean, look, innovation at its core needs to be driven by ideas, by energy, by enthusiasm, and a lot of that is generated by you know, young people behind young startups coming out of universities and bustling with energy and full of ideas. We only have to look at Japan. Japan is still, of course a global center for research and development and innovation, but you know, it's also slipped behind the curve a bit.
It's the smartphone generation pretty much passed by Japan. It was, of course the home of home entertainment at one point, but the smartphone era has passed by, so to speak. And you can see how the lives of Korea and China are doing more innovation front. But ultimately, when you have a declining birth rate and when you have an aging population, that will act as a break on on the workforce, that will limit the amount of talent that in that workforce, and that will fee you through towards
trying to contribute on on the global stage. And I think that's definitely consideration. And then we just aked about all these broad forces. But in terms of numbers, what is China's economic growth going to look like in the future from the current piece of about seven percent growth per year? Yeah, okay, So China grew in fifteen at six point nine percent for the year. That was, on paper, its lowest pace of growth in the quarter of a century.
Lots of economists are skeptical about the data and will question the numbers, but you know, either way, take it to China grew somewhere above six percent percent last year, and when you consider the size of that economy and relative to its peers, probably not a bad performance, some
would say. But going forward, as we mentioned at the start of the show, China is undergoing this big transformation right now, and they want to move away from an economy that's really fueled by by death funded heavy industry and one that's really belonged in exports, the one that's driven much more by internal demands. So they want consumers spending money on the high street and they want a row ring services industry. Now, so what does that mean.
It means the growth rate will probably be lower and at the NPC, which is ongoing in Beijing right now, the policy makers have come up with a new range. Rather than a hard target, they're now talking about a range of between six and a half and seven heading out over the next five years. Of course, that does give them riggle room, and you know, it doesn't give them a hard target that they will be scolded for missing.
On the other hand, it's still a pretty ambitious target when you compare to both hit the emerging market appears and obviously the developed world, So that means there's still a burden on China to hit that growth target, and that means they may need to rely on some of the old playbooks to sugar hit the growth. Spend more, borrow and more and then everybody. That will lead to perhaps reform being pushed to one side at the expense
of growth in the near term. And that's the real balancing act, that's the real juggle, that's the backdrop that's going on in China's economy right now, Aki, right, right, And when you think of that the potential growth way like the speed limit of China's economy. Surely that's not going to be seven in a decade or two, right, That number has to come down. Yeah, I think that's the that's the feeling here that the number will gradually
start to come down. And when you consider this new range of six and a half or seven, one interplation is you know, actually that gives them quite a bit of regular room because as we're moving to the latter stages of the five year plan, the new five year plan that starts, and you know, maybe they can go below six and a half, but I think the bigger point actually, even if they do go below six and a half, even if it does go down to six
and lower, it's about sustainable growth for China's economy, and I think I think both China and the world would welcome that kind of growth rather than the unsustainable breakneck pace we witnessed. Will say, you know over the last decade when I grew double digit pace, but ultimately left the hangover of a huge debt mountain and a lot of problems in the economy that that they're still trying to deal with. And then we only have to look to Japan what happened in the nineteen eighties when the
bubble eventually burst. It still hasn't fully recovered. Speaking of sustainability, one of the interesting things I think is Asian so far in the world has been a phenomenon mostly just for rich society's right that you know, rich societies that already have this established infrastructure to care for a greater
number of old people. But China is still making that transition right now from a developing two developed economy like that economists you were talking about was saying, you know, it's kind of this teenager trying to mature into an adult. So do you think China is ready for this future of lots of old people. No, it's not. It's important to remember that China is still a developing nation. Aki.
Last week, I was in meeting with someone who was recounting to their experience of a hospital in rural China, and they recounted the hygiene standards, the facility that weren't offer and the condition of equipment in this hospital, and the point of discourse was a kind of a vivid
reminder that vast parts of China are still very much developing. Moreland, when you move away from the fast growing eastern coastal regions and the big financial hub like Shanghai and of course the global capital and is Beijing, there's still a long way to go in terms of catching up with the wealth of the developed world in rural China. And that raises the question about how will these elderly people cope in the country side as they go forward with
on an already small family to support them. And of course that brings up the question of of migration. As you know, and there's considerable migration in Shana in terms of those leaving wanting to leave the rural area and move towards the urban centers. I mean that works up to a point, but it leaves behind a society that's quite isolated, and of course it lacks the resources and lacks of funding to have the facilities that are needed on the healthcare side of things, and and and social care.
So I think that's probably a genuine cause for concern, and that China's healthcare isn't yet anything like on the scale that we would appreciate it in the in the developed world, and it's still quite imbalanced within China itself. Well, you know, in my completely immature opinion, I feel like all of these problems were completely foreseeable from decades ago. So why do you think it took policy makers so
long to scrap the one child policy? And and why do why does the government have restrictions on the number of children parents can have all together? Well, so, you know, this is a very motive and difficult issue in in China, and the thinking behind it at the time was China would not be able to cope, that the nation would not be able to feed itself, and if the population continue to grow at the pace that it was growing back in the late seventies when this policy was introduced.
And remember food security is a big issue for China. They really try to promote an idea of self reliance, and that's why they're moving around the world right now, buying all kinds of assets in the in the agriculture world to make sure that China can be fed and that they have the technological know how to grow crops and to transform their farms. And I think that's one of the reasons why they were still looking to change the policy, because they were convinced that the population was
was unsustainable the size of it. They weren't appreciative of the impact it would They weren't appreciative of the impact it would usibly have on economic growth and on their workforce.
And you know, they've now ended up in a situation where you have declining birth rate That ultimately means you've got a smaller population from which to draw workers, and that's going to hold back growth and in some places it's going to is driving up wages too quickly and moving causing factories to move out of China into cheaper locations in saut these ages. So I think you can consider the policy mistake, and yes, it took far too
long for Chinese leadership to realize the error of their ways. Yeah, that's quite the dilemma though, you don't you don't want growing population, but you don't want a shrinking population either. I would not want to be a Chinese policymaker right now, you know. And then maybe we should have titled this episode China and Japan because we talk about Japan so much. But you know, being a Japanese person, having grown up here and also living here right now, Japan just seems
like such a cautionary tale for China. I wasn't alive back then, but thirty five years ago there were apparently tons of people already talking about Japan's soon to rapidly age population, you know, and no one really did anything about it until it got to where it is today, which is a very bad situation. So do you think China is ultimately going to end up like Japan or do you think policymakers are going to be able to
do something about it? Because it seems like one of the benefits of having a centrally planned government is that you can actually think about the long term instead of this messy short term nous that I think we're seeing in the US presidential probably marries right now where you just have to chase the immediate vote. Yeah, I think,
you know, in the case for the defense. For China, I think, um, they have made significant economic progress, I mean quite dramatic economic progress over the three decades since they started to to open up to the outside the world. They have lifted you know, hundreds of millions of people out of poverty. And when you compare their records on probably eradication to say other developing nations, I think China probably deserves a bit of a strong tick for its
efforts there. But at the same time, it's now facing some of the same problems. Like you mentioned that some of its trading rivals rates, and one of the worries in China is that maybe lifting this one child policy and moving to the two channel policy is too little,
too late, because attitudes have changed in recent years. One of the phenomenon's noticed in China is that in the urbanization of China means that many couples aren't in interested in having a second child because of the costs associated with having a second child or indeed you know, a bigger family that's everything from healthcare to education costs, to general costs of living, and as the feeling now that the organization of China has reached such a such an
extent that even with the government encouraging and introducing this to child policy, it may not be enough to turn the tide. That's going to be the big test for China, and that will put the onus on them. If they really want to learn from Japan's mistakes, They're going to have to do a lot more in terms of you know, the maternity care, maternity leave, and paternity leave for parents. Are going to have to make sure all of these facilities are put in place that allow couples to continue
their careers and to stay in the workforce. And I think in terms of those structural forms, those are lessons they can learn from Japan and the mistakes that are made there too. Yeah, definitely. So maybe as our last question here, and I'll ask the hardest question that we are listed in our brainstorms shin. Right now, by twenty one, the world is projected to be twelve years older than
it is today. So the entire world is currently in the process of Asian of maturing, although the world average is not you know, happening as fast as it's going to happen in China. So ultimately, what do you think this means for the global economy when the entire world
is going to be a little bit older. Well, you know, ultimately, actually it has to act as a break on an economic growth, right, It has to increase the burden on the younger people of the day, and it will of course increased the cost associated with supporting a family because we might reach a point where you know, you have a young family supporting their own young kids and having
to alter prop up their elderly relatives. You can see how that scenario could could rise right around the right around the world, and that will be a negative for
noble vows. That will act as a break on innovation, and I think that's just going to be a burden that will need to be carried unless, unless, you know, attitudes do change, and for example, place like China, the birth rate does start to improve and more is done by government and policymakers in terms of child subsidies and in terms of doing more for paternity care for parents and ensuring young parents can stay in their workforce. If all of that happened, maybe we can book The Trend.
But I would say the scenario that you paint for the world economy probably isn't very positive and it's not a very light note, but I think it's a serious one. Well, that's certainly something for global policymakers to be thinking about. And thanks so much for joining us today. This is a great discussion. Thank you so much, Acki, and thanks again for listening to Bloomberg Benchmark. We're going to be
back again next week. Until then, you can find us on the Bloomberg terminal and Bloomberg dot com, also on iTunes, pocket cast, ditch your Google Play, and while you're there, please a minute to rate and review the show. This really helps more people find our podcast and let us know what you thought of the show. You can talk to us and follow us on Twitter at Enda Current for our guest Enda and aki Ito seven for me. See you next week. M