China Needs to Get Rich Before It Gets Too Old

Bloomberg News columnist Andy Mukherjee explains why China needs to get rich before it gets too old.

Feb. 16 (Bloomberg) -- Helen Qiao, an economist at Goldman Sachs Group Inc. in Hong Kong, posed an interesting question this week: "Will China grow old before getting rich?"

Qiao's research shows that China's dependency ratio -- the number of people too young and too old to work divided by the working-age population -- will start rising at the end of this decade and approach 50 percent in 2030, from less than 40 percent at present, making China as gray as Japan was last year.

By 2050, every 10 Chinese workers in the age group of 15 to 64 will support a total of seven younger and older people -- a dependency ratio of 70 percent.

An aging society may be an inevitable part of demographic transition, though "what makes China's case unique is that the sharp rise in dependency ratio will arrive earlier in terms of per capita income level relative to other countries," Qiao says in her report.

In 2030, China's annual per capita income will be a little more than $11,000 measured in current prices, compared with almost $36,000 in Japan last year, according to Goldman Sachs's estimates. South Korea's dependency ratio will approach 50 percent in 2025, with its citizens earning $52,000 a year.

Does it matter if China gets old before it gets rich? It does, for a number of reasons. First, economic growth rates taper off with aging: It's difficult for a developing nation to get rich after its population has already grown old.

via RealClearPolitics