Michael Richardson: March of the grey army

The headline figures of China's progress remain as impressive as ever. Just the other day, the country's top statistician declared that the economy expanded by almost 10 per cent last year and is on course for continued rapid growth.

In December, China said that its economy was more than one sixth larger than previously stated after a nationwide census revealed vibrant activity in its service sector that had previously been under-reported.

As a result, the Chinese economy surpassed France and possibly Britain last year to become the world's fourth biggest, after the United States, Japan and Germany.

This is good news for China and the rest of Asia and for New Zealand's booming trade with China. But a faultline is emerging.

In January 2005, the Government officially hailed the 1.3 billionth member of the Chinese population and the success of its one-child policy. Since then, there has been a spate of warnings from inside and outside the country about the challenge of paying for a rapidly ageing population.

This is on a scale far larger than for most countries. It must also be met from an economic base far weaker than for the world's richest societies in Japan, Western Europe and North America where the "greying" phenomenon is most advanced.

The strict controls limiting most families to a single child that China has imposed since 1980 have helped to spur a big rise in average incomes and alleviate the demand on scarce arable land, water and other natural resources. However, China's fertility rate has dropped to a level among the lowest in the world.

Meanwhile, the proportion of China's elderly is growing faster than in any other big country because of the one-child policy and longer life spans as living standards have improved.

In a study for the World Economic Forum's Global Competitiveness Report for 2005-2006, Nicholas Eberstadt, a demographer and political economist at the American Enterprise Institute in Washington, notes that between 2005 and 2025 about two-thirds of China's population growth will be in the 65-plus age group - a cohort likely to double in size to roughly 200 million people.

Chinese demographers, using 60 as the starting point for old age, say that the number of senior citizens reached 130 million last year, about 10 per cent of China's total population.

They forecast that by 2015 the number of Chinese above the age of 60 will exceed 200 million and reach 280 million by 2025.

Will China's growth be hobbled? Goldman Sachs, a US investment bank and financial services company, thinks not.

It concluded that two important factors would offset any negative effect on the economy: improvements in workforce productivity and the release of surplus labour from the agricultural sector as young people from the countryside stream into the cities in search of a better life.

"Yes, China will become old," the report says. "But by that time we believe China will be much richer and will have reached developed-country status."

Meanwhile, who will pay for the healthcare, pensions and other welfare costs of the growing grey army? The old state-funded system in China is under severe strain.

Between 1993 and 2003 the number of people with no medical insurance rose from 900 million to 1 billion, about 80 per cent of the population, according to official figures. And as in neighbouring Japan, the Government is having to take the savings of this generation of workers to help pay the pensions of retirees.

Eberstadt says the existing state pension system in China covers less than 20 per cent of the workforce and has unfunded liabilities exceeding its GDP.

The one-child policy has been relaxed in some big cities. Wang Feng, a specialist on social and demographic change in China at the University of California, argues that it is time to extend the phase-out countrywide.

Otherwise, he says, the proportion of elderly with inadequate Government and family support will rise to crisis levels, as will the disproportionately high number of males in the population. Because of gender-selective abortion, China has about 120 boys born for every 100 girls.

The Government said last year that it would criminalise sex-selective abortions by 2010. It has also been experimenting with pension reform in three northeastern provinces by providing incentives for individuals to save for their old age and safeguards to ensure that the money is preserved and not siphoned off to pay the pensions of present retirees.

If the scheme works it may be expanded nationwide this year as China's leaders try to get to grips with the country's increasingly serious social problems.

* Michael Richardson, a former Asia editor of the International Herald Tribune, is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.