THE_TURNAROUND_OF_CHINA’S_DEMOGRAPHIC_DIVIDEND_IS_OVERSTATED-2012-08-31.ppt

,1.,2.,3.,4.,5.,6.,Zhou Xia,Macro ResearchResearch ReportChinese Economy,Research Report,August 22,2012,The Turnaround of Chinas Demographic Dividend IsOverstatedMany people hold that Chinas economic growth has been on a downtrend,and one of the mostimportant reasons is that China has passed the Lewis turning point and demographic dividend isto vanish.Then what stage does the present population structure change belong to?Will theinflecting point effect of demographic dividend cause a sharp decline in economic growth?Thisreport will try to answer these questions.Chinas total fertility rate is lower than its balanced fertility rate and the total fertility rate of suchcountries as the US and India,leading to a change in population structure and bringing aboutthe problem of population aging.Judging from the ratio of working-age population to totalpopulation and the population dependency ratio,Chinas demographic dividend will face aninflection point in around 2013.A country with demographic dividend not necessarily has high economic growth.However,thedownward inflection point of Chinas demographic dividend does not mean a sharp decline ineconomic growth for the reasons as follows:The population of working-age population will decrease very slowly.The World Bankforecasts that the working-age population will slowly and modestly decrease after reaching apeak in 2015,indicating that the inflection point will be a rounding top.Working-agepopulating in 2020 is expected to decrease approximately 0.7%in comparison with the peakin 2015,but will increase around 18 million than 2010.Working-age population with different age structures has different supply and demandpatterns.To be specific,laborers aged 25-34 decreased in recent 10 years;laborers aged25-44 were in short supply,while those aged 45-64 were oversupplied;low-end laborers wereshort,while medium to high-end laborers were relatively redundant.There is room for increasing the laborer participation rate.The number of personsengaging in agriculture,forestry,animal husbandry and fishery published by the Ministry ofHuman Resources and Social Security and the gap between the rural working population andrural permanent population published by the National Bureau of Statistics show a strongsupply potentiality of rural laborers;the gap between laborer scale and total workingpopulation reveals that more than 100 million working-age population remains unemployed.Faster population movement and increasing urbanization rate have driven upeconomic growth.Population movement(population in the central and western regions ofChina continued to migrate to the eastern coastal areas,and population in rural areas andmedium and small cities flooded into large cities)brings about an increase in urbanizationrate(there is a big room in comparison with other countries),driving the rapid development ofsuch infrastructure industries as transportation and many sectors including real estate,education,medical treatment and health.Diligence is also a demographic dividend.Chinas female employment rate,average,Li XunleiChief Economist of HaitongSecuritiesSAC:S0850511110001Email:Contact:021-,weekly working hours and household saving rate keep atop in the world,making China amanufacturing power.Chinas overall remuneration still has comparative advantages,and itsindustrial supporting degree and the characteristics of economy of scale have ruled out thepossibility of massive industrial transfer to foreign countries.Driven by the domestic demandand consumption upgrade,Chinas manufacturing industry must keep improving theindustrial upgrade.Several measures to extend demographic dividend in a disguised way are in embryo.In response to the problems of population aging and disappearance of demographicdividend,Chinas government,drawing upon experience of other countries,is activelystudying measures to extend demographic dividend in a disguised way,including lift of familyplanning policy,extension of retirement age and increase of laborer movement.Please read the disclaimers following this report,2,Company Report Research ReportMany people hold that Chinas economic growth has been on a downtrend,and one ofthe most important reasons is that China has passed the Lewis turning point anddemographic dividend is to vanish.This will produce some questions.What stage doesthe present population structure change belong to?Will the demographic dividend reallyvanish?If demographic dividend vanishes,will its effect of dragging down economicgrowth appear immediately?This report will attempt to answer these questions.Introduction:Changes Incurred by Low Fertility Rateto Population StructureAs viewed from the total fertility rate(TFR),Chinas TFR was 1.54 currently(lower than1.8 set by China and the balanced fertility rate),compared with that of more than two inthe US and India(internationally accepted balanced fertility rate is 2.1).According to theforecast of the US Census Bureau and the World Bank,Chinas total fertility rate will notreach 1.8 by 2050,but that in the US and India will remain above 2.The long-term lowfertility rate in China after 1990s will lead to a substantial change in the countryspopulation structure.The problem of population aging will become increasingly acute,and demographic dividend will disappear accordingly.That is a stage that every countrywill go through.Fig.1:Total Fertility Rates of Major Countries,4,India,US,EU,Japan,China,3.532.521.51Sources:US Census Bureau,World Bank,Haitong Securities Research InstituteNote:Total fertility rate refers to the number of children that a female would have over the course of herreproductive life.With regard to the demographic dividend,there is no official definition,but we maymeasure it from two aspects.First,demographic dividend can be measured by the ratioof working-age population to total population.In 2011,the ratio of working-agepopulation aged 15-64 to total population in China was 74.4%,slightly decreasing 0.10percentage points from 2010.It was the first time that the ratio declined in China since2002.The turning point also suggests the gradual disappearance of demographicdividend.The demographic dividend can also be measured by the population dependency ratio(see Fig.2 for the population aged below 15 and above 65 who are afforded by thePlease read the disclaimers following this report,Jan-60,Jan-62,Jan-64,Jan-66,Jan-68,Jan-70,Jan-72,Jan-74,Jan-76,Jan-78,Jan-80,Jan-82,Jan-84,Jan-86,Jan-88,Jan-90,Jan-92,Jan-94,Jan-96,Jan-98,Jan-00,Jan-02,Jan-04,Jan-06,Jan-08,Jan-10,Jan-12,Jan-14,3,日本,中国,US,3,韩国,Company Report Research Reportworking-age population).The bigger this indicator,the lighter the dependency burden.The indicator turning from increase to decrease implies the gradual disappearance ofdemographic dividend.It is illustrated from the figure that Japan faced an inflection pointof demographic dividend in 1990.Same as China,South Korea will also face aninflection point in around 13 years.Does the inflection point mean Chinas economicgrowth will enter a downtrend?Demographic dividend and economic growth are not necessarily positivelycorrelated.Taking Philippines for example,population has been very importantresources for the country,and Filipino maids are around the world.Most of Filipinosseek for work opportunities abroad.It can be said that Philippines did not make the bestof its population advantages of high fertility rate.In India,although the population isenormous,due to the serious polarization between the bourgeoisie and the proletariat,most students had to study at public schools where infrastructure(teachers)is quitescarce.As a result,most Indians have a low education background,and the populationdividend is likely to turn into a population bomb.To the contrary,although Chinas demographic dividend will gradually vanish in the next5-10 years,its economy will not necessary decline sharply for the reasons below:theproportion of Chinas working-age population declines very slowly;the supply anddemand of laborers of different age structures are unbalanced,labor shortage does notappear,and the laborers aged 45-64 is oversupplied despite shortage of those aged25-34;there is still room for releasing rural labor;rising urbanization rate quickens themovement of population and drives economic growth;diligence of Chinese people isalso a demographic dividend;some measures to extend demographic dividend in adisguised way,including loosening of age restriction for laborers and lift of familyplanning policy,are in embryo as shown below:Fig.2:Population Dependency Ratio of Each Country,India,China,South Korea,美国,2.82.62.42.221.81.61.41.21Sources:CEIC,Haitong Securities Research InstitutePlease read the disclaimers following this report,4,80,Company Report Research Report1.The population of working-age population willdecrease very slowlyThe structure of“being small at both ends and big in the middle”in the period ofdemographic dividend makes labor supply sufficient and social burden relatively light.Such a change in age structure will results in the growth of laborers,savings andinvestments as well as human resources investment in the future.However,manypopulation research fellows hold that Chinas demographic dividend will disappear inaround 2015,which seems a bit alarmist.The World Bank predicts that the working-agepopulation(aged 15-64)will reach a peak of 993 million in 2015,and slightly drop to 979million in 2020 and 2025.The drop will be very slow and modest,that is,the inflectionpoint will be a rounding top.The working-age population in 2020 is merely about 0.7%lower than the peak in 2015,but around 18 million(see Fig.3)higher than 2010.It canbe seen that the demographic dividend will face an inflection point,and the change willbe quite slow and will not vanish quickly as many people consider.Fig.3:Ratio of Working-Age Population in China in 2030(%)Ratio of population aged 15-64 in total population757065605550,1953,1982,1990,1992,1994,1996,1998,2000,2002,2004,2006,2008,2010,2012E,2014E,2016E,2018E,2020E,2022E,2024E,2026E,2028E,2030E,Sources:National Bureau of Statistics,World Bank,Haitong Securities Research Institute2.Working-age population with different agestructures has different supply and demand relationsThe shortage of migrant workers after 2005 and the shortage of laborers in Chinascoastal regions seem to coincide with the concern that the demographic dividend willvanish.After probing into the causes for shortage of laborers,it is found that theshortage should be largely due to the change in Chinas population age structure(that is,the shortage of laborers is directly caused by a sharp decline in the working-agepopulation aged 25-34 in China).Please read the disclaimers following this report,5,Company Report Research Report2.1 Laborers aged 25-34 suffered a net decrease in the recent 10yearsIn the 10 years from 2000 to 2010,the population aged 25-34 decreased by around 46.8million,equivalent to an average annual decrease of over 4.6 million(see Fig.4),ofwhich the abnormal data in 2010 should be attributed to the sixth census,and theprevious data was estimated based on a sampling investigation of 1%.In the perceptionof most Chinese people,this age section should be the golden ages of career andcomply with most requirements on recruitment age.Fig.4:Change in population of different ages in 2000-2010,4000035000,Population aged 25-34(10,000)Population aged above 60(10,000),Population aged 0-14(10,000),30000250002000015000100005000Sources:National Bureau of Statistics,Haitong Securities Research Institute2.2 Laborers aged 25-44 are in short supply while those aged 45-64are oversuppliedThe data disclosed by the Ministry of Human Resources and Social Security show that,judging from the vacancy and job hunters by age in 2001-2011,the undersupply oflaborers aged 25-44 in recent years has been increasingly obvious,but the laborersaged 45-64 were oversupplied.As viewed from the labor supply data in 2011,the ratiosof vacant positions to job hunters aged 16-24,25-34,35-44 and above 45 were 1,1.18,1.06 and 0.77,indicating that the laborers aged 25-34 were most undersupplied andthose aged above 45 were seriously oversupplied.Therefore,since the age structure of Chinas laborers has experienced a pronouncedchange,most employment departments still utilized their traditional recruitmentstandards in employment of laborers,thereby exacerbating the shortage of laborersaged 25-34.If broadening the recruitment age scope by reference to the humanresources concept of western countries,the shortage of migrant workers would notoccur frequently in China.Please read the disclaimers following this report,6,Company Report Research ReportFig.5:Change in labor supply and demand by age in 2001-2011(ratio of vacant positionsto job hunters),1.3,16-24,25-34,35-44,Above 45,1.21.110.90.80.70.60.50.4,2001,2002,2003,2004,2005,2006,2007,2008,2009,2010,2011,Sources:Ministry of Human Resources and Social Security,Haitong Securities Research Institute2.3 Low-end laborers are short while high and medium-end laborersare relatively oversuppliedAnother reason for the erroneous indication of the labor undersupply is that thelow-end laborers are in short supply while high and medium-end laborers areoversupplied.According to the data of the Ministry of Human Resources and SocialSecurity,during 2001-2011,there were a large number of the positions for those with aneducational background of junior high school or below,senior high school,vocationalsenor middle school and technical school,but many of these were vacant.For example,in 2011,the ratio of vacant positions to job hunters with an educational background ofjunior high school or below was 1.12:1,that of vacant positions to job hunters with aneducational background of senior high school was 1.14:1,and that of vacant positions tojob hunters with an educational background of vocational senior middle school andtechnical school was 1.36:1.However,the laborers with an associate degree or abovewere undersupplied 10 years ago and oversupplied at present.In 2011,the ratio ofvacant positions to job hunters with an associate degree was 0.9:1,and that of vacantpositions to job hunters with a bachelors degree was 0.85:1.It is obvious that they areoversupplied.Fig.6:Changes in supply and demand of laborers by educational background in2001-2011(ratio of vacant positions to job hunters)1.4,1.31.2,Junior highschool and below,Senior highschool,Associatesdegree,University,Vocational senior middleschool and technical school,1.110.90.80.70.60.5,2001,2002,2003,2004,2005,2006,2007,2008,2009,2010,2011,Sources:Ministry of Human Resources and Social Security,Haitong Securities Research InstitutePlease read the disclaimers following this report,7,Company Report Research Report,3.There is room,for,increasing,the,laborer,participation rate3.1 Potential rural labor supply capacity is still strongThe slowdown of migration of rural laborers to urban areas also exacerbated theshortage of sho