East Asia’s Future: Extinction?

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Aging Asia’s wrinkles may be starting to show, but if the latest forecasts are accurate the region has an even bigger demographic threat: extinction.

According to research by South Korea’s National Assembly, the nation of 50 million could disappear by 2750 if it continues its current low fertility rate of around 1.25 children per woman, well below the replacement rate of 2.1 children and even lower than Japan’s 1.4 children.

Asia’s fourth-biggest economy is anticipated to see its population drop to around 20 million by the end of the century, assuming a fertility rate of 1.19 children. Busan, the second-largest city, is set to become a ghost town by 2413, followed by the capital, Seoul in 2505, the Wall Street Journal said.

“Only Hong Kong, Taiwan, Macau and Singapore have lower [fertility] rates,” the report noted. It said South Korea’s family planning campaign that started in the 1960s might have been too successful.

Neighboring Japan has its own worries on the fertility front too, with researchers fearlessly predicting the last Japanese child will be born in 3011. After that date, the world’s third-biggest economy, with a current population of 127 million, is expected to go the way of the dinosaurs just a few short generations later.

Highlighting this trend, the latest government data has pointed toward Japan’s annual births slipping below 1 million for the first time on record in 2014, with the around 496,000 births recorded during the first half of the year well below the 652,000 deaths.

While Prime Minister Shinzo Abe’s administration has set a goal of “stabilizing” the population at 100 million, the declining birthrate is forecast to accelerate due to a reduced number of women of childbearing age, Kyodo reported.

Meanwhile, China saw its working population shrink by nearly 3.5 million in 2013, down for the second straight year. China’s workforce is expected to fall by 200 million people by 2050, adding to concerns that it will get old before becoming rich as it becomes caught in the “middle-income trap.”

In a new report, HBSC warns that Asia is aging at “an unprecedented rate – arguably the fastest the world has witnessed,” causing the demographic dividend of past decades to go into sharp reverse.

“In terms of aging, China is already starting to look like Japan and the Asian tigers. Even Vietnam and Thailand, though in the heart of relatively youthful ASEAN, are starting to grey,” the bank’s researchers said.

“Japan has one of the world’s oldest populations. However, the rest of the region is quickly catching up, with South Korea, Hong Kong, Taiwan and Singapore expected to age even faster. While the West had abundant time between industrializing and the aging process starting, Asia must adapt more quickly, leaving less time to develop welfare systems effectively,” it added.

HSBC noted a “double-edged demographic dilemma” caused by countries with the lowest fertility rates also having poor female workforce participation, compounding the decline in labor forces.

On the plus side of the equation, HSBC said Indonesia, the Philippines and Sri Lanka were the least affected and could look forward to enjoying the same demographic dividend that helped propel Asia’s rapid development.

Yet according to ratings agency Moody’s, the number of “super-aged” societies with more than 20 percent of the population aged 65 and over will reach 13 by 2020 and 34 a decade later.

“The demographic dividend that drove economic growth in the past will turn into a demographic tax that will ultimately slow this growth for most countries worldwide,” it said in a research note quoted by CNBC.

The aging populations are expected to shave annual aggregate growth rates by 0.4 percentage point in 2014-19 and 0.9 percentage point over 2020-25.

Saving Asia

While warning that East Asian fertility rates “are chronically and unsustainably low,” HSBC said the region’s aging economies could help increase the labor supply through the addition of more elderly and female workers.

“Many aging Asian countries, including Japan and [South] Korea, have female participation rates among the lowest in the Organization for Economic Co-operation and Development and retirement ages have remained sticky despite longer life expectancies,” it said.

“Changes in participation and workforce numbers will not change the underlying trend but will give policymakers more time to build systems to cope with a greying population.”

Immigration remains a political hot potato in Japan, where opposition party Jisedai no To (Party for Future Generations) has called for foreign residents to be excluded from welfare support, as well as imposing stricter conditions on citizenship.

A recent Japanese government report warned that the nation could see its population shrink to 87 million over the next 50 years, becoming a “hyper-aged society” with 40 percent of citizens aged 65 or older. It urged more support for child rearing, the “strategic inclusion” of foreign workers and allowing workers to continue to age 70, among other measures to counter the demographic crisis.

South Korea’s declining population could be boosted by potential reunification with the North, a change in immigration policy or a rebound in the fertility rate.

Yet for aging Singapore and other Asian tigers, HSBC said immigration offered a likely solution to their demographic decline, while China and Indonesia could focus on the growth of urban populations.

As previously noted by Pacific Money, countries across the Asia-Pacific, including Australia, are moving to increase the mandatory retirement age to as high as 70 years in a bid to prevent labor shortfalls from crimping economic growth.

“Populate or perish” was the slogan adopted by Australia as it launched a large-scale immigration program in 1945, after having faced the threat of wartime extinction. Is it time for Asia’s aging nations to adopt a similar sense of crisis?

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