Speaker 1: One economists said, you know, John is probably best described
Speaker 1: as an unruly teenager. I love that, and that's why
Speaker 1: we're so busy, you know, everything from its market, the
Speaker 1: treat of what's happening on the ground. It's a bit
Speaker 1: like that teenager. There's just so much to keep an
Speaker 1: eye on. Hello, and welcome back to Bloomberg Benchmark, a
Speaker 1: podcast about the global economy. It is Thursday, February tenth.
Speaker 1: I'm aki Ito, acting Tokyo Beer chief with Bloomberg News.
Speaker 1: Tori and Dan sadly aren't going to be joining today.
Speaker 1: Dan's traveling in Arizona right now, and Tori is being
Speaker 1: the good global citizen that she is and volunteering for
Speaker 1: the evening. But I have a very special guest with
Speaker 1: me here and the current is on the line from
Speaker 1: Hong Kong. Hi Enda, Hi, Hey, how's it going very well?
Speaker 1: Thank you good? You know, and along with being the
Speaker 1: nicest person I've ever talked to, who I've actually never
Speaker 1: met in person, you're Bloomberg's chief Asia economics correspondent. Tell
Speaker 1: us what you do every day? Well, actually, it's such
Speaker 1: an exciting canvas here and you know, as you know
Speaker 1: and our listeners know the Asian economy is changing before
Speaker 1: our eyes, and there's so much going on, so much
Speaker 1: changing that we're trying to get our head around and
Speaker 1: to understand in terms of what it means for Asia,
Speaker 1: what it means for the for the rest of the world,
Speaker 1: of course, not least China. So my role involves everything
Speaker 1: from news gathering and analysis through to editing and TV
Speaker 1: and of course doing the Benchmark podcast. I love it well,
Speaker 1: you know, and then we have you on the show
Speaker 1: today because we're talking about China, which has you know,
Speaker 1: just completely dominated the headlines since the beginning of the year,
Speaker 1: and obviously that nervousness has spread throughout the world. I
Speaker 1: think it's been a pretty hectic start of the year
Speaker 1: for you, hasn't it. Yeah, it has, and at all
Speaker 1: points to China, accum. You know, what's going on there
Speaker 1: in the world second biggest economy is an unprecedented economic transformation,
Speaker 1: the scale which we haven't seen before. And as China
Speaker 1: grows and changes, the world will start feeling those growing pains.
Speaker 1: And one economists said, you know, China is probably best
Speaker 1: described as an unruly teenager. I love that, and that's
Speaker 1: why we're so busy, you know, everything from its market,
Speaker 1: the treat of what's happening underground. It's a bit like
Speaker 1: that teenager. There's just so much to keep an eye on.
Speaker 1: I love it. Well. I guess beyond those, you know,
Speaker 1: immediate emergencies that we're seeing in the day to day headlines,
Speaker 1: there's kind of this longer run crisis that's simmering below
Speaker 1: the surface. And that crisis is China's rapidly Asian population
Speaker 1: and what's already a shrinking workforce. And I think this
Speaker 1: is something that you talk about all the time, and
Speaker 1: it's a crisis that other countries, I guess have entered. First. Japan,
Speaker 1: where I am right now, is a really good example
Speaker 1: of a country that's grappling with all these consequences in
Speaker 1: real time right now. But China's going to be there
Speaker 1: pretty soon over the next few decades. So and should
Speaker 1: we go through some of the key numbers first to
Speaker 1: set the stage. Sure, yeah, I guess you know, we
Speaker 1: can start with the population. So China's currently home to
Speaker 1: one point three eight billion people, which makes it the
Speaker 1: world's biggest country by population. But I read that this
Speaker 1: isn't for long. That India is going to overtake China
Speaker 1: in the early twenties. Gosh, and if that happens, would
Speaker 1: China no longer be the world's largest country for like
Speaker 1: the first time in history. Well, that's that's what the
Speaker 1: indications are at a moment. Ay, Yeah, that's amazing. And
Speaker 1: I guess it's working age population already started shrinking in
Speaker 1: And I laughed when you talked about China being a
Speaker 1: teenager right now, because you know, the media and Asian
Speaker 1: ninety was twenty two years old, and right now the
Speaker 1: median age is thirty seven, so maybe a little older
Speaker 1: than a teenager. But by twenty fifty, the median age
Speaker 1: is going to be fifty years old, so solidly middle aged.
Speaker 1: And this is really interesting. By then, the average person
Speaker 1: in China is going to be actually much older than
Speaker 1: the average person in the US, in Canada, the UK,
Speaker 1: all of Skandinavia and a lot of other developed economies.
Speaker 1: H Well, look, maybe China is on course for a
Speaker 1: midlife crisis. You know, this all comes back to the
Speaker 1: fertility rate AKA, which at the moment is one point
Speaker 1: five five. That's one of the lowest in the world,
Speaker 1: and that's well below the rate that you need to
Speaker 1: maintain a content population, right, So, and I guess behind
Speaker 1: all of this is one of the biggest social experiments
Speaker 1: in history, which was China's one child policy that became
Speaker 1: a two child policy last year. Can you talk about
Speaker 1: how these policies came about? Sure, Look, obviously, Key, it's
Speaker 1: a very sensitive and difficult topic in China, and it's
Speaker 1: also very personal one for all the people who have
Speaker 1: been impacted by it, and you could see that from
Speaker 1: the outpouring of emotion when China dropped the one child
Speaker 1: policy late last year and went for the two child policy.
Speaker 1: As you say, it all began the late nineteen seventies
Speaker 1: and has been very to describe as one of the
Speaker 1: most ambitious demographic experiments that the world has ever seen.
Speaker 1: Partly it started because in nineteen seventy nine, Thankoping was
Speaker 1: worried about the writing population in China and he was
Speaker 1: worried about what impact of writing population would have on
Speaker 1: the nation's scarce resources. They thought the best thing to
Speaker 1: do would be to limit population growth, and the thinking
Speaker 1: was that way there would be enough to go around
Speaker 1: for everybody. But of course, ultimately that policy is only
Speaker 1: undermined the growth and the working age population shrank last
Speaker 1: year for the first time in two decades, and now
Speaker 1: we're about to see the cohort of senior citizens grow rapidly.
Speaker 1: So that's what the net result has been of China's
Speaker 1: one child policy. Right, And to confirm China only allows
Speaker 1: parents to have two children. Right, It's not like there's
Speaker 1: been a lift on all restrictions altogether. Now, there has
Speaker 1: been a gradual easing of the one child policy over
Speaker 1: recent years, but it officially came to an end last
Speaker 1: year as the new five year Plan has been developed
Speaker 1: and now formally a two child policy. I guess we
Speaker 1: should talk about why economists are worried about this demographic
Speaker 1: trend of uh an Asian and shrinking working age population.
Speaker 1: Do you want to walk us through that? Sure? Well, look,
Speaker 1: it's important actually because when you fear people in the workforce,
Speaker 1: you have few people to grow the economy, and you
Speaker 1: have fewer people spending. And you know what, an aging
Speaker 1: society is actually pretty expensive. And I think before I
Speaker 1: came on, I just looked up some more bank numbers
Speaker 1: and it might be worked having a look at some
Speaker 1: of these World Bank numbers to understand the gravity of
Speaker 1: the issue in China. These are the figures that struck
Speaker 1: me the number of babies promited as a result of
Speaker 1: the policy. So we went from twelve point one per
Speaker 1: one thousand people in and that was from a post
Speaker 1: reform peak of twenty three point three in the in
Speaker 1: the late nineteen eighties, and so that's effectively that's effectively
Speaker 1: half and it's below the US rate of about thirteen.
Speaker 1: Malaysia has eighteen and Vietnam has um has the sixteen,
Speaker 1: So that kind of gives an indication of the scale
Speaker 1: of the problem they have on on the birth rate.
Speaker 1: But of course we know that China also has on
Speaker 1: the other side of the ledger might be hard to
Speaker 1: believe for other parts of the world, but they have
Speaker 1: rising wages and labor shortage in some areas, so they're
Speaker 1: already losing out a competitiveness because of of shortage labor force.
Speaker 1: And when you throw an aging population an aging workforce
Speaker 1: into the mix, this demographic challenge is really not a
Speaker 1: challenge of China needs right now, right right and and
Speaker 1: one thing you know we've definitely seen here in Japan
Speaker 1: is just a budget that's stretched to the complete max
Speaker 1: um to be able to pay for these fewer adults
Speaker 1: working to support the growing number of retirees. What's China's
Speaker 1: government debt situation like right now, do you think it's
Speaker 1: going to be able to take it? Well? Okay, so sure.
Speaker 1: Physically China is probably in a stronger position than Japan.
Speaker 1: It's central government that is quite low. But the overall
Speaker 1: and I should say that the savings right the household
Speaker 1: savings rate is relatively high, but you know, the overall
Speaker 1: economy is under quite a lot of debt right now,
Speaker 1: both a corporate level and state on enterprise level and
Speaker 1: the local government level. So it's not like, you know,
Speaker 1: China is altogether swimming in money that they can unleash
Speaker 1: and give their retirees a kind of a golden lifestyle.
Speaker 1: But I think I think the problem is that ultimately
Speaker 1: an aging population will cost money, and that will cost
Speaker 1: China money, and that will boost healthcare costs and put
Speaker 1: bigger burdens on the younger people and on the young
Speaker 1: families in China to support their their lrelis now, the
Speaker 1: United Nations projected the number of Chinese people age sixty
Speaker 1: and older with more than double in the next twenty
Speaker 1: five years, four and one million by that group share
Speaker 1: of the population will be around up from around last year.
Speaker 1: So just think about the costs associated with that, and
Speaker 1: with an aging society, with the various illness and disease
Speaker 1: that's associated with it, and the burden that puts on
Speaker 1: young people. That's that's something of a taking time right, right,
Speaker 1: And how old are you right now? Okay, so you're
Speaker 1: totally young, so I can say this in front of you.
Speaker 1: But there's also you know, just that an older population
Speaker 1: leads to a less dynamic economy. It's one of the
Speaker 1: reasons why I love living in San Francisco, in the
Speaker 1: San Francisco Bay Area, which is just full of so
Speaker 1: many young people, you know, throwing out these crazy ideas.
Speaker 1: Most of them are terrible, most of them are going
Speaker 1: to fail, but occasionally, you know that one crazy idea
Speaker 1: of sticks and changes the world, and you can't really
Speaker 1: imagine happening that a lot in a country with so
Speaker 1: many older people. That's right, I mean, look, innovation at
Speaker 1: its core needs to be driven by ideas, by energy,
Speaker 1: by enthusiasm, and a lot of that is generated by
Speaker 1: you know, young people behind young startups coming out of
Speaker 1: universities and bustling with energy and full of ideas. We
Speaker 1: only have to look at Japan. Japan is still, of
Speaker 1: course a global center for research and development and innovation,
Speaker 1: but you know, it's also slipped behind the curve a bit.
Speaker 1: It's the smartphone generation pretty much passed by Japan. It was,
Speaker 1: of course the home of home entertainment at one point,
Speaker 1: but the smartphone era has passed by, so to speak.
Speaker 1: And you can see how the lives of Korea and
Speaker 1: China are doing more innovation front. But ultimately, when you
Speaker 1: have a declining birth rate and when you have an
Speaker 1: aging population, that will act as a break on on
Speaker 1: the workforce, that will limit the amount of talent that
Speaker 1: in that workforce, and that will fee you through towards
Speaker 1: trying to contribute on on the global stage. And I
Speaker 1: think that's definitely consideration. And then we just aked about
Speaker 1: all these broad forces. But in terms of numbers, what
Speaker 1: is China's economic growth going to look like in the
Speaker 1: future from the current piece of about seven percent growth
Speaker 1: per year? Yeah, okay, So China grew in fifteen at
Speaker 1: six point nine percent for the year. That was, on paper,
Speaker 1: its lowest pace of growth in the quarter of a century.
Speaker 1: Lots of economists are skeptical about the data and will
Speaker 1: question the numbers, but you know, either way, take it
Speaker 1: to China grew somewhere above six percent percent last year,
Speaker 1: and when you consider the size of that economy and
Speaker 1: relative to its peers, probably not a bad performance, some
Speaker 1: would say. But going forward, as we mentioned at the
Speaker 1: start of the show, China is undergoing this big transformation
Speaker 1: right now, and they want to move away from an
Speaker 1: economy that's really fueled by by death funded heavy industry
Speaker 1: and one that's really belonged in exports, the one that's
Speaker 1: driven much more by internal demands. So they want consumers
Speaker 1: spending money on the high street and they want a
Speaker 1: row ring services industry. Now, so what does that mean.
Speaker 1: It means the growth rate will probably be lower and
Speaker 1: at the NPC, which is ongoing in Beijing right now,
Speaker 1: the policy makers have come up with a new range.
Speaker 1: Rather than a hard target, they're now talking about a
Speaker 1: range of between six and a half and seven heading
Speaker 1: out over the next five years. Of course, that does
Speaker 1: give them riggle room, and you know, it doesn't give
Speaker 1: them a hard target that they will be scolded for missing.
Speaker 1: On the other hand, it's still a pretty ambitious target
Speaker 1: when you compare to both hit the emerging market appears
Speaker 1: and obviously the developed world, So that means there's still
Speaker 1: a burden on China to hit that growth target, and
Speaker 1: that means they may need to rely on some of
Speaker 1: the old playbooks to sugar hit the growth. Spend more,
Speaker 1: borrow and more and then everybody. That will lead to
Speaker 1: perhaps reform being pushed to one side at the expense
Speaker 1: of growth in the near term. And that's the real
Speaker 1: balancing act, that's the real juggle, that's the backdrop that's
Speaker 1: going on in China's economy right now, Aki, right, right,
Speaker 1: And when you think of that the potential growth way
Speaker 1: like the speed limit of China's economy. Surely that's not
Speaker 1: going to be seven in a decade or two, right,
Speaker 1: That number has to come down. Yeah, I think that's
Speaker 1: the that's the feeling here that the number will gradually
Speaker 1: start to come down. And when you consider this new
Speaker 1: range of six and a half or seven, one interplation
Speaker 1: is you know, actually that gives them quite a bit
Speaker 1: of regular room because as we're moving to the latter
Speaker 1: stages of the five year plan, the new five year
Speaker 1: plan that starts, and you know, maybe they can go
Speaker 1: below six and a half, but I think the bigger
Speaker 1: point actually, even if they do go below six and
Speaker 1: a half, even if it does go down to six
Speaker 1: and lower, it's about sustainable growth for China's economy, and
Speaker 1: I think I think both China and the world would
Speaker 1: welcome that kind of growth rather than the unsustainable breakneck
Speaker 1: pace we witnessed. Will say, you know over the last
Speaker 1: decade when I grew double digit pace, but ultimately left
Speaker 1: the hangover of a huge debt mountain and a lot
Speaker 1: of problems in the economy that that they're still trying
Speaker 1: to deal with. And then we only have to look
Speaker 1: to Japan what happened in the nineteen eighties when the
Speaker 1: bubble eventually burst. It still hasn't fully recovered. Speaking of sustainability,
Speaker 1: one of the interesting things I think is Asian so
Speaker 1: far in the world has been a phenomenon mostly just
Speaker 1: for rich society's right that you know, rich societies that
Speaker 1: already have this established infrastructure to care for a greater
Speaker 1: number of old people. But China is still making that
Speaker 1: transition right now from a developing two developed economy like
Speaker 1: that economists you were talking about was saying, you know,
Speaker 1: it's kind of this teenager trying to mature into an adult.
Speaker 1: So do you think China is ready for this future
Speaker 1: of lots of old people. No, it's not. It's important
Speaker 1: to remember that China is still a developing nation. Aki.
Speaker 1: Last week, I was in meeting with someone who was
Speaker 1: recounting to their experience of a hospital in rural China,
Speaker 1: and they recounted the hygiene standards, the facility that weren't
Speaker 1: offer and the condition of equipment in this hospital, and
Speaker 1: the point of discourse was a kind of a vivid
Speaker 1: reminder that vast parts of China are still very much developing. Moreland,
Speaker 1: when you move away from the fast growing eastern coastal
Speaker 1: regions and the big financial hub like Shanghai and of
Speaker 1: course the global capital and is Beijing, there's still a
Speaker 1: long way to go in terms of catching up with
Speaker 1: the wealth of the developed world in rural China. And
Speaker 1: that raises the question about how will these elderly people
Speaker 1: cope in the country side as they go forward with
Speaker 1: on an already small family to support them. And of
Speaker 1: course that brings up the question of of migration. As
Speaker 1: you know, and there's considerable migration in Shana in terms
Speaker 1: of those leaving wanting to leave the rural area and
Speaker 1: move towards the urban centers. I mean that works up
Speaker 1: to a point, but it leaves behind a society that's
Speaker 1: quite isolated, and of course it lacks the resources and
Speaker 1: lacks of funding to have the facilities that are needed
Speaker 1: on the healthcare side of things, and and and social care.
Speaker 1: So I think that's probably a genuine cause for concern,
Speaker 1: and that China's healthcare isn't yet anything like on the
Speaker 1: scale that we would appreciate it in the in the
Speaker 1: developed world, and it's still quite imbalanced within China itself. Well,
Speaker 1: you know, in my completely immature opinion, I feel like
Speaker 1: all of these problems were completely foreseeable from decades ago.
Speaker 1: So why do you think it took policy makers so
Speaker 1: long to scrap the one child policy? And and why
Speaker 1: do why does the government have restrictions on the number
Speaker 1: of children parents can have all together? Well, so, you know,
Speaker 1: this is a very motive and difficult issue in in China,
Speaker 1: and the thinking behind it at the time was China
Speaker 1: would not be able to cope, that the nation would
Speaker 1: not be able to feed itself, and if the population
Speaker 1: continue to grow at the pace that it was growing
Speaker 1: back in the late seventies when this policy was introduced.
Speaker 1: And remember food security is a big issue for China.
Speaker 1: They really try to promote an idea of self reliance,
Speaker 1: and that's why they're moving around the world right now,
Speaker 1: buying all kinds of assets in the in the agriculture
Speaker 1: world to make sure that China can be fed and
Speaker 1: that they have the technological know how to grow crops
Speaker 1: and to transform their farms. And I think that's one
Speaker 1: of the reasons why they were still looking to change
Speaker 1: the policy, because they were convinced that the population was
Speaker 1: was unsustainable the size of it. They weren't appreciative of
Speaker 1: the impact it would They weren't appreciative of the impact
Speaker 1: it would usibly have on economic growth and on their workforce.
Speaker 1: And you know, they've now ended up in a situation
Speaker 1: where you have declining birth rate That ultimately means you've
Speaker 1: got a smaller population from which to draw workers, and
Speaker 1: that's going to hold back growth and in some places
Speaker 1: it's going to is driving up wages too quickly and
Speaker 1: moving causing factories to move out of China into cheaper
Speaker 1: locations in saut these ages. So I think you can
Speaker 1: consider the policy mistake, and yes, it took far too
Speaker 1: long for Chinese leadership to realize the error of their ways. Yeah,
Speaker 1: that's quite the dilemma though, you don't you don't want
Speaker 1: growing population, but you don't want a shrinking population either.
Speaker 1: I would not want to be a Chinese policymaker right now,
Speaker 1: you know. And then maybe we should have titled this
Speaker 1: episode China and Japan because we talk about Japan so much.
Speaker 1: But you know, being a Japanese person, having grown up
Speaker 1: here and also living here right now, Japan just seems
Speaker 1: like such a cautionary tale for China. I wasn't alive
Speaker 1: back then, but thirty five years ago there were apparently
Speaker 1: tons of people already talking about Japan's soon to rapidly
Speaker 1: age population, you know, and no one really did anything
Speaker 1: about it until it got to where it is today,
Speaker 1: which is a very bad situation. So do you think
Speaker 1: China is ultimately going to end up like Japan or
Speaker 1: do you think policymakers are going to be able to
Speaker 1: do something about it? Because it seems like one of
Speaker 1: the benefits of having a centrally planned government is that
Speaker 1: you can actually think about the long term instead of
Speaker 1: this messy short term nous that I think we're seeing
Speaker 1: in the US presidential probably marries right now where you
Speaker 1: just have to chase the immediate vote. Yeah, I think,
Speaker 1: you know, in the case for the defense. For China,
Speaker 1: I think, um, they have made significant economic progress, I
Speaker 1: mean quite dramatic economic progress over the three decades since
Speaker 1: they started to to open up to the outside the world.
Speaker 1: They have lifted you know, hundreds of millions of people
Speaker 1: out of poverty. And when you compare their records on
Speaker 1: probably eradication to say other developing nations, I think China
Speaker 1: probably deserves a bit of a strong tick for its
Speaker 1: efforts there. But at the same time, it's now facing
Speaker 1: some of the same problems. Like you mentioned that some
Speaker 1: of its trading rivals rates, and one of the worries
Speaker 1: in China is that maybe lifting this one child policy
Speaker 1: and moving to the two channel policy is too little,
Speaker 1: too late, because attitudes have changed in recent years. One
Speaker 1: of the phenomenon's noticed in China is that in the
Speaker 1: urbanization of China means that many couples aren't in interested
Speaker 1: in having a second child because of the costs associated
Speaker 1: with having a second child or indeed you know, a
Speaker 1: bigger family that's everything from healthcare to education costs, to
Speaker 1: general costs of living, and as the feeling now that
Speaker 1: the organization of China has reached such a such an
Speaker 1: extent that even with the government encouraging and introducing this
Speaker 1: to child policy, it may not be enough to turn
Speaker 1: the tide. That's going to be the big test for China,
Speaker 1: and that will put the onus on them. If they
Speaker 1: really want to learn from Japan's mistakes, They're going to
Speaker 1: have to do a lot more in terms of you know,
Speaker 1: the maternity care, maternity leave, and paternity leave for parents.
Speaker 1: Are going to have to make sure all of these
Speaker 1: facilities are put in place that allow couples to continue
Speaker 1: their careers and to stay in the workforce. And I
Speaker 1: think in terms of those structural forms, those are lessons
Speaker 1: they can learn from Japan and the mistakes that are
Speaker 1: made there too. Yeah, definitely. So maybe as our last
Speaker 1: question here, and I'll ask the hardest question that we
Speaker 1: are listed in our brainstorms shin. Right now, by twenty one,
Speaker 1: the world is projected to be twelve years older than
Speaker 1: it is today. So the entire world is currently in
Speaker 1: the process of Asian of maturing, although the world average
Speaker 1: is not you know, happening as fast as it's going
Speaker 1: to happen in China. So ultimately, what do you think
Speaker 1: this means for the global economy when the entire world
Speaker 1: is going to be a little bit older. Well, you know, ultimately,
Speaker 1: actually it has to act as a break on an
Speaker 1: economic growth, right, It has to increase the burden on
Speaker 1: the younger people of the day, and it will of
Speaker 1: course increased the cost associated with supporting a family because
Speaker 1: we might reach a point where you know, you have
Speaker 1: a young family supporting their own young kids and having
Speaker 1: to alter prop up their elderly relatives. You can see
Speaker 1: how that scenario could could rise right around the right
Speaker 1: around the world, and that will be a negative for
Speaker 1: noble vows. That will act as a break on innovation,
Speaker 1: and I think that's just going to be a burden
Speaker 1: that will need to be carried unless, unless, you know,
Speaker 1: attitudes do change, and for example, place like China, the
Speaker 1: birth rate does start to improve and more is done
Speaker 1: by government and policymakers in terms of child subsidies and
Speaker 1: in terms of doing more for paternity care for parents
Speaker 1: and ensuring young parents can stay in their workforce. If
Speaker 1: all of that happened, maybe we can book The Trend.
Speaker 1: But I would say the scenario that you paint for
Speaker 1: the world economy probably isn't very positive and it's not
Speaker 1: a very light note, but I think it's a serious one. Well,
Speaker 1: that's certainly something for global policymakers to be thinking about.
Speaker 1: And thanks so much for joining us today. This is
Speaker 1: a great discussion. Thank you so much, Acki, and thanks
Speaker 1: again for listening to Bloomberg Benchmark. We're going to be
Speaker 1: back again next week. Until then, you can find us
Speaker 1: on the Bloomberg terminal and Bloomberg dot com, also on iTunes,
Speaker 1: pocket cast, ditch your Google Play, and while you're there,
Speaker 1: please a minute to rate and review the show. This
Speaker 1: really helps more people find our podcast and let us
Speaker 1: know what you thought of the show. You can talk
Speaker 1: to us and follow us on Twitter at Enda Current
Speaker 1: for our guest Enda and aki Ito seven for me.
Speaker 1: See you next week. M