The aging problem of China

The get a broading puzzle of mainland chinaIntroductionToday, mainland chinaware is a hot item in the media beca spend of its fast developing economy. Some nation are even terrified of this because they think it is a threat to our own economy. This because of the differences in the political and efficient dust of rules of china compared to our political and stintingal brasss.The Peoples Republic of China, also cognize as China, was established in 1949. Its land covers a large spokesperson of centre Asia. In the 1950s, its population was estimated at around 30 share of the center global population (Naughton, 2007). Because of this wide amount of mess, the Chinese political science came up with a plan to put a h gray to this evolution population. They set a equity which prohibited individuall(a)y family to film more(prenominal) than than one child, the so-called One-Child Policy.The population of China today is relatively young, with a base enume assessency score. This is favor sufficient for economic fruit (Naughton, 2007). In the hereafter this go out lead to an imbalance of the population. This because all(prenominal) work citizen has ii senior (parents), this means a running(a)s class which is far too subaltern on the total population. Every year, the number of elderly people in China rises with nearly ternion pct. A focus to describe this is calling this a Four-Two-One puzzle. Which means one child has to take disquiet of both parents and four grand parents (Vandendriessche, 2008).The research question which I volition es govern to cause is the followingHow is china firing to handle the historic perioddness enigma of the population?To answer this question, I divided this question into several sub-question, to witHow has this aging problem go?What are the difficulties which china is facing because of this problem?How do the Chinese ageing people deal with their higher status financially?Motivation of th e effectThe subject of Chinese economy is interesting to me because I return little faith in the current economic system of the western society. I believe this economic system based on debts, is non what we would like in the future. And China is one of the few economies which is ontogeny at the moment, despite the current Financial Crisis. Chinas economy im break off pad 7.2 share in 2009 from a year earlier. (Bloomberg.com, 2009) notwithstanding because many economists say capitalism is the best economic system at the moment, I am surprised to cipher that China does not apply this system.The reason the subject of the aging of Chinas population is important to the economy, is that go outside(a) one of the greatest pitfalls in Chinas economic and societies future. A disproportionate balancen of the population impart disengage in the future, therefore a much low-spiriteder group of working people impart have to keep the society up and running. Is this possible, or are t here many problems which China entrust have to showcase in the future? And if there will be problems, is China able-bodied to prevent or solve them? This is interesting because of the large number of citizens of China. This stomachnot be compared with any unseasoned(prenominal) country in the world, because it will happen on a much larger scale as for instance in the Netherlands.MethodologyFirst I will try to adumbrate an video of how the situation has developed to the evince in which it is at this moment. With this image, certain problems will arise from this. I will try to demo a broader get on these problems. These problems, when not solved, will have an impact on the economic environment of China. This I would like to formulate in the third chapter. in the end I am going to investigate whether these, in the future, elder people fluent have the means to survive on their own, or how the Chinese political relation is going to assist them with this. This with approxima tely kind of tribute origin or will the Chinese government terugvallen on the social debt instrument of family.With these sub-answers I would like to give an answer to the important question. How China is going to handle the problem of the aging of the population.The data which I sine qua non I will get from articles from the Chinese Economic Review, data from the Chinese berth of Statistics, Chinese Data Centre and the Chinese Statistical Yearbook. Furthermore I will search for books on the Chinese economy and the history of the Chinese economy and society.StructureThe origin chapter is about the introduction of the problem and each factor contributing will be preciselyifyed. In chapter two I am going to give a literature review on five of the interesting papers I have found. Then I will try to find answers to the sub question of my problem statement. These will each cover a chapter.Chapter three How has this aging problem risen?Chapter four What are the difficulties which china is facing because of this problem?Chapter five How do the Chinese old people deal with their dourevity financially? by and by this I will draw a conclusion based on the previous chapters. With this I will try to give an answer to the main question.Chapter 2 Literature Review population and economic developmentGale Johnson tries to answer the question, what would happen to stinkiness and population growth if the present population polity were flip-flopd to one that emphasized family planning and permitted families to have the number of children that they wished? It seems reasonable to lying-in that there would be an ontogeny in foulness. This would be very small in urban areas and relatively small in higher income campestral areas. There would be increased fecundity in the lower income awkward areas, but it seems unlikely that after two decades or so it could be more than ten share.There is evidence to support the following changes in social and economic policiesSig nifi standtly improve the quality of untaught subsidiary schools and increase the percentage of girls attending.Create an attractive bonus broadcast for arcadian areas.Give farm people the monomania or permanent rights to the use of the land they farm or, failing that, enforce the insurance policy of no reallocation of farm land on the basis of demographic changes.Change policies and institutions so that families could migrate from inelegant to urban areas. Which would lead to adaption of the fertility patterns of urban areas, lead to decline in fertility.I believe the largest impact on the fertility rate, when present policy towards this is changed, will be in the poorer regions of the farming(prenominal) areas. merely I do not think all changes give will work. The improvement of educational quality and increase the percentage of girls will be the one of the most important measures to be taken. This will give an re-allocation of world capital. With this re-allocation, pe ople will get former(a) jobs and therefore a need for many children to work on the farms will decrease. pension off pecuniary resource are in my opinion essential in order for elderly citizens of China to get by financially. This because the life expectancy rate is increasing. The right of ownership is a viewpoint which will be very sensitive. This because China still has a communistic government. except when subvention funds are not one of the future measures which will be taken, this is one of the other options for Chinese citizens to make enough money in order to cope with their longevity financially.Sources of Chinas economic growth 1952-1999 incorporating human capital solicitationWang and Yao, find that first, the accumulation of human capital in China, as measured by the come years of schooling in population aged 15-64 years, was quite rapid and it contributed significantly to growth and welfare. However, the rate of growth of human capital declined in the crystalize p eriod in 1978-1999 and its share to GDP growth was small compared to the pre-reform period.In the industrial countries, the ploughshares to growth by the factor input have declined and the growth of TFP has become the driving force. In China, the potential to further increase factor inputs is limited especially after one considers the rapidly aging population, a decling labor force in the future, and the constraints in natural resources. China has to rely more on productivity growth.Futher productivity growth would depend very much on two factors First whether or not China can improve allocative efficiency by continuing reforms in the state and financial sectors and by increasing regional integration, allowing freer factor mobility across sectoral devides, such as rural-urban and state- nonstate, and friend whether or not China is able to transform itself from an imitation based economy to an innovation based experience economy and continue its progress in industrial upgradin g.I have with Wang and Yao on the fact that productivity has to grow in China. But in order to do this China has to open up more to other countries. Otherwise this would take too long. China is in need for k straightledge, this can be seen in the imitation based economy. When China would have the knowledge, they would hammer these products themselves. Chinas economic environment has its limitations to grow, this because of their ownership fair plays. China does not have to change into a Capitalistic society, but I think it does have to let loose up in order to cope with the problems it faces.Pension reform in China preparing for the futureAccording to Loraine West, a combination of pension plans, including delineate benefit and specify contribution, are replacing the former single defined benefit plan. The specifics of each plan, including indexation for inflation, and the combination of plans available to workers vary across regions.By focusing only on the urban labor force, which presently comprises entirely 27 percent of Chinas total labor force, the reformed old age certification system is unlikely to address the issue of growing rural-urban inequality.The proliferation of regional and industry-based pools diminishes the potential benefits of pooling, such as risk sharing, lower administrative costs, and enhance labor mobility, and also makes it more difficult to achieve the goal of a internal level pool.The key objectives of the tonic-sprung(prenominal) pension system is to touch away from a pay-as-you-go system to partial funding in education of the aging of the population.However, to have a successful pension system in the future, the financing force has to be shared by employees, employers and the government kind of than being borne exclusively by the individual work unit. In the petty run, it is critical that regulations and supervision catch up with the new system. In the long term, expansion of reporting and benefit adjustments nee d to be considered.I book it will be hard to implement a new old age security system in China. However, I believe it will be key to implement a system which is the same in every part of China. Otherwise the differences between rural and urban areas will only expand, and thus create an even higher incumbrance on the economy than it is at this moment. This will be difficult to fulfill because which groups have to contribute the most. This might even call for a similar system as in the Netherlands, where the government guarantees a minimal pension profit and where the rest is contributed by the companies and working force.How can China solve its old age security problem? The interaction between pension, soe and financial market reform.According to Estelle James, she suggests a plan which sets up individual estimates for each worker, with funds that are productively invested. This is similar to reforms that have been sweeping Latin America, eastern atomic number 63 and are now bein g considered in the United States. anyway making the system more fiscally sustainable and avoiding peak contribution rates, prefunding can be utilize to increase saving that is committed for long term investments and pension funds can be used as engines to financial market development and corporate governance.This can be make with two mandatory towboats one publically managed and tax or pay-as-you-go financed, the other closed-doorly managed, with the object of building and managing retirement savings. This to avoid high payroll department taxes as the populations age, thereby making the system more sustainable, and to increase national savings that are committed to the long term.However, the part of the economy that is growing most rapidly, in part because it faces low taxes, liabilities and regulations, would suddenly be murder with a heavy legacy of the past. The challenge for China is to find a way to implement a more funded system, that includes decentralized competitive charge of the funds, quickly, before coverage increases become a social necessity and makes the revolution more difficult.Here I have the same critique as on the previous literature, namely about the rural and urban separation. When the pension system first only reforms the urban part and later expands its coverage towards the rural area, the cost will only increase more and more. But it will be complicated to implement a new system immediately for the entire country, this because it will give a huge burden on the current working class.Chapter 3 The history of China.The year 1949 can be viewed as the First major divide in Chinese history. Before this year, no rapid growth ever occurred in Chinese economy. This was completely different after 1949, when rapid growth was considerably normal. The government is also drastically different after 1949.In 1950 a new law was introduced which stated that Parents have the duty to raise their children well and the children in their turn have t he duty to support their parents. This was a good way for the Chinese government at that time, to not be directly accountable for the attendance of the elder citizens. This was an indication of the change from a harmonious nicety towards a more individualistic civilization. During the fifties, a five-guarantee program had launched for the rural areas. This program mend support from the government for elder who had no offspring or other people who took care of them in the form of food, clothing, shelter, medical care and a funeral. (Naughton, 2007) in 1951, the Chinese government came up with the act bray Insurance Regulations of the Peoples Republic of China. These first pension regulations where only for citizens working at state enterprises. This mend that all employees of such enterprise have to give three percent of their salary to a mutual fund at bottom this company, and when they oscilloscopeed the age of sixty and they had worked for more than twenty years they would re ceive a pension. (Frazier, 2004) This reality, this resulted in a relatively low percentage of people who stock a pension, because until 1971 nobody could reach this twenty years of work experience.At the end of the seventies, two major new regulations were introduced. First in 1978 where China opened their borders a tiny bit for foreign companies to do origin with Chinese companies, but still under heavy oversight by the Chinese government. This also led towards a higher in dependance of the state enterprises. These where allowed to keep their profit. But also the responsibility of pensions was now entirely for these companies. It was now also allowed for Chinese citizens to start up their own company. (KNAG, 2007) However, these new private owned companies were not able to give the same pension security as these former state enterprises. Therefore the Chinese government came up with a new experiment of pension funding in 1982. They tried to create pension funds not just per comp any, but pension funds for an entire city to create a higher resort net. These funds were filled by employees working in this city on a pay-as-you-go (PAYG) basis. This means the pensions which are before long paid, are funded by the taxes and contributions from the working people at the same moment. That means there are no assets being set aside.The rural area did not benefit from all these regulations. Because of this new kind of economy, the rural areas decentralized. This took a lot of security away for the elder in these areas, because they were still dependant on the help of family.The minute regulation introduced in the late seventies was the One-Child Policy. This because the government of China began to see the great threat of the exponentially growing population. This phenomena I will explain in the next chapter.In the years 1991 and 1995 the government tried to reform the current PAYG system by creating a multi pillar system. (Vandendriessche, 2008) This system contain ed three pillars which all contributed to one overall pension fund. The first pillar was the base pension for every employee of a company funded by the state. The second pillar was a individual fund which was filled during the years of work of each person. Frazier calls this Defined Contribution. The third pillar is optional, and is an additional payment made to the pension fund to increase the pension received later in the employees lives.But even with this new reformed pension funding, it is far from ideal.Chapter 4 How has this aging problem risen?Aging of population (also cognise as demographic aging, and population aging) is a summary term for shifts in the age dispersion of a population toward honest-to-goodness ages. Which is a direct consequence of the on-going global fertility transition (decline) and of mortality decline at older ages. (Gavrilov and Heuveline,2003)These two factors can both be seen in the statistical annual of China. (cecal appendage 1)One of the fac tors, the mortality rate decline at older ages (See Appendix 1F), can be explained mainly by a better health care more knowledge of the human body and better medicinal drug (especially anti biotic). The New Rural Co-operative Medical Care System (NRCMCS) is an new project set up in the year two-thousand-five to improve the health care sector in China, especially to make it affordable for the rural area. (China daily, 2005) This NRCMCS covers around eighty percent of the total cost of the hospitals. Under the new policy, the central government, local governments, and individual farmers each invest 10 kwai (US$1.23) per year to establish a medical insurance account. The money roll up is then used to fund hospital treatment. (China daily, 2005) Thought this initiative, many Chinese citizens are now covered for their medical insurance. Around eighty percent of all Chinese citizens living in the rural areas have subscribe up, which are approximately 685 cardinal people.The second f actor, the fertility rate is harder to explain. by design decreasing the fertility rate has been an issue of the Chinese government since 1971. In 1970, the total fertility rate was 5.8. At the time of 1978, the fertility rate has decreased with fifty percent to 2.7. This due to the policy known as wan-xi-shao, meaning later marriages, longer spacing between children, and fewer children in total. Through 1979 the probability of a couple having a second child, given(p) that they had already given birth to a first child, was 95 percent (Feeney and Yu, 1987). Chinas leaders where still worried because chinas child-boomers where now reaching marriage age. These cross boomers where born in the years before this wan-xi-shao policy because of the corking bounds Forward. Chinas leaders thought these group of people would have to many children and this would grow the population carrying capacity.The One-Child policy was established as a law in 1980 by the former Chinese leader Deng Xia oping. He implemented this law to limit the birth rate of China. This policy was instantly controversial because of it was purely enhanced in the first years. There was for example a policy for mandatory insertion of intrauterine devices for women with one child and sterilization for couples with two or more children. At 1984, resistance (both nationally and internationally) has risen to a crucial level. The Chinese government relinquished these strict policies and the overall law loosened up. This mend for example that regional governments, especially in rural areas, a policy which allowed couples to have a second child when their first child was a girl. In more urban areas the One-Child Policy was well-kept more strictly.But not only due to the one-child policy fertility rates has gone down. There are significant similarities between China and other surrounding Asian countries in their fertility rates. (See Appendix 1E) However, this has not the same reason is these countries.In some countries, notably Japan and Korea, the low birth rate may be partly attributable to acclivitous job opportunities and earning power for women. But that is not the case in Taiwan, capital of Singapore or Hong Kong, where women have excellent work opportunities and access to low-paid domestic help from Southeast Asia. There is a reluctance to marry, particularly among the better ameliorate women, as well as a preference for few, if any, children. (Bowring, 2007)But because the Great Leap Forward in China, their fertility rate has risen in the years between 1955 and 1970. This in contrast with the other Asian countries shown in this graph (See Appendix 1E).Chapter 5 What are the difficulties which china is facing because of this problem?The most obvious problem China will face is the increasing group of elder people. According to Estelle James, In 1990 only nine percent of Chinas population was over the age of 65, bu by 2030 this proportion will more than double, to twenty-two percent. This means that more than a quarter of the elder people of the entire world will live in China by 2030. As you can see in Appendix the dependency ratio of elderly people in rural areas will be approximately 0.34 in 2030, and 0.18 in urban areas. Zeng et al. (2008) suggest that, if urbanization reaches 75%, the dependency ratio is likely to continue to rise rapidly in rural areas and may exceed 0.6 by 2050, versus just over 0.3 in urban areas. With such a high dependency ratio, a high contribution rate is required from working people to cover the current bill.The second problem is the gender imbalance in China. There is a huge surplus of men. At this moment there is are thirty-two cardinal more Chinese boys than girls under the age of twenty. (NYTimes, 2009) These surplus of boys are known in China as guang guan. Together with the fact that not everyone will marry or have a child when the sex-ratio is normal, there will be a lot of elderly in the future who do not have chi ldren to support them and must rely on some sort of pension. Lin Jiang believes there will be almost four million elderly citizens in the rural area by 2030 who do not have a single child.The third problem is that the growth of the working age population will drop off quickly and reach zero growth after 2015. (see appendix) He calculated this because of The persistence of fertility and mortality rates combines with the existing structure of the population to produce sure patterns of change of the labor force. Also According to Naughton, The labor market is just now absorbing the last huge birth cohort (the baby boom echo born in the late 1980s)The GDP rate per capita (appendix 2) is still increasing. However the rate of increasing is declining in the last two years. This in accordance with the future growth/ decline of the working age population a conclusion can be drawn that the growth of GDP rate per capita will also decline, not taken into account the growth of the economy. Ther efore it is important to stimulate this growth of economy.This has to be reacted on in order to stop the rising burden on the currently employed after 2015, because of the change in population structure.Chapter 6 How do the Chinese old people deal with their longevity financially?It is difficult to ascertain exactly how other countries have financed the transition because of the fungibility of money and the ambiguity of the counterfactual. Most reforming countries in Latin America and Eastern Europe have utilized parametric changes that downsized bloated benefit obligations, to reduce the IPD and the financing gap. beyond that, the following revenue sources appear to be commonKeeping part of the system PAYG, so contributions continue flowing into the PAYG pillaras in Poland, Hungary, Uruguay and SwedenRaising revenues from contributions by increasing the payroll tax or the compliance rate-an add-on was used in OECD countries and most other countries are trying to decrease evasivene ssUsing other special revenue sources such as a lottery or a value added tax (Argentina)Using full general revenues or social security surpluses that are available at the municipal, eclogue or state level (Chile)Applying proceeds from the barter of SOE assets to cover pension liabilities (assetdebt swaps)-SOE and pension reform were linked in Peru, Bolivia and PolandBorrowing in the poor run and repaying with the surplus that the system would run in the longer run, as the individual accounts take on a greater portion of the total pension responsibility (most countries have used this method to smooth the burden of transition costs over many cohorts). Most of these methods would be seize for China. China is now using proceeds from a national lottery, a tax on interest income and, as already discussed, direct allocations from the MOF. We pore here on a source that has just been tapped proceeds from the sale of state assets-and another source that is essential but has yet to be se riously addressedbenefit reduction. These two sources, between them, could cover much of the transition costs.ReferencesHoman, T. R. (2009, June 18). existence Bank Raises China 2009 Growth Forecast to 7.2%. Retrieved from http//www.bloomberg.com/apps/news?pid=20601087sid=aoNG311GdSSkNaughton, B. (2007). The Chinese Economy Transitions and growth. Cambridge, Massachusetts and London, EnglandVandendriessche, A. (2008) Hoe worden ouderen verzorgd in China? 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