Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
08 November 2013 Global Demographics and Pensions Research http://www.credit-suisse.com/researchandanalytics Can the “Asian Tigers” roar back? Demographic insights Global Demographics & Pensions Research Research Analysts Amlan Roy +44 20 7888 1501 [email protected] Sonali Punhani +44 20 7883 4297 [email protected] Angela Hsieh +44 20 7883 9639 [email protected] The four Asian Tigers are: Hong Kong, Republic of Korea, Singapore and Taiwan We ask: have they exhausted their “Demographic Dividend” potential? Can they rediscover their past GDP growth pace? In this report we provide a comparative demographic perspective on these Asian Tiger countries focusing on growth, aging-related fiscal pressures, productivity and sectoral differences, health and education. The Asian Tigers were named for their strong growth from the 1960s to the 1990s. But they have slowed down – their last 5-year real GDP growth average of nearly 3% is a third of the near 9% growth average over 19601980. They have also changed demographically – they have grown older with lower fertility rates meaning fewer young to share the ageing burden. While their GDP per capita is comparable to the G6 advanced economies, their old-age dependency ratios are much lower. The pensions promises and health expenditures as a percentage of GDP and health expenditures per capita are lower. The share of the 80+ population in the Asian Tigers is nearly half that of the G6 average of 5.44% of the population in 2012. In terms of the Human Development Index too, which measures quality of life, the Asian Tigers are amongst the top 20. Their past GDP growth has been driven by labour productivity growth, which was high coming from a lower level in the 1960s. But now the challenge that these economies face is one of translating a very well educated population to being more productive across agriculture, manufacturing and services. The solutions lie in holistic structural reform across labour, immigration, taxes, health, education and benefits to engage workers to work longer beyond mandatory retirement ages and to give equal opportunities to well educated women. Prudent policies that are equitable across multiple generations will be important in the next growth paradigm that these countries face. Exploiting the human capital advantage with the use of technology will be key for these economies in a global economy. Deeper capital markets, development of services and planning for longer post-retirement periods are challenges as well as opportunities for these smaller economies as they face up to their demographic transitions. We remain positive that with changes on the structural policy front Asian Tiger economies can achieve consistent real growth rates upwards of 5% and capture the second stage of the demographic dividend that awaits them. They have more time on their hands than other advanced western economies to undertake structural reforms to counteract their ageing populations. ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER IMPORTANT DISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access 08 November 2013 The term Asian Tigers refers to the Asian economies that enjoyed a rapid growth spurt since the 1960s namely Hong Kong, Republic of Korea (ROK), Singapore and Taiwan 1. However post the Asian crisis of the late 1990s, there is a general perception that these four countries have slowed down. Is the recent slower growth pattern the new paradigm that these countries should accept or can they regain some of their previous Tiger-like growth? We assess their growth and fiscal prospects in the face of ageing-related risks. The Asian Tiger economies have been cited as the success stories of development and as the examples of successful demographic dividend capture. Studies attribute up to nearly 40% of the growth in GDP per capita in the South Asian2 and North Asian countries to the demographic dividend. As these countries have grown richer, they have also grown older and the question to be posed is whether these Asian Tiger countries can fruitfully exploit the second Demographic Dividend. We assess whether the policy frameworks of these countries are conducive and responsive to their changing demographic structures. Section 1 presents cross-country demographic comparisons on core demographic indicators. Section 2 presents the Demographic connections to growth. Section 3 links economic structure and GDP composition to demographics. Section 4 presents a worker perspective on labour force participation rates and productivity whilst Section 5 relates government debts and deficits to demographics. Section 6 focuses on Pensions and Health while Section 7 presents an Education and Human Development Index. Section 8 relates Financial Market development in the Asian Tigers to demographics and Section 9 concludes this report. 1. Cross-Country Demographic Comparisons We present (Exhibit 1) the population growth rates of the Asian Tigers relative to the G6 (the US, UK, France, Germany, Italy and Japan) averages as they are economically comparable. Population growth in Hong Kong, Republic of Korea (ROK) and Taiwan is slowing down whereas Singapore’s 3 population growth is close to 2% p.a. The most dramatic of these population growth declines is observed in the case of Hong Kong over the 1960-2010 period. Steep drops in population growth lead to smaller increases in population which then further translate to lower growth in the labour force too. Exhibit 1: Population growth Exhibit 2: Labour force growth Rate per annum (%) Rate per annum (%) 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2.5% 2.0% 1.1% 1.0% 0.7% 0.5% Hong Kong Republic of Korea 1960-1965 0.3% Singapore 1980-1985 1.3% 1.5% 2.0% Taiwan 2010-2015 Source: UN, National Statistics, R.O.C.(Taiwan), Credit Suisse 0.3% G6 average 1.1% 0.7% 0.5% 0.2% 0.0% Hong Kong Republic of Singapore Korea 1990-1995 2000-2005 Taiwan G6 average 2010-2015 Source: ILO, National Statistics, R.O.C.(Taiwan), Credit Suisse Similarly, Exhibit 2 presents the labour force growth rates of the Asian Tigers compared to the G6 average. However, the Asian Tiger labour force growth rates are higher, with 1 Over 1960-1990, Hong Kong grew at 8.3% p.a., ROK at 8.1%, Singapore at 8.8% and Taiwan at 8.9%. 2 Credit Suisse Demographic Research, Assessing Asia's Demographic Promise (2012) 3 Credit Suisse Demographic Research, ASEAN’s Positive Demographics Underpins Stable Growth (Oct 2012) discusses the demographic advantage of ASEAN countries including Singapore. Can the “Asian Tigers” roar back? Demographic insights 2 08 November 2013 growth at higher than 1% for Singapore, Taiwan and Hong Kong and even for the ROK the labour growth rate is higher than the population growth rate. In addition to population and labour force growth rates, it is important to also look at the population sizes of the four Asian Tigers. The population sizes of the Asian tigers are very dissimilar as displayed in Exhibit 3. While Singapore and Hong Kong are like City-nations, ROK and Taiwan are much larger with populations that are similar to small sized countries rather than cities. Exhibit 3: Population Exhibit 4: Median age Millions Years 60 47 49.3 50 42 37.5 40 37 30 23.4 17.9 20 10 5.1 7.2 32 27 2.4 5.4 22 0 Hong Kong Republic of Korea 1980 Singapore Taiwan 17 1960 1970 Hong Kong Taiwan 2013 Source: UN, National Statistics, R.O.C.(Taiwan), Credit Suisse 1980 1990 2000 Republic of Korea G6 average 2010 Singapore 2020 Source: UN, National Statistics, R.O.C.(Taiwan), Credit Suisse It is important to note the impressive increases in the median age of the Asian Tigers as in Exhibit 4, especially in Taiwan where the median age increased by 19.8 years over 19602010. The Appendix (Exhibit 43) presents population pyramids which represent the age structure for the Asian Tigers in 1960 and 2012. The charts clearly paint a picture of rapid aging in the Asian Tigers. These median age increases of the Asian Tigers have outpaced those of the G6 developed countries and attest to the fact that life expectancies have grown4 alongside living standards. Exhibit 6 illustrates this fact quite clearly. Exhibit 5 presents the declining fertility rate (children per woman of child-bearing age) picture of the Asian Tigers relative to the G6 average. Lower fertility rates across the Asian Tigers make them much less likely to be able to replace their populations based on natural replacement (the replacement fertility rate is supposed to be 2.1 children/woman). Exhibit 5: Total fertility rate Exhibit 6: Life expectancy at birth Children per woman Years 6.0 90 85 5.0 83.3 81.4 82.2 4.0 81.2 79.8 80 75 3.0 70 2.0 1.1 1.7 1.3 1.3 1.1 65 60 1.0 55 0.0 50 Hong Kong Republic of Korea 1960-1965 Singapore 1980-1985 Taiwan 2010-2015 Source: UN, National Statistics, R.O.C.(Taiwan), Credit Suisse 4 G6 average Hong Kong Republic of Korea 1960-1965 Singapore 1980-1985 Taiwan G6 average 2010-2015 Source: UN, Ministry of Interior, R. O. C. (Taiwan), Credit Suisse Credit Suisse Demographics Research, How Increasing Longevity Affects Us All?: Market, Economic & Social Implications (2012) Can the “Asian Tigers” roar back? Demographic insights 3 08 November 2013 The very low fertility rates put pressure on the fiscal sustainability and future growth rates of the Asian Tigers through the dependency ratios—lower number of younger future workers to support a growing mass of older non-workers. In terms of demographic transition, Asian Tigers are in Stages 3 or 4 (of low/falling birth and death rates and stable population/population growth), largely due to the fact that they have much lower fertility rates than most country groupings like the EU or Japan or G7. The dependency ratios reflect the same with a sharp drop in youth dependency ratio (Exhibit 7) and a steep rise in the old-age dependency ratio (Exhibit 8), both of which act as factors not conducive to an increase in the share of the youth within the labour force. Sharp drops in the youth dependency ratios over the last 15-20 years reflects the lower number of youth dependents or potential future workers but higher old-age dependency ratios reflect the aged (mainly non-workers) who will grow even older and require public funding support for pensions, healthcare and long-term care. Exhibit 7: Youth dependency ratio Exhibit 8: Old age dependency ratio Ratio of population aged 0-14 per 100 population 15-64 Ratio of population aged 65+ per 100 population 15-64 100 30 80 25 20 60 28.2 17.2 15.2 14.6 15 12.2 40 20 16.2 23.5 22.3 21.3 24.5 10 5 0 0 Hong Kong Republic of Korea 1960 Singapore 1980 Taiwan G6 average 2010 Source: UN, Directorate-General of Budget, Accounting & Statistics, Executive Yuan, R.O.C.(Taiwan) , Credit Suisse Hong Kong Republic of Korea 1960 Singapore 1980 Taiwan G6 average 2010 Source: UN, Directorate-General of Budget, Accounting & Statistics, Executive Yuan, R.O.C.(Taiwan) , Credit Suisse The positive demographic point for the Asian Tigers is that their Old-age dependency ratios are lower than the G6 average which suggests that the ageing-related fiscal pressures are not that critical—they have more time to plan to deal with ageing-related fiscal issues. Policy changes in smaller countries are probably easier to implement too. Immigration is a very big unknown for all open economies and more so for the Asian Tigers who are at the forefront of technology, finance and globalization. Exhibit 9 shows the importance of net immigration as a share of total population change. We should note that immigration plays an important role in Singapore and Hong Kong. The currently low levels of youth dependency will translate into lower numbers of future workers and some substitution could occur through bringing in suitable immigrants whose taxes may help defray some of the added fiscal burden due to older-dependents. We recommended that ageing countries use a mix of policies to ameliorate the fiscal burden of ageing, one of which is selective immigration. Can the “Asian Tigers” roar back? Demographic insights 4 08 November 2013 Exhibit 9: Contribution of migration to overall population change Thousands Hong Kong 700 Republic of Korea 3,300 600 2,800 500 2,300 400 1,800 300 1,300 200 800 100 300 0 -200 -100 -700 1980-1985 1990-1995 2000-2005 Natural Population Change 1990-1995 2000-2005 Natural Population Change Net Migration Singapore 600 1980-1985 2010-2015 2010-2015 Net Migration Taiwan 350 300 500 250 400 200 300 150 200 100 50 100 0 0 -50 1980-1985 1990-1995 2000-2005 Natural Population Change 2010-2015 1980-1985 Net Migration 1990-1995 2000-2005 2010-2015 Natural Population Change Net Migration Source: UN, National Statistics, R.O.C.(Taiwan), Credit Suisse 2. Demographic Links to GDP Growth This section develops the demographic framework further to examine the growth implications from demographics. Exhibit 10 and Exhibit 11 reiterate a point that we have been making i.e., it is equally important to focus on GDP per capita as it is to focus on GDP and analogously it is equally important to focus on GDP per capita growth as it is to focus on GDP growth. We emphasize a slight dampening of the uni-focus on GDP growth. Using IMF’s 2012 data, GDP per capita at PPP of the Asian Tigers relative to the G6 GDP per capita PPP average is: Singapore 160%, HK SAR 134%, Taiwan 101% and ROK 84%. Exhibit 10: Real GDP growth Exhibit 11: Real GDP per capita growth Rate per annum (%) Rate per annum (%) 20 15 15 10 10 5 5 0 0 -5 -5 -10 -10 Hong Kong Republic of Korea Singapore Taiwan Source: IMF, Thomson Reuters Datastream, National Statistics, R.O.C.(Taiwan), Credit Suisse Can the “Asian Tigers” roar back? Demographic insights Hong Kong Republic of Korea Singapore Taiwan Source: IMF, Credit Suisse 5 08 November 2013 In previous research reports, we expanded and used a growth accounting demographic framework5 that explains GDP growth based on three demographic components. Growth in working age population, labour productivity and labour utilization sum to give real GDP growth. This is based on a factor based growth accounting framework. The demographic underpinnings of real GDP growth are illustrated in Exhibit 12 for the case of Hong Kong. As we note the largest component of real GDP growth has been labour productivity growth over the last four decades. The contribution of labour productivity growth to real GDP growth in the case of Hong Kong has been upwards of 60% in the good performing decades. Exhibit 13 shows the dominant and ever increasing contribution of labour productivity growth to Korean (ROK’s) real GDP. Exhibit 12: Real GDP growth and its components, Hong Kong Exhibit 13: Real GDP growth and its components, Republic of Korea Annual growth rates (%) Annual growth rates (%) 10 10 8.5 8 6 8 6.9 0.7 5.2 4 6 3.4 4.5 1.9 2 0 3.8 -0.5 1970-79 1.7 1.9 1980-89 -0.4 1990-99 4.1 0.3 4 3.1 2 0.8 1.5 7.5 0.1 4.6 6.4 4.2 4.9 5.8 3.7 3.1 2.5 1970-79 1980-89 0 2000-12 1.1 -0.6 1990-99 0.7 -0.2 2000-12 -2 -2 Labour utilization growth 9.2 Labour productivity growth Labour utilization growth Labour productivity growth Working age population growth Working age population growth Source: UN, GGDC, Credit Suisse Source: UN, GGDC, Credit Suisse A slightly different dynamic emerges when we consider the case of Singapore where we observe in Exhibit 14 that another major factor has been working age population growth which complements labour productivity growth. The Taiwanese experience however shows that labour productivity growth has contributed the most to real GDP growth and its contribution has been increasing from decade to decade as seen in Exhibit 15. 5 Credit Suisse Demographics Research, A demographic perspective of economic growth (April 2009) Can the “Asian Tigers” roar back? Demographic insights 6 08 November 2013 Exhibit 14: Real GDP growth and its components, Singapore Exhibit 15: Real GDP growth and its components, Taiwan Annual growth rates (%) Annual growth rates (%) 10 9 8 7 6 5 4 3 2 1 0 -1 11 9.0 0.9 9 6.9 9.7 0.2 7.8 6.9 1.8 4.8 4.0 2.7 2.3 2.4 2.8 6.0 7 5.4 6.4 0.3 6.4 5 5.2 3 3.2 2.9 1970-79 0.0 1980-89 1990-99 Labour utilization growth 1 2000-12 -1 Labour productivity growth 3.2 3.1 1970-79 1.9 1.4 -0.6 1990-99 -0.5 1980-89 Labour utilization growth Working age population growth 3.8 0.9 -0.3 2000-12 Labour productivity growth Working age population growth Source: UN, GGDC, Credit Suisse Source: National Statistics, R.O.C.(Taiwan), GGDC, Credit Suisse The Demographic Dividend theory attributes a portion of the GDP per capita growth of countries to demographics. The first dividend typically occurs when countries industrialize and go from being agrarian to being industrial or manufacturing based. This phase is accompanied with rapid urbanization, industrial growth and increased youth in the labour force. The second stage occurs when people in developed economies close to retirement save and invest for their retirement/children’s college education. The increased savings leads to higher investments in services and a boost to real GDP per capita growth. Exhibit 16 presents the breakdown of demographic dividends into the first and second stage of dividends as per research done by Andrew Mason6. Exhibit 17 presents the start and end dates of the first dividend period for Hong Kong, ROK and Singapore. Taiwan is missing due to data not being available and that explains why it has not been researched in studies of the demographic dividend which use data from UN and World Bank sources. Exhibit 16: Contribution of Demographic Dividends to Growth in GDP/N*, 1960-2000 Exhibit 17: Timing of the first dividend period Rate per annum (%) Hong Kong Republic of Korea Singapore First Second Total 0.4 1.4 1.8 0.7 1.9 2.6 0.8 1.9 2.6 *Actual growth in GDP per effective consumer. The effective number of consumer is the number of consumers weighted for age variation in consumption needs. Hong Kong Republic of Korea Singapore Start End 1970 2005 1965 2005 1965 1995 Source: Andrew Mason, Credit Suisse Source: Andrew Mason, Credit Suisse 3. Economic Structure The structure of the economy is also related to its people and their characteristics as “consumers and workers”. Exhibit 18 presents GDP breakdown by share of expenditures. It is important to note the differences in terms of consumption expenditure share of GDP and exports as a share of GDP. Singapore and Hong Kong are much more open than ROK and Taiwan and also have a higher exports to GDP ratio. 6 Andrew Mason, Demographic Transition and Demographic Dividends in Developed and Developing Countries (2005) Can the “Asian Tigers” roar back? Demographic insights 7 08 November 2013 Exhibit 18: GDP breakdown Share of GDP Hong Kong Household consumption Government consumption Gross capital formation Exports Imports Republic of Korea 1975 1990 2012 1975 1990 2012 65.5 6.0 22.9 83.4 77.8 57.5 6.8 27.2 130.7 122.1 64.9 9.1 26.0 223.6 223.6 68.6 11.2 28.7 26.9 35.4 51.7 11.8 37.5 28.0 29.0 53.5 15.8 27.6 56.5 53.4 Singapore Household consumption Government consumption Gross capital formation Exports Imports Taiwan 1975 1990 2012 1975 1990 2012 60.1 10.5 38.8 137.2 146.5 45.3 9.5 35.1 177.4 167.4 41.2 9.7 27.0 200.7 178.5 57.5 15.6 30.1 39.1 42.3 53.9 17.4 24.4 45.7 41.4 60.3 12.4 19.8 73.6 66.0 Source: World Bank, National Statistics, R.O.C.(Taiwan), Credit Suisse Exhibit 19 shows trading partners of the Asian Tigers by listing export destinations of exports and import origin countries. China, Japan, Korea, EU and US all figure in the main list of trading partners. Exhibit 19: Top 5 imports origin and exports destination of Asian tigers, 2012 Hong Kong Exports destination 1 2 3 4 5 Country China US EU Japan India % 57.6 8.9 8.8 3.8 2.2 Republic of Korea Imports origin Country China Japan EU Singapore US % 45.6 7.7 7.4 6.3 6 Exports destination Country China US EU Japan Hong Kong % 24.5 10.7 9.1 7.1 5.9 Singapore Exports destination 1 2 3 4 5 Country Malaysia Hong Kong China Indonesia EU % 12.3 11 10.8 10.6 9.2 % 15.5 12.4 9.7 8.4 7.6 Taiwan Imports origin Country EU Malaysia China US Republic of Korea Imports origin Country China Japan EU US Saudi Arabia % 12.6 10.6 10.3 10.2 6.7 Exports destination Country China Hong Kong US EU Singapore % 26.8 12.6 11 8.7 6.7 Imports origin Country Japan China US EU Republic of Korea % 17.6 15.1 8.8 8.3 5.6 Source: World Trade Organization It is also important to understand aggregate savings and its counterpart investment as part of the National Income accounts. Exhibit 20 illustrates the flow of savings and investment relative to current account balances for the Asian Tigers over 1980 to 2012. Savings at a micro level is the part of disposable income that is not consumed. Aggregate Savings relative to Aggregate Private investments affect capital flows as shown by us in earlier research reports. Sp= I + CA + (G - T) is the equation that links private savings, investment and current account and has econometric validation in previous studies that we conducted7. Raghu Rajan in his well-recognized analysis of the current banking crisis in the book “Fault Lines” attributes “unfettered capital flows from Asia and Latin America into US and Europe” as one of the primary reasons for the onset of the crisis. 7 Credit Suisse Demographics Research, Demographics, Capital Flows and Exchange Rates (August 2007) Can the “Asian Tigers” roar back? Demographic insights 8 08 November 2013 Exhibit 20: Savings, investment, and current account balance % of GDP Hong Kong 15 10 35 5 30 0 25 -5 20 -10 1980 30 25 20 15 10 5 0 -5 -10 -15 -20 1985 1990 1995 2000 2005 2010 Singapore 40 5 35 0 30 -5 25 -10 15 55 45 40 35 30 25 20 15 1985 1990 1995 2000 2005 2010 Current account balance (LHS) 45 10 50 1980 Republic of Korea 15 40 10 1980 1985 1990 1995 2000 2005 2010 Taiwan 25 20 45 20 40 15 35 10 30 5 25 0 20 -5 1980 1985 1990 Total investment (RHS) 1995 2000 2005 2010 15 Gross national savings (RHS) Source: IMF, Credit Suisse This section focused on consumers spending and consuming the bulk of GDP and also consuming goods and services produced outside the domestic boundaries. It also highlights connections between aggregate savings, aggregate investment and capital flows in a globalized world. 4. Labour Productivity and Labour Force Differences In this section we focus on people as workers. Exhibit 21 presents a sectoral decomposition of gross value added and employment share. Note the high importance of services in these economies, especially in Hong Kong. Exhibit 21: Sectoral decomposition of gross value added and employment, 2011 Gross value added Employment by sector % of GDP % of employment Agriculture Industry Services Agriculture Industry Services Hong Kong 0.1 7.0 93.0 0.2 11.4 88.4 Republic of Korea 2.7 39.2 58.1 6.4 24.8 68.9 Singapore 0.0 26.7 73.3 0.7 28.7 70.6 Taiwan 1.4 35.3 63.3 5.1 36.3 58.6 Source: World Bank, ILO, Singapore Ministry of Manpower, National Statistics, R.O.C.(Taiwan), Hong Kong Census and Statistics Department, Credit Suisse Workers are employed in different sectors of the economy and their skills and productivities differ. Exhibit 22 presents the relative value added of people in agriculture, manufacturing and services, this is computed by dividing share of GDP by sector by share of labour force in the sectors. This reflects the capital, technology and worker skills of the economy. Can the “Asian Tigers” roar back? Demographic insights 9 08 November 2013 Exhibit 22: Gross value added per worker, 2011 Exhibit 23: Unemployment rate Thousands of current USD Percent of total labour force 80 9 70 8 60 7 6 50 5 40 4 30 3 20 2 10 1 - 0 Hong Kong Republic of Korea Agriculture Singapore Industry Taiwan Services Hong Kong Source: World Bank, ILO, Singapore Ministry of Manpower, National Statistics, R.O.C.(Taiwan), Hong Kong Census and Statistics Department, Credit Suisse Republic of Korea Singapore Taiwan Source: IMF, Credit Suisse Exhibit 23 presents the unemployment rate which reflects the labour force manifestation of business cycles for the Asian Tigers. Note the openness of the Asian Tigers is reflected by a spurt in unemployment post the onset of the global credit crisis in 2008. Also, the increased unemployment during the 1997-98 Asian crisis is quite evident from the chart. Another measure of dynamic and egalitarian labour markets from the gender perspective is the gap between male and female labour force participation rates. Economies that are progressive and dynamic tend to utilize fully and effectively their labour forces across the skill spectra. The Asian Tigers could find good examples to emulate among the Nordic economies which are similarly small with skilled labour forces and socially progressive policies. As per Exhibit 24 the gap between labour force participation rates is higher than the G6 average gap and there is potential within the Asian Tigers to increase their female labour participation rates. Exhibit 24: Gap in male and female economic activity rate, 2013 Exhibit 25: Economic dependency ratio % Number of non- workers per worker 1.5 80 1.3 75 70 Gap= 17% 1.1 20% 65 1.0 1.0 1.1 0.8 0.9 0.7 22% 60 0.9 16% 15% 55 0.5 0.3 50 0.1 45 -0.1 40 Hong Kong Republic of Korea Singapore Male Taiwan Female Source: ILO, National Statistics, R.O.C.(Taiwan), Credit Suisse G6 average Hong Kong Republic of Korea Singapore 1990 2013 Taiwan G6 average 2000 2020 Source: ILO, National Statistics, R.O.C.(Taiwan), Credit Suisse Exhibit 25 presents the Economic Dependency ratios of the Asian Tigers. The economic dependency ratios are an economically defined measure which computes the ratio of nonworkers to workers in the economy. A ratio higher than 1 implies the ‘dead-weight’ burden of an economy that has more non-workers than workers. Taiwan is the only country amongst the Asian Tigers that has a ratio slightly greater than 1. Can the “Asian Tigers” roar back? Demographic insights 10 08 November 2013 In an earlier research report 8 , one of the policy prescriptions that we advocated for ageing countries was flexible working post statutory or mandatory retirement ages. In the same spirit, we examine the labour force participations rates for male workers in the Asian Tigers in Exhibit 26. Exhibit 26: Age- specific economic activity rates - males, 2013 % 100 90 80 70 60 The important point to note is that male age-related participation rates start declining sharply when they are in their mid50s in terms of age. This creates huge potentially unsustainable fiscal burdens on the governments as the retirees continue to live 25-30 years post-retirement. 50 40 30 20 10 0 Hong Kong Republic of Korea Singapore *Taiwan Source: ILO, National Statistics, R.O.C.(Taiwan), Credit Suisse (*Taiwan data in 2012) Exhibit 27 presents economic activity rates of female workers by age. All the four Asian Tigers exhibit similar sharply declining activity rates amongst the population age group older than 50 years, earlier than those of the corresponding male cohorts. This is despite the fact that female life expectancy at birth is higher than males: in Hong Kong by 5.7 years, Taiwan 6.4 years, ROK 6.9 years and Singapore 4.6 years in 2012. Exhibit 28 presents age-specific fertility rates that show peak ages when women have children are between 25-35 years of age. Similar to other advanced countries some women experience fertility by giving birth in their early 40s too. Exhibit 27: Age- specific economic activity ratesfemales, 2013 Exhibit 28: Age- specific fertility rates, 2010-2015 % Number of births per 1000 women 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 15-19 Hong Kong Republic of Korea Singapore *Taiwan Source: ILO, National Statistics, R.O.C. (Taiwan), Credit Suisse (*Taiwan data in 2012) 20-24 25-29 30-34 35-39 Hong Kong Singapore 40-44 45-49 Republic of Korea Taiwan Source: UN, Taiwan Department of Household Registration, Credit Suisse 5. Government Debt and Deficits Exhibit 29 presents the evolution of government debt since 1990. The trajectories vary across the Asian Tigers as their government objectives, policies and implementation vary due to business cycle conditions, their economic structure and the fiscal strains owing to rapid ageing. Singapore clearly stands out as a country with high government gross debt as a percentage of GDP. Exhibit 30 presents general government net lending which is a measure calculated by the IMF in its Global Financial Stability database. 8 Credit Suisse Demographics Research, New Jobs, New People: Demographic Manifesto (2000) Can the “Asian Tigers” roar back? Demographic insights 11 08 November 2013 Exhibit 29: General government gross debt Exhibit 30: General government net lending/ borrowing % of GDP % of GDP 120 20 100 15 80 10 60 5 40 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 20 -5 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Hong Kong Republic of Korea Singapore -10 Hong Kong Taiwan Source: IMF, Credit Suisse Republic of Korea Singapore Taiwan Source: IMF, Credit Suisse Net lending (+)/ borrowing (–) is calculated as revenue minus total expenditure. This measures the extent to which the general government is either putting financial resources at the disposal of other sectors in the economy (net lending), or utilizing the financial resources generated by other sectors (net borrowing). This balance may be viewed as an indicator of the financial impact of general government activity on the rest of the economy.. Singapore, Korea and Hong Kong have positive net lending by the government to other sectors, whereas Taiwan has negative net lending. Singapore issues a large amount of government debt, not to fund the government budget (as evident by its fiscal surplus) but to issue government securities. Government debt issuances are invested and they are conducted to develop Singapore’s debt markets. In research on the oldest five countries9 we showed that similar old-age profiles did not lead to similar debt profiles. 6. Pensions and Health As the Asian Tigers get older the government priorities get focused on taking care of their older residents. Exhibit 31 presents the share of the 65+ population over time. Exhibit 31: Share of 65+ population Exhibit 32: Formal pension system coverage, 2012 % of total population Coverage relative to working age population 20 15 0.60 0.56 12.9 11.1 0.55 0.57 0.54 10.7 9.0 10 0.52 5 0.48 0 0.44 0.45 Hong Kong Republic of Korea 1980 Singapore Taiwan 0.40 2010 2020 Source: UN, National Statistics, R.O.C. (Taiwan), Taiwan CEPD, Credit Suisse Hong Kong Republic of Korea Singapore Taiwan Source: OECD, Taiwan Council of Labor Affairs, Credit Suisse The shares across the Asian Tigers are very similar but below the 18% share of the G6 developed countries in 2010. Catering to the needs and wishes of their older populations requires providing for adequate sources of income. Exhibit 32 presents the coverage of 9 Credit Suisse Demographics Research, Macro Fiscal Sustainability to Micro Economic Conditions of the Old in the Oldest Five Countries (2011) Can the “Asian Tigers” roar back? Demographic insights 12 08 November 2013 the pension system relative to the working age population. The Asian Tigers lag behind the advanced developed countries most of which have pension coverage ratios in excess of 75-80%. The Gross pension replacement rates pertaining to public pensions of the Asian Tigers is very reasonable in terms of a sustainable promise as shown in Exhibit 33. The gross pension wealth (Exhibit 34) which measures the discounted present value of pension payments as a ratio of last income is also very affordable in comparison to the older advanced countries. Exhibit 33: Gross pension replacement rate for the average male earner, 2012 Exhibit 34: Gross pension wealth for the average male earner, 2012 Gross pension entitlement divided by gross pre-retirement incomes Total value of lifetime flow of retirement incomes 39.6 40 7.5 38.5 38 36 7.1 7 6.8 34.8 34 6.5 32 30 Hong Kong Republic of Korea 6 Singapore Source: OECD, Credit Suisse 6.3 Hong Kong Republic of Korea Singapore Source: OECD, Credit Suisse In 2012, Taiwanese social welfare accounted for 22.3% of total government expenditure whereas the pensions & survivors benefits accounted for 7.3% of total government expenditures as shown in Exhibit 35 . Exhibit 35: Social welfare and pensions expenditure in Taiwan, 1989-2012 Exhibit 36: Conditional life expectancy at 60, 19952000 vs. 2010-2015 % of total government expenditure Years 1995-2000 35 2010-2015 Male Female Male Female Hong Kong 21.0 25.0 22.9 27.8 17.0 21.0 21.0 26.0 15 Republic of Korea 10 Singapore 19.0 22.0 21.7 25.4 *Taiwan 19.4 22.2 21.6 25.4 30 25 20 5 0 Social welfare Pensions & Survivors Benefits Source: Ministry of Finance, R.O.C., Credit Suisse Source: UN, Ministry of Interior, R.O.C. (Taiwan), Credit Suisse (*Taiwan data based in 2012) In Taiwan, retired workers receive a pension equivalent to 73.9% of their income, higher than the average of OECD countries (58%). Also the replacement rate varies greatly between those who are private sector workers to those that are public sector workers. The government guarantees a generous pension plan for retired civil servants, military personnel, and public school teachers. With people living longer and retiring earlier (average retirement age for civil servants has decreased from 60.6 in 1998 to 55.2 years Can the “Asian Tigers” roar back? Demographic insights 13 08 November 2013 in 2011), there is increasing pressure on the government to overhaul the current labour insurance and pensions system to ensure fiscal sustainability and equality. The Asian Tigers display the same trend in terms of gender differences in life expectancy. In Exhibit 36, we present the conditional life expectancies of men and women in 19952000 and 2010-2015. Once they have lived until age 60, women outlive men by 4.9 years in Hong Kong, 3.7 years in Singapore, 3.8 years in Taiwan and 5 years in Korea. Also, the conditional life expectancy has increased by 2-3 years over the 1995-2010 period thanks to better medical advances. Next, we consider health which also strains the public purse strings of the government treasuries as the Asian Tiger countries get older. Exhibit 37: Health expenditure, 2011 Exhibit 38: Health expenditure per capita, 2011 % of GDP Current USD 2,400 *Hong Kong 2.5 Republic of Korea 2.6 4.1 7.2% 3.1 2,000 1,800 Singapore 1.4 Taiwan 3.1 1,732 1,616 4.6% 3.8 2,286 2,200 1,600 2.8 1,353 1,400 6.6% 1,200 0 2 Public 4 % of GDP 6 8 1,000 *Hong Kong Private Source: WDI, Hong Kong Food and Health Bureau, Credit Suisse (*Hong Kong: 2010/2011) Republic of Korea Singapore Taiwan Source: WDI, Hong Kong Food and Health Bureau, Taiwan Ministry of Health and Welfare, Credit Suisse (*Hong Kong: 2010/2011) As Exhibit 37 indicates the total health expenditures of the Asian Tigers is reasonable compared to many advanced European and developed countries and so are their Health expenditures per capita (Exhibit 38). This is positive news as the Asian Tigers ought not to make the expensive health expenditures and pensions promises made by the Western developed countries. 7. Education and Human Development Index The popular perception is that excellent education standards prevail in the Asian Tigers. Exhibit 39 presents statistics on primary, secondary and tertiary education that validates this perception, with Hong Kong slightly lagging in tertiary education enrollment figures. Exhibit 39: Gross primary, secondary and tertiary school enrollment %, latest available data Primary Secondary Hong Kong (2011) 108.0 80.1 Tertiary 60.4 Republic of Korea (2010) Singapore (2010) Taiwan (2011) 105.6 100 97.9 97.1 107 100 103.1 72 83.4 Source: WDI, World Economic Forum Global Competitiveness Report 2012-2013, Credit Suisse Except for Hong Kong, the other Asian Tigers can boast of a tertiary enrollment rate higher than the G6 average of 67.4%. Can the “Asian Tigers” roar back? Demographic insights 14 08 November 2013 We present the Human Development Index (HDI) scores for these countries in Exhibit 40. HDI is an indicator of “quality of life” which combines aspects of health captured by life expectancy, education captured by mean and expected years of schooling and income. The ROK, Singapore and Hong Kong have high scores ranking them amongst the top 20 countries of the world. Exhibit 40: Human Development Index (HDI) and its components, 2012 HDI HDI rank 12 13 18 Life expectancy Mean years Expected years Gross National at birth of schooling of schooling Income per capita Country Value Years Years Years Constant 2005 PPP$ Republic of Korea Hong Kong Singapore 0.909 80.7 11.6 17.2 28,231 0.906 83 10 15.5 45,598 0.895 81.2 10.1 14.4 52,613 Source: UNDP, Credit Suisse 8. Financial Market Development and Size As countries develop in terms of GDP per capita the progress of financial market developments typically accelerates as financial market development accompanies economic and social development of countries. Exhibit 41 presents the size of the stock market relative to GDP. A well-developed stock market allows for better investment opportunities as well as financing of projects, asset markets and investments. Hong Kong stands out as a financial center amongst not just the Asian Tigers but all of the Asia-Pacific region. This benefits not just corporates, public sector but also the individuals and households in channeling their savings into productive uses in order to garner an adequate return. Exhibit 42 presents the fact that bond markets in the Asian Tigers are much smaller in relative terms than their stock markets. Exhibit 41: Stock market capitalization Exhibit 42: Market capitalization of private and public bond market, 2001 vs. 2011 % of GDP % of GDP Market capitalization to GDP 700 Private bond market 600 500 Public bond market 2001 2011 2001 2011 400 Hong Kong 17.5 15.3 9.5 36.0 300 Republic of Korea 54.0 59.3 22.9 44.8 200 Singapore 20.6 10.0 29.5 45.4 Taiwan NA 20.4 NA 36.7 100 0 Hong Kong Republic of Korea Singapore Taiwan Source: WDI, Financial Supervisory Commission R.O.C., Credit Suisse Source: World Bank, Taiwan GTSM, Credit Suisse 9. Conclusions The Asian Tigers are reasonably prosperous with a smaller age-related burden than many European or advanced developed economies. While their fantastic growth of the 19601980 period has slowed down dramatically to recent 5-year averages of close to 3% GDP growth, they are demographically very different too. They have lower median ages, lower old-aged dependency ratios and lower proportion of 80+ aged population relative to either the G6 or the Nordic countries, which is a big positive too. Their promises on account of pensions and health are lower than the promises of the G6 countries too. Can the “Asian Tigers” roar back? Demographic insights 15 08 November 2013 We believe that the Asian Tigers can roar again as they have an adequate window of opportunity to conduct structural reforms before the ageing related issues start creating economic, political and social constraints as they are doing in the Western advanced countries. The Asian Tigers have not only high GDP per capita but are educated and similar-minded enough to implement structural reforms so that they continue growing at growth rates in the 5-6% range. We hope that they can develop and implement holistic structural reforms across labour, immigration, taxes, health, education and benefits to engage workers to work longer beyond mandatory retirement ages as well as to creating equal opportunities for well educated women. Prudent policies that are equitable across multiple generations10 will be important in the next growth paradigm that these countries face. Exploiting the human capital advantage with the use of technology will be key for these economies in a global economy. References Bernanke B., The Coming Demographic Transition: Will We Treat Future Generations Fairly? (2006)- Speech before the Washington Economic Club, Washington, D.C Credit Suisse Demographic Research, ASEAN’s Positive Demographics Underpins Stable Growth (2012) Credit Suisse Demographics Research, How Increasing Longevity Affects Us All?: Market, Economic & Social Implications (2012) Credit Suisse Demographic Research, Assessing Asia's Demographic Promise (2012) Credit Suisse Demographics Research, Macro Fiscal Sustainability to Micro Economic Conditions of the Old in the Oldest Five Countries (2011) Credit Suisse Demographics Research, A demographic perspective of economic growth (2009) Credit Suisse Demographics Research, Demographics, Capital Flows and Exchange Rates (2007) Credit Suisse Demographics Research, New Jobs, New People: Demographic Manifesto (2000) Mason A,, Demographic Transition and Demographic Dividends in Developed and Developing Countries (2005) 10 Bernanke B., The Coming Demographic Transition: Will We Treat Future Generations Fairly? (2006)- Speech before the Washington Economic Club, Washington, D.C Can the “Asian Tigers” roar back? Demographic insights 16 08 November 2013 Appendix: Asian Tigers’ Age Structure (1960 vs. 2012) Exhibit 43: Population pyramids of Asian Tigers, 1960 vs. 2012 Hong Kong 1960 Hong Kong 2012 80+ 80+ 70-74 70-74 60-64 60-64 50-54 50-54 40-44 40-44 30-34 30-34 20-24 20-24 10-14 10-14 0-4 0-4 300 200 100 0 Male 100 200 300 400 200 In Thousands Female 0 200 Male Republic of Korea 1960 400 In Thousands Female Republic of Korea 2012 80+ 80+ 70-74 70-74 60-64 60-64 50-54 50-54 40-44 40-44 30-34 30-34 20-24 20-24 10-14 10-14 0-4 0-4 2,000 1,000 0 Male 1,000 2,000 3,000 2,000 In Thousands Female 1,000 0 Male 1,000 2,000 3,000 In Thousands Female Singapore 2012 Singapore 1960 80+ 80+ 70-74 70-74 60-64 60-64 50-54 50-54 40-44 40-44 30-34 30-34 20-24 20-24 10-14 10-14 0-4 0-4 200 150 100 50 0 Male 50 100 150 200 300 200 In Thousands Female 100 0 Male Taiwan 1960 100 Female 200 300 In Thousands Taiwan 2012 80~84 80~84 70~74 70~74 60~64 60~64 50~54 50~54 40~44 40~44 30~34 30~34 20~24 20~24 10~14 10~14 0~4 0~4 1,000 500 0 Male 500 female 1,000 In Thousands 1,250 750 250 Male 250 female 750 1,250 In Thousands Source: UN, National Statistics, R.O.C.(Taiwan), Credit Suisse Can the “Asian Tigers” roar back? Demographic insights 17 GLOBAL DEMOGRAPHICS & PENSIONS RESEARCH Amlan Roy, Managing Director Head of Global Demographics & Pensions Research +44 20 7888 1501 Eric Miller, Managing Director Global Head of Fixed Income and Economic Research +1 212 538 6480 LONDON Amlan Roy, Managing Director Sonali Punhani, Associate +44 20 7888 1501 [email protected] +44 20 7883 4297 [email protected] Angela Hsieh, Analyst +44 20 7883 9639 [email protected] Disclosure Appendix Analyst Certification Amlan Roy, Sonali Punhani and Angela Hsieh each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. CS may, to the extent permitted by law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. CS may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct Authority ("FCA") and the PRA. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, having registered address at 990 Abdulrahim Place, 27 Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the PRA and regulated by the FCA and the PRA or in respect of which the protections of the PRA and FCA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2013 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.