Download Can the “Asian Tigers” roar back? Demographic insights

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.
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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
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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
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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
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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
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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
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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
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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]
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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.
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will be requested to pay the purchase price only.