Date
21 November 2017
China's rapidly aging population has driven up labor costs and reduced the country's competitiveness. Photo: CNSA
China's rapidly aging population has driven up labor costs and reduced the country's competitiveness. Photo: CNSA

Chinese insurers to benefit from aging population

More retail investors have rushed to the mainland market recently as domestic sentiment improves. Shanghai and Shenzhen have added 662,600 new stock accounts between March 2 and 6, the highest so far this year, according to data from China Securities Depository and Clearing Corp. Ltd.

The increase is also the second highest since July 31, 2009. As of last weekend, there were 54.92 million securities accounts holding A shares, representing almost 30 percent of the total accounts. The percentage has rebounded after a four-week decline.

The Consumer Price Index has risen 1.1 percent in January and February from a year earlier, but inflation remains at a fairly low level. In last week’s government work report, Beijing said it aims to cap the inflation rate at 3 percent this year. That would give the Chinese central bank plenty of room to loosen monetary policy in the months ahead.

Meanwhile, the Producer Price Index dropped 4.8 percent in February from a year ago, extending the decline for 36 straight months. The continuous decline has resulted from lower raw material prices as well as lackluster demand and excessive capacity.

China has to accelerate its industrial reform and boost demand for industrial products. Beijing said last week it will gear industrial restructuring towards medium and high-end products and implement an ambitious plan called China Manufacturing 2025. The plan will tie up manufacturing capacity with information technology and transform the country into a manufacturing powerhouse.

There’s a long way to go before China realizes its industrial upgrade plans. As the central government has already outlined the roadmap, investors should pay closer attention to mechanical manufacturing and electronic companies.

However, the shrinking working population has become a real issue hampering industrial reform. The rapidly aging population has driven up labor costs and reduced the country’s competitiveness, which would affect economic growth. Last year the central government relaxed its decades-long “one child” policy, allowing couples to have a second baby if a spouse is an only child.

The government hopes to counter the mounting cost of demographic imbalances. However, the move has very limited impact so far.

Data shows that there are some 10 million families who are eligible to have a second baby under the relaxed rules, but only a million are willing to do so. Only 470,000 extra children were born last year as a result of the new policy.

The financial burden of having an extra child and instilled mindset of having just one child have held back many parents from having a second baby. Whether the government needs to further relax the policy may be discussed in the annual “Two Sessions”. But it’s unlikely that new measures will be implemented this year.

Currently, people aged above 60 already account for 14.9 percent of the population, and the ratio is expected to reach 38.6 percent by 2050. The aging population will put substantial pressure on the pension system.

As a result, the Ministry of Human Resources and Social Security decides to delay the retirement age in a gradual manner, such as by extending it by a couple of months year by year. The move will help maintain labor supply and mitigate the pressure on the pension fund.

A longer duration of payments to the pension fund with a shorter duration to withdraw money from the fund would benefit the insurance sector, but the real impact has yet to be seen.

This article appeared in the Hong Kong Economic Journal on March 11. [Chinese version中文版]

Translation by Julie Zhu

– Contact us at [email protected]

JZ/JP/CG

a columnist at the Hong Kong Economic Journal

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