Why Hong Kong must keep an eye on China's shifting demographics

Four implications for Hong Kong economy.

China’s demographic dividend is starting to run out, notes HSBC.  According to projections by the United Nations Population Division, China’s workforce will start contracting from around 2017. Not only that, but by 2025 the proportion of people aged 65 years and over in China will jump from 10% to 16%.

HSBC warns that this has long-term implications for China’s growth and consumption patterns. As the dependency ratio rises, the IMF forecasts that age-related spending will rise by 4.1 % of GDP in China in the next 18 years.  

"From a growth perspective, China should be able to offset the impact of this ageing trend by accelerating the process of urbanisation and shifting jobless and underemployed workers to urban areas where they are most needed.

There is still considerable room for labour productivity to improve. It is often forgotten that 80% of the country’s remarkable growth between 1978 and 2004 was driven by rising productivity rather than expansion of its labour force, said HSBC.

HSBC notes that China’s dwindling demographic dividend and the accelerated pace of urbanisation have four implications for the Hong Kong SAR:

 As urbanisation progresses, China’s demand for workplace innovation to enhance efficiency and improve urban living standards will grow. The average worker’s propensity to consume should also increase as more people move from rural areas into the cities.

 Positive wage growth in China is here to stay, which will strengthen the purchasing power of the average mainland worker for years to come, along with their ability to travel. Total additions to the workforce may be smaller, but workers’ share of new wealth creation should be higher. This, on balance, should strengthen the purchasing power of households, including those supporting non-working dependent children and elderly family members.

 Mainland demand for healthcare and other old age-related services and products will rise.

 Only 30% of China’s working population has pension coverage (compared to an average of 92% in Western Europe)2. With a minimal social welfare safety net, China’s state and private pension systems will need to be dramatically expanded and upgraded in the coming years.

In all four of these areas the Hong Kong business community arguably possesses some of the world’s leading expertise, and should benefit accordingly. This is provided that it does the necessary homework to understand the intricacies of each opportunity and tailors its services to fit different areas of China’s demand.