Demographics under the spotlight, by country has been saved
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With demographics creating a rich tapestry of challenges and opportunities, it's important to take a closer country-specific look to uncover shared trends and collective insights across the Asia-Pacific landscape.
In this edition of Voice of Asia, we asked each country to look into three key questions to bring their own voice to the topic of demographics:
China’s population is ageing. That is not only because we are living longer, but also because there are fewer young people—the next generation of workers—in the country. This is why the government recently decided to do away with the one-child policy and has even encouraged discussions to encourage women to have two children, an attempt that has had only limited success so far, with the birth rate rising from below 1.5 in 2000 to just 1.57 in 2015.1 Indeed, sharp declines in the number of young adults across the last decade may have led to the labour shortages that have been felt by the manufacturing sector in recent years.
Rising labour costs have also resulted in the migration of some industries to less developed countries (such as Indonesia and Vietnam), as well as a continued drive to automation and strong demand for vocational education.
In general, these demographic trends will favour services and weigh on the manufacturing sector. From the government’s perspective, China must retain its advantages in the manufacturing sector—advantages that are increasingly built on the back of first class infrastructure linked to an educated and productive workforce.
In addition, in common with much of the world, the generations born after 1990 show a much higher propensity to consume, rather than save, due to lower aversion to credit and a greater acceptance of digital payments. It will be impossible to truly understand China’s growing consumer spending without appreciating its confident young consumers, whose audacity of spending has provided a floor to growth against the backdrop of economic moderation. The policy implication is clear—China does not need to have another stimulus in order to cushion potential sharp slowdown. For companies that are targeting Chinese consumers, those who were born after 1990 are a force to be reckoned with.
These demographic changes are also underpinning demand growth in the health care industry, with citizens becoming more health-conscious and therefore demanding better services. However, supply has lagged significantly.
On health care policies, both Taiwan and Hong Kong (where universal health care is being made available) could provide some interesting lessons. In Taiwan and Hong Kong, life expectancies (80 and 84 years respectively2) are higher than those of many developed countries, and yet, health care expenditures are well under control (accounting for 6.7 percent and 5.7 percent of GDP respectively, not much higher than China's 5.7 percent).3
Yet, even as China tries to mitigate the negative impacts of these demographic trends, policy remedies must also address the welfare of disadvantaged groups.
China’s rapid pace of urbanisation and asset inflation means that those who do not already own property have to struggle to survive in big cities. Many of these people flocked to cities as migrant workers but find they may be forced back to their villages. In addition, it is often extremely challenging for them to acquire new skills in the rapidly transforming economy.
Meanwhile, the elderly who have been left behind are in an even worse position. They get little access to public services, such as health care, and have the least amount of lobbying impact.
Migrant workers who have successfully settled in cities face challenges as well. Their children often do not have adequate access to even the basic amenities that are taken for granted by urban dwellers.
In short, while an ageing population has heightened China’s urgency to move away from the middle-income trap, certain policy remedies that are aimed at raising productivity are exposing the vulnerability of disadvantaged groups because they are less connected to education, health care, and social mobility.
Many of the changes being brought about by digital technology in China are breathtaking. In light of sharply rising labour costs, the Chinese Government is determined to move up the value chain by using robots and artificial intelligence (AI) to raise national productivity.
The rise of robots and AI will have its biggest impact by replacing jobs involving repetitive tasks rather than those involving personal interaction. This poses a particular challenge for China, whose great advances in recent decades have been relatively more focused in areas such as manufacturing rather than service sectors. Other things equal, that says the rise of machines looms larger as a game changer for China than it does for many other nations.
In the foreseeable future, continued digitisation, along with the development of robots and AI, will facilitate the further movement of workers from repetitive to innovative work.
Rapid ageing of the Japanese population has changed the needs of people and the way businesses satisfy them. While falls in population overall are a negative for demand, the Japanese experience has shown that ageing can have positive impacts as well,6 7 increasing demand for some sectors such as:
While an ageing population increases opportunities for industries that provide the above products and services, there are a number of positive impacts on the supply side, as there will be increasing need for:
The declining potential growth tends to result in looser monetary policy, but those lower interest rates—and the higher asset prices they generate—result in increasing inequalities between the asset-rich elderly and income-poor younger generations.9
Over time, that divergence can increase the younger generation’s economic dependence on the elderly, discouraging young people from getting married and starting families. In turn, this can lead to further falls in the birth rate.
Furthermore, the increasing importance of holding assets (for instance, real estate in big cities) over generating income flow tends to reinforce the division between rich and poor families over generations (though that could be mitigated by future inheritance tax hikes).
The issues created by declining and ageing populations also tend to have greater impact on disenfranchised communities, posing further risks to social harmony. Some of these problems are now being addressed, for example, by using the idea of a compact city, which means the elderly are encouraged to move from rural to urban areas.10
Demographic factors will also change the political scene. The increasingly strong voice of an older generation that accounts for the majority of votes in a democracy will limit the ability of governments to change their pension and health care systems. This may mean more intergenerational income transfer from the young to the old, or cause more consumption at the expense of investment.
Digital technology may be instrumental in addressing problems that arise from an ageing and declining population.
A prime example can be found in automated driving technology, which can address developing labour shortages in the transport sector—shortages that may arise amid a significant increase in demand for goods and services delivered through e-commerce businesses. Drone technology, already being introduced in the home-delivery service industry, can assist access to services in remote communities.
And the future may see the increasing ability of robots to care for the elderly—abilities that range from physically moving elderly bedridden patients, to stimulating their minds and providing company through AI-generated conversations and interactions. These developments can help address a lack of aged care personnel across Japan.
AI also helps facilitate the transfer of advanced manufacturing skills from experienced older workers to their younger counterparts. Some innovative companies have started to use AI to analyse the “tacit knowledge” of their skilled workers. This includes key manufacturing industries where ageing is becoming a serious problem, such as steel and machinery sectors, but also traditional performing arts and agriculture.
One of the biggest hurdles to Japan accepting more foreign workers, the language barrier, is also being addressed. Recent years have seen the development of many convenient translation applications, particularly for smartphones, which facilitates very smooth conversation between Japanese speakers and foreigners without any pre-existing knowledge of the other language.
India’s demographic dividend has been feeding growth for the last 30 years and is likely to continue to have a positive effect for some decades to come.11 The impact has not been consistent across the economy, with some sectors benefiting more than others.
At a broad level:
Additionally, demographics have ensured the creation of a large and resilient domestic sector. India is already home to one of the largest consumer bases, one that is growing rapidly in terms of both its ability and its willingness to spend.
India is one of the world’s fastest-growing economies, but it still has a high level of income inequality, primarily due to a lack of adequate growth in its agricultural sector. With a large part of the population still dependent on the sector, this has driven rapid migration from rural areas, not only putting pressure on urban infrastructure, but creating a pool of urban poor struggling with low income and poor access to services. Similarly, landless labourers, marginal farmers, rural artisans, and the communities displaced by environmental and political disturbances still struggle to reap the benefits from India’s strong growth.
If these inequalities are not narrowed, they could restrict the ability of the Indian economy to fully capitalise on future demographically driven expansion. In fact, in its Global Risks Report 2016, the World Economic Forum has identified inequality as a significant risk to global growth in this decade.12 From a policy perspective, the key requirement to enable inclusive growth (apart from employment and education) is a focus on the efficient delivery of government policies and services.
Digital India is the new aspirational India. There is a widespread focus on expanding the use of digitalisation as a tool to provide direct access to public services and as a means to generate self-employment opportunities and to spread education at a lower cost. The government is trying to push this along with its recent policy of “demonetisation,” which encouraged people to stop using cash, start engaging in electronic payments, and participating in the formal financial sector. The recent creation of a Goods and Services Tax (GST) will hopefully have the effect of boosting digitisation of tax compliance.
The private sector has also started to use digitalisation as a tool to grow sales, and more businesses are now using technology to develop niche-specific business models. A good example is the growth in hyper-local retail along with the growth in e-commerce. Both have grown because of the spread of the Internet and mobile telephony, but they have different business models. Using a digital backbone, aggregation across multiple sectors such as small merchants, urban services, logistics, transport, and even credit, is also growing in importance.
However, growth in technology also threatens employment, at least in the short run. For the IT sector, the country’s premier industry association, NASSCOM, has estimated around 40 percent of the workforce will need reskilling to stay relevant in the face of automation while 5060 percent of jobs will require new skills.13 Automation is an even bigger challenge for manufacturing sectors. There are many instances where companies have opted for higher levels of mechanisation and robotics, in sectors ranging from aviation and warehousing to automobile manufacturing. In effect, technology is seen to be replacing low-skill, routine tasks while putting a premium on high-skill jobs.
For India, changes in technology can lead to the following trends:
With life expectancy on the rise and Baby Boomers reaching retirement age, the proportion of the elderly in Taiwan’s population has been increasing. Taiwan is set to become an aged society (with over 14 percent of the population aged over 65) in 2018 and a super-aged society in 2025 when that proportion passes 20 percent.14
Longer life expectancy and high economic growth from 1950 to 200015 are increasing demand for mobility products and services for the elderly, as well as preventing and treating chronic diseases that afflict older people. Consumers have also become more health conscious, creating a demand for organic food and fitness products.
To better utilise its resources to help elderly citizens, the Taiwanese government launched a “long-term care service program 2.0,” which came into effect in 2017. It will boost the number of neighbourhood care stations to 4,529 by 2021, more than double the 2016 level. The program will also increase services provided, and try to reach more people in need via these stations.16 The program creates new business opportunities for medical solution providers to offer their services to neighbourhood care stations.
An empirical study found that from 1998 to 2006, Taiwan saw a correlation between ageing and rising income inequality. Some of this can be attributed to a decline in multigenerational families, with additional impacts due to a rise in the number of elderly households with no additional income beyond a pension.17 Without income from work, some elderly people need help from the government to make ends meet.
Pension schemes and insurance packages have become increasingly unsustainable because of the rising level of retired population compared to the working age population.18 This, coupled with Taiwan’s slower economic growth since 200019 has placed strains on the current system, thereby leading the government to amend the scheme to prevent it from collapsing. In addition to direct help to the elderly, the “long-term care service program 2.0” also hopes to empower local communities to take care of their elderly members.20
The government has set itself the goal of becoming a “digital country, intelligent island”21 by initiating policies to assist Taiwanese companies to transform themselves. This includes:
Thailand is entering a new era of slow population growth, rapid population ageing, and even probable population decline. The falls may set in by the mid-to-late 2020s, on the back of startlingly low birth rates which have been below the replacement level of 2.1 births per woman for the past two decades.27 The country is also experiencing rapid urbanisation, as more people from the outskirts move towards cities such as Bangkok, often in hopes of better employment outcomes.
These changing demographics have opened up some key business opportunities:
The changing demographic structure has resulted in widening income and socioeconomic disparities as well as an increase in disenfranchised communities. Key trends include:
The development of digital technologies in Thailand has strong government support as part of the Thailand 4.0 masterplan to develop 10 industries of the future.30 The goal is to transform the country’s traditional farming, manufacturing and small and medium-sized enterprises (SMEs) into “smart” enterprises, and to shift traditional services to high-value services. This policy seeks to promote creativity, innovation, and the application of technology in various economic activities that are also high in value-add.
Technology can help ease the gap between skills shortage and an ageing workforce. A shift towards automation and robotics will aid productivity and efficiency as manual labour gets too arduous for an ageing population. However, Thailand has to ensure that its working age population is well-equipped to handle high-tech processes. This also means considerable improvements need to be made to its current education system.
The Philippines’ population is expected to cross 120 million in the next decade, an increase of 15 million from current levels.31 However, the rate of population growth is expected to slow as birth and death rates are dropping, even as life expectancy is increasing.
World Bank data shows the Philippines as one of the fastest urbanising countries in the region, with Manila being the most densely populated urban area in the world.32 Currently, 45 percent of Filipinos live in cities, and this proportion is set to surge to around 65 percent by 2050.33 Urbanisation requires cities to improve infrastructure and transport systems to remain sustainable.
Key insights include:
A report by Asian Development Bank (ADB)35 said that approximately 400 million people in the Asia-Pacific region still experience poverty due to widening income inequality. This may decline in the years to come thanks to:
However, other risks remain. In particular, sectarian conflicts could widen the gulf. Filipino Muslims, constituting about 5.6 percent of the population, are a minority in the archipelagic nation. They are also disproportionately located in the poorer parts of the Philippines—notably in the south. In 2015, 59 percent of the population living in the Autonomous Region in Muslim Mindanao (ARMM) were classified as poor, and one-third live in extreme poverty.37 Events like the recent conflict in Marawi City make it difficult for economic development to take root properly in order to overcome poverty.
Advances in digital technology have improved the efficiency of financial institutions in the Philippines. For example, the Bank of the Philippine Islands (BPI) and BDO Unibank Incorporated have recently invested in chatbots and AI to streamline back-end processes and augment customer service.
The Philippines has latched onto the digitalisation wave and is well-poised to ride it to greater heights. The country boasts some of the largest incubator hubs in Southeast Asia and, with appropriately supportive regulatory regimes, the Filipino digital technology scene can potentially drive innovation through the region. With the recent establishment of the QBO Innovation Hub, start-ups and young entrepreneurs can utilise its resources to create a more sustainable business.
Despite being youthful in comparison to other Asian countries, with almost half of its population being below the age of 30, Vietnam’s population will undergo a gradual ageing process through to approximately 2040.
The drivers of that process are classic: The country has experienced a remarkable drop in birth rates (from five births per woman in 1980 to just two children per woman in 2016), while the average life expectancy has increased significantly, up from just 40 years in 1960 to 73 years now.38
The country’s demographic trends have provided opportunities to tap into the young, emerging middle class which dominates nearly half of the population, as well as to meet their needs in their later years.
Key insights include:
Several disparities are the by-product of changing demographics:
The digital economy in Vietnam is thriving. The country’s ICT industry and rate of mobile phone penetration is growing faster than in any other country in the region. Research has found that about 43 percent of Vietnamese learn about products and make decisions through online advertisements,40 and this has given rise to a wave of entrepreneurship including local start-ups and SMEs.
With the country’s emerging young population, this trend will only increase in the future. Furthermore, the government aims to make Vietnam the world’s factory. The country will have to build more infrastructure and improve its business operations, especially in the manufacturing sector. Automation will benefit manufacturing in the face of an ageing workforce, particularly as younger workforce turns towards ICT, e-commerce, and start-up activities.
Malaysia’s total population is expected to grow by more than 75 percent, from 19 million as recently as a quarter of a century ago to nearly 34 million in 2022. The population aged 65 and above is projected to more than triple over that time, from 700,000 to over 2.5 million, and to reach 7.5 percent of the total population. This highlights the need for Malaysia to improve health care options to accommodate the aged.
Key trends include:
Additionally, the growth of the Muslim population means there is the prospect of significant growth of the Halal industry to provide food that meets religious requirements. The Halal Industry Development Corporation (HDC) has forecast the global Muslim population will increase from 23 percent to 27 percent in 2030,41 creating business opportunities for the industry, while the government has adopted the Halal Industry Master Plan (HIMP) to expand capacity in this sector over the coming years.
Based on measures of gross household income (including both rural and urban areas) Malaysia’s level of inequality has decreased over the past decade.42 Key insights include:
Deployment of robots in Malaysia increased about 8 percent annually from 2010 to 2015, according to the World Robotics Report.46
A case study of a local apparel manufacturer suggests it could increase its production volume by as much as 300 percent by automating its operations, avoiding the hiring of an additional 100 workers and reducing defect rates by 80 to 90 percent.47
Singapore is already grappling with a rapidly ageing population and an extremely low birth rate. United Nations population projections suggest the number of Singaporean citizens aged 65 and above will more than double to 1.5 million in the next 15 years, and the government has suggested Singapore will age more rapidly than any other society in the world.48
This is likely to drive growth in the following industries:
The demographic changes discussed above may worsen income inequality (which remains high in Singapore despite falling from a peak in 200749) and wealth inequality (which is rising).
Key insights include:
Faced with a rapidly ageing and shrinking workforce, Singapore has turned to technological innovation in a bid to boost productivity and economic growth. Automation, intelligent machines, and data analytics can allow firms to cope with decreasing numbers of available workers and raise productivity.
However, the adoption of new digital technologies and disruption of existing industries threatens many workers if they are unable to continually adapt and pick up new skills. In an attempt to help the workforce cope with these developments, the government has launched the SkillsFuture initiative to help workers pick up new skills and take advantage of new technologies and the new jobs created.
Indonesia is set to benefit from the “demographic dividend” over coming decades, where increasing life expectancies and falling birth rates produce an increase in the working-age population and relatively fewer dependents than in previous generations.
The proportion of working-age adults is estimated to remain relatively stable at about two-thirds of the total population, which is higher than neighbouring Association of Southeast Asian Nations (ASEAN) economies such as Thailand or Singapore.
Indonesia also faces the fastest rate of urbanisation in Asia, but has so far under-invested in its cities. Many urban communities lack access to safe water, sewer systems, and public transportation, and the resultant congestion, pollution, and disaster risks are holding back economic growth in Indonesia.
These trends are likely to drive growth in the following areas:
Indonesia has one of the highest levels of income and wealth inequality in the world, and the concentration of wealth is also rising faster than in other countries, as the economy continues to grow at a high rate. These trends will likely have the following impacts:
Internet and smartphone penetration rates remain low in Indonesia compared to other ASEAN economies, such as Malaysia or the Philippines, and the country continues to lag behind in the adoption of digital technologies in the workplace, such as cloud computing, AI, and big data.52 Even though Indonesia does not face the problems of an ageing and shrinking workforce, digital technologies create great opportunities for Indonesia to raise productivity levels.
Furthermore, Indonesian’s relatively youthful workforce gives it a significant advantage in adapting to the technological changes that are likely to arise as digital infrastructure in Indonesia catches up with the rest of the world. The increased utilisation of digital technologies in Indonesia will allow it to maximise the economic growth generated by the coming “demographic dividend.” Indonesia will, however, have to make concerted efforts to improve higher education to truly drive growth through digitalisation.
Australia has long benefited from the industrialisation of China and India, selling resources to their rapidly growing economies. Now it faces up to the need to transition its economy to ensure future prosperity.
Many of the key areas that may drive Australia’s coming growth successes were examined in Deloitte’s Building the lucky country: Positioning for prosperity,53 and three of these in particular are linked closely to demographic trends in the region:
Australia has long recognised the risks from demographic ageing—the 2002 Intergenerational Report55 examined the long-term impacts that these trends would have on government health expenditure, as well as the supply of labour. Since then, large inflows of (typically younger) migrants to Australia have slowed this process and offset the impact that the start of the retirements of the Baby-Boom generation might have seen.
Yet, that growth has led to its own problems: As overall population growth rates increased, Australia began to find itself struggling to build the infrastructure required to deal with the rising population as well as surging property prices in the major population centres of Sydney and Melbourne. Combined with weak wage growth, a general surge in populist political sentiment has begun to put pressure on the government to curtail immigration.
The impacts of digital disruption across all sectors of the economy has long been anticipated by futurists, but the past couple of years have seen this coming change begin to impinge on mainstream discussions. Early effects—for example, the rise of on-demand car services and the demise of print media—are now being eclipsed by the rise of automation across a number of industries.
While a strong adopter of technology, as well as a key developer, with Australia’s CSIRO being the creator of the now-ubiquitous WiFi technology,56 Australia is still grappling with the scale of infrastructure required to run new digital industries. The construction of the nation’s National Broadband Network, a system to improve connection speeds nationwide, is continuing.
By taking a bird’s eye view across Asia Pacific, these country-specific spotlights paint a powerful picture of the trends, challenges, risks, and opportunities of demographics.
The time for planning, preparation, and innovation is now. We all have a role to play in harnessing the data, insights, and analysis of demographics to cultivate and shape the future of tomorrow.