Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Retirement Fears in China Ageing Economy

Economics / China Economy Oct 07, 2015 - 02:15 PM GMT

By: Rodney_Johnson

Economics

The current economic mess in the developed world is easy to explain and hard to fix.

This is a demand-driven downturn, where aging populations choose to save more of what they earn, take on less debt, and generally rotate to a risk-averse world view.

The change isn’t new. It happens to almost all of us as we get older.


The difference this time is that the aging generation is so big compared to other generations, that their actions take on outsized importance.

There aren’t enough young people to drive our economies higher. Empty-nesters don’t spend as much because they want to pad their income in retirement. State-sponsored pension programs aren’t typically generous, so this makes sense. As these people spend less, domestic consumption slows down, dragging GDP with it.

While this storyline applies to many countries, one of the hardest hit is China.

Its working-age population is shrinking because of the one-child policy from the late 1970s, and aging workers are fearful that they will be destitute in retirement.

They have good reason to be scared.

The Chinese Social Security program is set up nationally, but funded and administered in the provinces.

Employees of private companies are required to contribute 8% of their pay and their employers kick in as well. After a minimum of 15 years of contributions, workers can retire at age 60 for men and 55 for women and start claiming their benefits.

What they will receive differs by province and location (urban versus rural), but a typical urban private sector employee is expected to receive 40% of his salary.

That might sound alright, but it puts many retirees under the poverty threshold.

In addition to worrying about how much they receive, like retirees around the world relying on state programs, aging Chinese must also worry about whether or not their funds even exist.

With several hundred billion dollars in surplus, the excess pension funds are supposed to be invested in a mix of mostly bonds, with a little bit of equity as well.

However, many provincial governments have taken the liberty of loaning the funds to their own coffers for building projects and other uses.

If the loans to the local governments don’t pay off, then what? Do the citizens demand a tax hike on themselves? Will the national government step in and make the programs whole? No one knows.

Worried about how much they will receive and if the funds are even available, the Chinese save… a lot.

From 1990 to 2010, the personal savings rate of disposable income shot up from 15% to 30%. In the U.S., that rate sits just under 5%.

Saving is great for a person, or a household. But when large swaths of the population are socking away cash instead of spending it, the economy suffers.

The Chinese economy has long relied on capital investment (domestic building projects) for growth. As GDP exploded, this sector grew from 35% of GDP in 2000 to 48% in 2014, according to the World Bank. Exports fell slightly from 23% to 21%. But household consumption dropped from 47% to 36%.

With domestic building slowing down and exports falling, the Chinese government wants consumers to pick up the slack.

Unfortunately, they are running headlong into the problem of individuals preparing for their own retirement.

Like I said, the problem is easy to see, but hard to solve. If the government greatly increased the level of pensions, then perhaps consumers would spend more today, boosting economic growth.

But there’s no indication that the central government wants to make such a commitment. They could institute a wealth tax, more or less confiscating unspent funds and funneling it to retirees in the form of higher current pension payments, but that might lead current workers to save even more.

One of the few real solutions is a growing labor force, which would mean more workers and therefore more overall spending.

Unfortunately, that’s nowhere in the cards for China.

Of course, the current situation doesn’t apply equally to all Chinese retirees.

While private sector workers pay in 8% and receive around 40% of their salary, government workers have a different deal. They pay in nothing, and retire with pensions up to 95% of their final salary.

Maybe the solution is to have everyone work for the government.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2015 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules