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Under the Banyan Tree – China's silver spenders
447 Plays12 days ago
Herald and Fred dive into the world of Chinese demographics, discussing the effects of an aging population on spending trends and the wider economy.
Click here for appropriate Disclosures, including analyst certifications, and Disclaimers that must be viewed with this podcast: https://www.research.hsbc.com/R/101/ztJvBkx
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Transcript
Introduction to HSBC Global Viewpoint Podcast
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Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
Asia's Demographic Trends: China's Aging Population
00:00:33
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Hello from Hong Kong and welcome to Under the Manyantree where we put Asian markets and economics in context. I'm Fred Newman, chief Asia economist and with me as ever is our head of Asian equity strategy and our resident demographics guru Harold van der Linde.
00:00:48
Speaker
Thank you for the introduction Fred. We are indeed talking demographics today. Asia's top economy, mainland China is aging. Well, That might not be newsflash to most of our listeners, but it's worth revisiting this because within that fact, the demographic goalposts are shifting all the time.
00:01:05
Speaker
That's right. We've got a population of over 60-year-olds in mainland China that's set to double in the next 10 years. And that means changes for the entire economy. If you want to know what that could look like, you've come to the right place. From HSBC Global Investment Research, this is Under the Banyan Tree.
00:01:22
Speaker
Let's start with a big picture on China's aging economy. To keep things simple, the population of 65-year-olds and older is growing at a substantial rate, while the group below 65 is actually shrinking. And when it comes to spending, that has massive implications. Indeed, a so-called silver economy in China could be worth as much as 45 billion RMB by 2035. That's about 6.5 billion US dollars. That would account for almost a quarter of China's annual
Economic Impact of China's Aging Demographics
00:01:50
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GDP. So, Harold, that's the big picture. um Let's look at this a bit more detail. What can you tell us about how exactly China is aging?
00:01:59
Speaker
Yeah. So, I think maybe let's put this a little bit in a context. We're now having a group of people, and just put a number to this, it's about 200 million people. That's going to go to close to 400 million people in the next 10 years. So, there's a large number of people that move into their 60s.
00:02:16
Speaker
These people were born in, say, give or take, the 1970s, late 60s, 1970s. They came from university in, say, the early 1990s, mid-1990s, just when China opened up, early 2000s. They had a career.
00:02:32
Speaker
Some were engineers. Maybe some had a restaurant. All sorts of businesses that suddenly did very well. So this is the first time in the long time for China that we have pensioners that have been able to save and make money over their whole career, their whole lifetime.
00:02:45
Speaker
Why is that important? Well, initially what these people did is buying TVs and a car, you buy a house. Then when they moved to their 40s, it was more about the education of their children, upgrading their facilities, housing and these sort of things. But now we're seeing as that group of people moves into their 60s, yeah, it's going to be different sort of spending. So really what we're talking about here is that there's a demographic bulge moving through the population in terms of age. So these were people who were young people coming out of university in the 90s. These a big cohort of people then kind of joined the job market. They worked. They enjoyed China's success. And you're saying now they're in late 50s, maybe approaching 60. They've amassed quite a bit of wealth at least compared to their parents. Absolutely. And that is a large group, 400 million. That's a pretty chunky part of the population. That's a very chunky part of the population. And there's one estimate by an aging institute at one of the Chinese universities that says that by 2000, think it was 2035, yes, that this could amount to about 23 to 25 percent of the total economy. So what they spend on companies that invest in businesses that are related to this could be quarter. So the money that cohort spends could be a quarter, say, of economic spending coming through. We want to unpack this a little bit. What does this mean if you then look at overall spending pattern? Does that mean demand for healthcare is going to go up? Does that mean demand for maybe travel is going to go up because these are people who no longer have spending obligations they have – the kids have moved out of the house. They still have some income. And that how to think about it? Like the change in spending patterns? So I think you see that change in spending patterns, a difficult word for me to pronounce seemingly, change in that spending pattern. Yes, healthcare is more important for them. Travel, leisure is more important for them.
00:04:47
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But what we also see, for example, we see this in the luxury market. Well, if you're over 65, your children are now working. 10, 15 years ago, you still needed to get your children through college and had to pay for them and these sort of things. So very often when they had money, they said to their children, why why don't you spend this or you buy something? But now these children are in their 30s, might have their own children. They don't have to spend on them anymore.
00:05:10
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So they can spend on themselves. So what we see, for example, in the luxury market is that overall luxury in China is not overly exciting. It's not doing so well. But in high end, it is actually doing really well.
00:05:22
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At the low end, it's not. At the low end is where their children would normally spend. At the high end is where the 65-year-olds sit. So that spending in the luxury market is bifurcating. You see this in this market. We might see this in other markets over the years as well because they've always been safest, right? So that's in the – almost like the DNA. But they have – they got loose pocket money. That's right. But let me relate this to one of the challenges that we see in China and that is that the real estate market is not doing well. We don't have really good public pension systems. There are public pension
Elderly Spending Patterns and Real Estate Concerns
00:05:55
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systems but they don't pay out as generously as in other countries. And so for the overall Chinese consumer, actually the decline the real estate market has deterred spending. And you would think that people in the late 50s when they worry about retirement and they see their wealth decline because the real estate market is declining, is that kind of a break then on their spending or do you think that the loose change in their pocket still means they're going to go out and have a good time? No, I think they have the loose change, but they're not going to be big spenders. They're going to be very selective spenders. I also think that might eventually impact some industries, but let's say take it step by step. So they're sitting on enormous amount of cash exactly for the reasons you mentioned, right? They were going into retirement. They know that the pension system, to a deal. just a couple of hundred RMB a month or something, that's not going to make big change. So what have they done is hoard cash. There's an enormous amount of cash. We've spoken multiple times about this in this podcast. Part of that, they can simply spend.
00:06:54
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They have another, if you're 60, 65, you can assume you've got another 20, maybe 25 years to So you need to wind that down. But they're not really doing that. We know that consumption overall is not rising in China. So they're not, they continue to sit on this cash. So a bit more spending coming through because of that aging cohort that has bit more
Growth in Healthcare and Elderly Care Sectors
00:07:16
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cash to spend. But what industries are relevant then that context? Because you have aging population that presumably means more demand for health care. Yep. Less demand for education perhaps. But it might also mean people travel more. You mentioned that there's a desire for travel. It's more free time. Exactly. If you're in your early 60s and you're still healthy, travel is an option. Maybe if you go into your 70s and 80s, maybe that becomes less of an option.
00:07:44
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So travel will be big things or this will be impacting hotels. We already see this. We see this in domestic travel, international travel. So that's one thing. Healthcare, care obviously, you get older, you need to spend more on healthcare. But also think about, for example, something that is clearly lacking still in China is high-end elderly care.
00:08:01
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So if you're going to your late 70s and you can't live on your own or maybe with the two of you anymore, you're And you have money to burn, you're not going to be price sensitive. So elderly care, housing, but really good quality stuff that is now popping up here and there in China, but not to a large extent. And insurance companies step into this. They say, well, you know, we we can do a business here because we have insurance packages for these people. So we can actually control their spending and help them out. So we see that financial institutions sometimes step in to start to do this. Right. I think that's that's a great reminder that even an economy that is not necessarily growing as rapidly as it has in the past, we should always be mindful of these underlying shifts within the economy. And maybe this is a great time to take a quick break. And when we come back, I want to ask you about the geographical impact of this because we always think of China as one big economy. Where exactly would that show up?
00:08:54
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That's an interesting question.
00:09:05
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Welcome back, everybody.
Migration to Tier Two Cities and Economic Boost
00:09:06
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So we're talking about the impact of demographic aging on spending patterns in China. And in Harold, I want to ask you, in the U.S., the aging of population has been great for Florida and some of the southern states because people move to the Sun Belt.
00:09:21
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Is everybody in China moving to Hainan Island because they're getting older and they want to get into the sun? is that Is that a pattern? Is there geographical impact of this aging population and these kind of... that the cohort has more money to spend. Are they moving south? It seems Hainan Island may be a very specific issue, but yes, there is more travel going to Hainan Island. It's a nice, warm, subtropical island and just south of China. So that's where people do go to. That's right. But there's a much more important trend taking place.
00:09:49
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The Chinese government over the last years has decided to try to promote the rise of industries such as solar and wind and and EVs and you name it. in so-called tier two cities. So not in Beijing and Shanghai, but in further inland, if you want to put it like that. What are some of these these cities? where where we call it Hangzhou, for example. Hangzhou is maybe tier one even, but yeah but it would be something like Hangzhou. There's a very large R&D centers and and tech companies ah are there. But you have Zhengzhou, for example. You have ah whole provinces, Hubei and Hunan, for example, in right in the center of China, where there's all sorts of industries growing as well. Now, what is now interesting is that If you're a young engineer, let's say you ah you've studied electrical engineering and you get a job in an EV company or a solar company, right? So you would move there because that's where the jobs are. What do your parents do? They're now retired. That's the folks that we talk about. They say, listen, we're going to move there as well because our grandchildren is there. We love to take care of the grandchildren while you are busy doing your work or you need to do something else.
00:10:51
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And it's more affordable for us there. The money that we've saved is, you know, Shanghai and Beijing is expensive. So why don't we go there? So we see a migration there. And the interesting thing is we're now seeing this in the retail stats. For example, last year, overall retail sales in Beijing and Shanghai were flat to down. But in these tier two cities, it was up 4%. So there is a shift geographically as well. a new sort of Florida, if you want to put it like that, is emerging, but then more in the center of the world. Maybe this is – we often talk the parallels between Americans and Chinese. Usually we talk about how similar the two nations are. But maybe in the US, parents want to move away from their children to Florida. Whereas he's saying in China they're moving with their children. Yeah, no. Well, that's the explanation that we've put into this because we just see this migration. And we've assumed that they want to take care of their grandchildren. But yeah, that seems to be the case set at the moment.
Conclusion: The New China Consumer Report
00:11:46
Speaker
Yeah. yeah and Harold, I think this is fascinating. It's a great reminder also. It's not just about the aging itself, changing spending patterns, but also it's a continental size economy. And we talk about stagnating growth overall maybe, but we have – Certain areas of the country are still booming, actually doing quite well. and Others, of course, are lagging. Just as we think of Europe is not one economy. U.S. is not one economy. China also has these pockets of world. Absolutely right. this And this is, of course, as an equity strategy, it's easy to do because you're going to look at companies. But yes, this impacts the insurance companies. and and other financial companies and the the ones who provide health elderly care, maybe human-eyed robots and these sort of things that these people are going to use. So this will impact many industries, not just the retailers or the the healthcare care providers. And so there's a lot of moving parts in China, although the overall number suggests growth.
00:12:39
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Growth is coming down. There's there's actually more dynamic and changes taking place than than what you see see sometimes see at the surface. Well, Harold, another excellent discussion here under the Banyan Tree. And I believe you've got a report out on this topic if people want to read about this in more detail.
00:12:57
Speaker
We do indeed. It's called the New China Consumer. Silver Spenders and our clients can find it on the research app or website. You can also subscribe to Under the Banyan Tree wherever you get your podcasts. But if you're listening to this, there's a pretty good chance you already know that.
00:13:11
Speaker
Under the Banyan Tree is an HSBC Global Investment Research production. Our producers, Graham Mackay, take care and we'll talk to you again week.
00:13:55
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.