Transcript
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Speaker: Welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
Speaker: I'm Fred Neumann, Chief Asia Economist here at HSBC.
Speaker: And I'm Harold van der Linde, Head of Asian Equity Strategy.
Speaker: Good to have you with us.
Speaker: If economics is your thing, you probably know that here in Asia, we have the world's most rapidly aging population by a long shot.
Speaker: Now that presents some big challenges, but today we're going to look at both sides of the argument, the positives and the negatives.
Speaker: That's right, it's not all doom and gloom when it comes to demographics.
Speaker: There can be an upshot to aging if you look beyond the headlines.
Speaker: That's what we're gonna do right here and now under the Banyan tree.
Speaker: Fred, we've got some pretty staggering statistics on aging in Asia.
Speaker: Have a listen to these.
Speaker: The population of Korea is predicted to shrink by 30% in the next 50 years due to aging.
Speaker: And in Japan, 30% of the population is 65 years or older.
Speaker: That's about three times the global average.
Speaker: And in the next decade alone, China is predicted to lose 100 million workers from its labor force.
Speaker: Now, you and I both look at demographics.
Speaker: If you read the newspaper headlines and these statistics be thrown around, it sounds like the world is coming to an end.
Speaker: The economy is going to be flat on its face.
Speaker: It's all over.
Speaker: Let's just move to Mars.
Speaker: Yeah, that's right.
Speaker: Turn the lights off, if you will.
Speaker: Well, the last person, turn the lights off.
Speaker: Yes.
Speaker: Look, my colleague Enos Lam and myself, we published this report on aging because it is well known, as you say, that Asia is aging.
Speaker: But we often forget the scale of this.
Speaker: It is the fastest aging process.
Speaker: region in the world.
Speaker: And it's happening with such speed before our eyes.
Speaker: So we wanted to put some numbers around this.
Speaker: And here, hear me out.
Speaker: Here's a couple of numbers.
Speaker: Over the next 10 years, on average, the aging in Asia will reduce GDP growth by one percentage point, which is not small.
Speaker: It's a full percentage point reduction.
Speaker: Yeah, you go from four to three.
Speaker: So that's actually a massive decline.
Speaker: That's a massive decline.
Speaker: And it's not just happening in Japan, as we well know, it's a very aging society.
Speaker: In fact, Japan is the least affected by this because it already went through that process.
Speaker: It is actually happening across mainland China, of course, but it's happening across Southeast Asia, South Asia.
Speaker: It's happening in all of these economies.
Speaker: It's just that North Asia is deep in the process and Southeast and South Asia is, I mean, aging is really something that is decades away, right?
Speaker: It's still fascinating.
Speaker: It's decades away, but interestingly, we also find that India is impacted by this.
Speaker: Now, because even in India, the population is still expanding, but it's expanding at a slower pace than before.
Speaker: And so there is a reduction in growth.
Speaker: It's manageable.
Speaker: I think in Indonesia, it flattens out already the population quite soon.
Speaker: It is.
Speaker: And Thailand, for example, it's already shrinking.
Speaker: Yeah, Thailand is aging.
Speaker: Thailand is aging very, very rapidly.
Speaker: Yeah.
Speaker: Now, the other thing, of course, is not just reduction in GDP growth because we have fewer workers around, but you also have a lot of strain on fiscal resources.
Speaker: So again, a number we came up with is that on average, the fiscal spending on pensions and on health care will go up by about 2.4 percentage points off GDP.
Speaker: That is a very large number considering that, say, the entire
Speaker: The higher amount that India spends on public investment this year is 4.5% of GDP.
Speaker: So this is almost half that.
Speaker: Half of the spending on infrastructure in an economy like India would be on extra health care spending, pension spending, etc., which, of course, we want to spend because people are getting older, but it's not necessarily something we'll add to the productive potential.
Speaker: No, there's productive potential I want to talk about, Jack.
Speaker: You and I came from the universities in the previous century, right?
Speaker: We were excited to have Word and Excel or have a computer.
Speaker: We still use things like a Casio hand calculator and these sort of things.
Speaker: But the people that come from the universities now...
Speaker: These people are much more productive than we are, much better ingrained in technology.
Speaker: So isn't there this productivity argument that you have fewer people, but hey, they're much more productive, these new kids on the block?
Speaker: There is, of course, an offset there, right?
Speaker: So if we can make the population individuals more productive, then we can offset some of that drag.
Speaker: And so the 1% percentage point reduction I mentioned in terms of GDP growth, of course, assumes that there's no gain
Speaker: and productivity.
Speaker: This is an all-else equal kind of analysis.
Speaker: Now, it is true if we improve productivity, then we can offset some of that drag, but we need to make sure we invest in education.
Speaker: We need to invest in
Speaker: in expanding educational opportunities to actually bring up these educational standards.
Speaker: Because let's face it, if we all study art history, it's not going to do anything to productivity.
Speaker: We need engineers.
Speaker: We need people who are actually driving the productivity forward.
Speaker: Nothing against people who study art history.
Speaker: I think that's a wonderful occupation.
Speaker: But in the economic sense, we need to really focus on what type of education we have.
Speaker: And also in places like India, for example, the literacy rate is still very, very low.
Speaker: So I'm going to make an argument.
Speaker: I mean, this is slightly creative that maybe we do need more art history students because aging means people have different consumption patterns.
Speaker: Right.
Speaker: So older people will travel more, will visit musea.
Speaker: And they need tour guides or museum directors, right?
Speaker: So, of course, I'm overdoing it a little bit here.
Speaker: But there is, of course, also shifts in consumption and how people spend their money and these sort of things.
Speaker: I mean, we've seen this in China before COVID.
Speaker: And I think we're still there that people are spending more on experiences and travel and better quality product.
Speaker: It's just that the downturn in China has delayed these sort of things, premiumization.
Speaker: I would totally agree with that.
Speaker: Having more art history majors would improve the quality of life, particularly for an aging population who has more free time.
Speaker: The question is, can the individual art historian be more productive?
Speaker: Have larger numbers of people that they rush through museums, can they be more productive?
Speaker: And the problem is with some occupations, it's very hard to improve productivity, particularly for an art historian.
Speaker: There's only so many people who can rush through museums
Speaker: a museum.
Speaker: But an engineer can of course be much more productive.
Speaker: That I agree with.
Speaker: Okay, but then I have a counter question right here.
Speaker: So the example of an age society is Japan, right?
Speaker: So I think in Japan, the number of population, you can almost count it by the hour how quickly it falls, right?
Speaker: So you would think that, particularly if you then take these sort of headline newspapers as a guidance, you think, well, the Japanese economy is flat on its face.
Speaker: But isn't per capita GDP in Japan, isn't that holding up reasonably well, actually?
Speaker: It is holding up reasonably well if you measure it in yen terms.
Speaker: If you'd measured it in dollar terms of late, you wouldn't have necessarily gotten an improvement because, of course, the yen declines.
Speaker: So that's one thing.
Speaker: But you should actually look at it in yen terms, right?
Speaker: Because it's a Japanese person who then, how much yen does he have?
Speaker: And therefore, can he spend and these sort of things, right?
Speaker: That's right.
Speaker: One of the issues, though, is the sustainability of that.
Speaker: The reason why per capita income has increased in Japan for all this time, because we had enormous fiscal deficits that allowed living standards to keep improving, even though the population was shrinking.
Speaker: And so there's perhaps a little bit of living on borrowed time, if you will, because you're taking that future consumption and you're spending it.
Speaker: Today, that's why Japan, yes, has done remarkably well despite its demographic headwinds, but the question is still, is that sustainable?
Speaker: But of course, it's not all negative.
Speaker: And I know you were the first thing to say that, because Harold, I know you.
Speaker: What's so good about aging?
Speaker: Yeah.
Speaker: So I'm going to make a counter argument here that we think wrongly about aging or that we should.
Speaker: And it has nothing to do with the fact that you just crossed a 50 threshold and are heading in that direction.
Speaker: Ah, it's a pity that you brought that up.
Speaker: Okay.
Speaker: Yes.
Speaker: No, but I think we have to think slightly differently about aging in two ways.
Speaker: First of all, let's look at the direct positive benefits because that's what you asked me.
Speaker: So older people tend to be wealthier.
Speaker: You and I, most likely, I don't know for you, but I definitely am more wealthy than I was when I was 23 years old.
Speaker: Because, I mean, I had peanut butter and white rice sometimes for dinner.
Speaker: As a student, I didn't have a lot of money.
Speaker: Together?
Speaker: Yeah, yes.
Speaker: It actually works.
Speaker: With a little bit of spice around it.
Speaker: But anyway...
Speaker: But I don't do that anymore because I have a bit more money.
Speaker: I've accumulated wealth.
Speaker: And that's the story.
Speaker: As you age, there is a wealth effect as well taking place.
Speaker: And we can see this in Asia, right?
Speaker: I mean, pension funds in Korea, life insurance funds in Taiwan.
Speaker: In China, you see the domestic funds becoming really big.
Speaker: Actually, in India, you're seeing this now as well.
Speaker: So the aging comes with a wealth effect.
Speaker: And that creates business opportunities.
Speaker: Yeah.
Speaker: And this is maybe so that's good for stock exchanges, for banks, for insurance companies, for wealth managers, etc, etc.
Speaker: Also, as I mentioned earlier, it could be good for museum directors or museums that start up because you have more people traveling around.
Speaker: So the consumption patterns are changing.
Speaker: Right.
Speaker: So that's people drink, eat, travel differently when they're older than younger.
Speaker: And of course you have the sort of mobility industries, robotics that can help people to remain mobile and these sort of things as well.
Speaker: So there are industries and sectors where this can actually be quite beneficial.
Speaker: Let me hit you back.
Speaker: I have one more poster point, but you go first.
Speaker: No, let me hit you back on that because it also creates, I agree with you, some opportunities, but also some really fundamental structural changes that are problematic.
Speaker: For example,
Speaker: China's real estate bubble just burst, and we all know this.
Speaker: And part of the reason is not just that the government tightened things up and wanted to squeeze that bubble out of existence, but it's also because of demographics.
Speaker: Because the largest cohort in China at the moment, if you look at population pyramid, is people in their 50s by quite a large.
Speaker: Empty nesters, yeah.
Speaker: Well, yeah, there were empty messes in the 40s when you started writing about it.
Speaker: Now we're 10 years later and they're in the 50s.
Speaker: My empty mess story is coming over to an end.
Speaker: It's aging.
Speaker: Yes, like yourself.
Speaker: But anyways, so one of the reasons why we see this turning point in Chinese housing is because the majority of the population, at least in terms of the largest cohort, is now moving to the 50s with a very bottom apartment and they don't necessarily think about buying another one.
Speaker: And so the demand for housing actually declines.
Speaker: And so
Speaker: The industry is geared towards this tremendous growth, suddenly is realizing, oh, we don't have it.
Speaker: And that brings me to my second point.
Speaker: But before I'm going to bring that actually up, because these people, we need to take a break.
Speaker: But these people, of course, in the 50s, they will do upgrading.
Speaker: They might say, I'm not going to buy another apartment, but the children are gone and they might want to have, I don't know.
Speaker: a massage chair in their living room or do something else, right?
Speaker: So that is sort of a different sort of demand might come from that again.
Speaker: So there will still be opportunities.
Speaker: But there's a second point I want to make.
Speaker: But first, we take a break.
Speaker: Okay, welcome back everybody.
Speaker: Harold just teased that he had a second point to make.
Speaker: I already forgot about the first one, but Harold, what's your second point?
Speaker: Yeah, so I could actually repeat the first one and you think it's the second point, but it doesn't matter.
Speaker: I think there's a second point to be made.
Speaker: We think very often in markets about demographics as something that is bad.
Speaker: something that is aging is bad or all these sort of things, right?
Speaker: The opposite, by the way, doesn't always work either.
Speaker: We don't want necessary more babies.
Speaker: That doesn't help the economy either until you wait for 20 years and they become productive.
Speaker: But my point is actually that maybe we need to shift this a little bit around.
Speaker: It is like the weather.
Speaker: You could say rain is bad.
Speaker: There are different opinions about rain.
Speaker: A farmer might say, I don't think rain is bad.
Speaker: Some rain is pretty good.
Speaker: But I don't like rain if I go walk home or take the bus or the MTR back home.
Speaker: But if I like it or not, it's irrelevant.
Speaker: What I need to do is I need to prepare myself for the situation by, for example, having an umbrella.
Speaker: So it is maybe with demographics.
Speaker: So the demographics is something we can't really change.
Speaker: You and I, Fred, unfortunately, will get older.
Speaker: And that's what it is.
Speaker: But we need to change our society in order to deal with that.
Speaker: That means, for example, if we want to have higher birth rates, we have to listen to the people who are 23 years old and wonder what they want in order to get more children.
Speaker: But also aged people, we need to think about what can we do in order to keep you mobile and these sort of things.
Speaker: And I think very often in our societies, this is a bit philosophical, I know, we are very much stuck on this is good, this is bad, aging is bad, and these sort of things.
Speaker: We need to make it simply good.
Speaker: And we need to come up with the ideas to make it good.
Speaker: And that could be all sorts of things, like museum directors, maybe.
Speaker: Yeah, I think what we're getting at here from an investment perspective and economic perspective is that you don't just have, from a growth perspective, you have a reduction in growth.
Speaker: And that's always a headwind for markets because we like growth.
Speaker: But what you're hitting at, I think, is that along with the reduction in growth comes a transformation in the economic structure that opens up opportunities.
Speaker: Yes.
Speaker: The opportunity being, for example, you mentioned wealth management.
Speaker: But what about health care?
Speaker: Health care demand must be going through the roof.
Speaker: Is that a big sector in Asia that investors can potentially look at?
Speaker: It's a growing sector.
Speaker: And what you see is that certain countries are responding to this.
Speaker: So in Thailand, they have medical centers set up that people even in here in Hong Kong go to because they think it's cost efficient and good quality health care.
Speaker: And they're willing to travel there and stay there for a weekend, get a health checkup, these sort of things, or surgery, right?
Speaker: So certain countries are responding to this.
Speaker: And this is my bigger thing, actually.
Speaker: We shouldn't just think this is bad aging.
Speaker: We should look at how can we make this good.
Speaker: And health care is a nice example.
Speaker: But I think if we sit out here a little bit longer, we can come up with more ideas.
Speaker: I'll give you a nice example.
Speaker: A Japanese company...
Speaker: a telecom company bought quite recently a convenience store operator in japan that company is a strange sort of acquisition telecom company why would they buy a convenience store what is happening in japan is that all the people a lot of them live alone because their partner has passed away
Speaker: They go to the convenience store, not just to buy their daily product, but also as a sort of social meeting point with other people who are also alone and do these things.
Speaker: And older people struggle with telecom because on their phone, they don't know which button to press and subscribe to things.
Speaker: So what has that company done?
Speaker: It says, we're going to buy these convenience stores because we can get closer to our consumer.
Speaker: And I think that's a really original way of thinking about how aging can impact your particular business, in this case in Japan.
Speaker: So I think we've got to look at all these examples that we just mentioned and say, can we actually implement that and therefore generate some growth to offset that decline that you're talking about?
Speaker: That's a great example of how companies need to adjust.
Speaker: Those who do, of course, can continue to thrive.
Speaker: Others that fail to adjust to this economic structure will struggle.
Speaker: And some of these changes are permanent.
Speaker: Less demand for real estate, for example.
Speaker: More demand for health care services.
Speaker: More demand for financial management services, right?
Speaker: Some of the real estate you can turn into a health care center, for example.
Speaker: Right.
Speaker: So these sort of things.
Speaker: And this is maybe ultimately the problem with aging, that the people that make the decisions on that are the politicians who are 60 or 70 years old and do not always see the opportunities in these markets because they are maybe catering more for a younger generation.
Speaker: Well, looking at the mirror, I can see more problems with aging than just the politicians.
Speaker: But anyways, I think this is a very illuminating discussion.
Speaker: The point being really, and this report that we just published again with Enos Lem, our Asia economist, is that
Speaker: There are, though, headwinds of economic growth, fiscal challenges that need to be addressed.
Speaker: And going back to the politicians, they need to be addressed with a sense of urgency that we haven't seen yet.
Speaker: This is ultimately, I think, the problem maybe with aging, that that urgency is not there yet.
Speaker: I see comments in a lot of countries about aging and aging.
Speaker: of a declining population and low birth rates that don't seem to inhibit any particular solution.
Speaker: It's just blaming certain parts of society that these things are happening.
Speaker: But blaming, as I said, it's just like the weather.
Speaker: It's not going to change the situation.
Speaker: We need to come up with kind of creative ideas.
Speaker: And that's why we have the Banyan tree, you know, for creative ideas.
Speaker: Maybe art historians.
Speaker: Art historians as well.
Speaker: So thank you, Harold.
Speaker: I think we explored aging quite a bit.
Speaker: I'm sure we'll come back to this topic of demographics time and again.
Speaker: Over time.
Speaker: Over time.
Speaker: It will not age.
Speaker: It will not.
Speaker: It will age very well, this topic.
Speaker: We're going to have to leave it here, folks.
Speaker: Thanks as ever for joining us.
Speaker: You've been listening to Under the Banyan Tree from HSBC Global Research.
Speaker: We'll be back again at the same time next week.
Speaker: Till then, you can get your other economic fix of the week by tuning into The Macro Brief, our sister podcast from London.
Speaker: Take care and we'll talk to you next week.
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