Below is a complete transcript of the live Sinica Podcast with Bert Hofman.
Kaiser Kuo: Welcome to the Sinica Podcast, a weekly discussion of current affairs in China, produced in partnership with The China Project. Subscribe to Access from The China Project to get, well, Access. Access to, not only our great daily newsletter, but to all the original writing on our website at thechinaproject.com. We’ve got reported stories, essays and editorials, great explainers and trackers, regular columns, and of course, a growing library of podcasts. We cover everything from China’s fraught foreign relations to its ingenious entrepreneurs, from the ongoing repression of Uyghurs and other Muslim peoples in China’s Xinjiang region, to China’s ambitious plans to shift the Chinese economy onto a post-carbon footing. It’s a feast of business, political, and cultural news about a nation that is reshaping the world. We cover China with neither fear nor favor.
I’m Kaiser Kuo, coming to you from Chapel Hill, North Carolina.
The National Bureau of Statistics released its latest quarterly report last week, but while its announcement of Q4 and full-year 2022 GDP numbers inspired quite a bit of skepticism from outside observers and generated quite a bit of controversy, it was another announcement that really seems to have seized the attention of the China watching community — the first reported decline in China’s population since the Great Famine of 1959 to 1961. Not surprisingly, most of the reports about the decline, at least in the English-language press that I read, were dire. But some of the challenges I also read, though not in reputable media outlets to be sure, were kind of simplistically Malthusian and amounted to maybe apologies for the one-child policy that effectively ended in 2015.
And yet something about the reporting about the inevitability of the doom and the gloom, the scenarios about population decline leading to China’s stagnation, it didn’t quite sit right with me. So, when I read a short essay that Bert Hofman penned in his Substack, a piece titled “China’s Demography Is Not Destiny,” I found it made very sensible arguments that drew on the author’s own deep experience working on China development issues.
Bert Hofman is the director of the East Asia Institute at the National University of Singapore, and a professor in practice at the Lee Kuan Yew School. Before joining NUS, he’d been working with the World Bank for 27 years. 22 of those he’d spent in Asia, 12 of which were spent working specifically on China. Bert was the World Bank Country Director for China from 2014 to 2019, as well as having served as the country economist for China from 2004 to 2008. And from 2011 to 2014, he was chief economist for the World Bank in the East Asia and Pacific Region. Bert, a very long overdue welcome to Sinica. We’ve been talking about getting you on the show for ages, and here you are finally.
Bert Hofman: Well, thanks for finally having me, and Happy Year of the Rabbit.
Kaiser: Happy Year of the Rabbit to you. We are doing this. It’s still New Year’s Eve for me. It’s already New Year’s Day for you. So, it’s Sunday night, January 22nd for me. It’s Monday morning, the 23rd for you. Let’s start by getting the basic facts straight. What is the reported magnitude? What did the NBS put out as the magnitude of the population decline? I think it was well under a million people. Still, it was actually under one-tenth of one percent of China’s population, right?
Bert: Yeah. So, the decline is small. It’s 850,000 people or so, largely due to fewer births, not so much increase in death, although there is a slight uptick. And that’s 0.06% of the population. So, it’s small, but it does signify, of course, a trend. It will continue that trend, and we will see a gradual decline of China’s population. Also noteworthy, and others noted that as well, by now, India will likely be the largest country in the world in terms of population — no longer China. For a very long time, we had China. Now it is likely to be India. So, it is a significant number. At the same time, as you said, there were lots of, if you want, exaggerated responses to that number.
Kaiser: So, there were exaggerated responses, but just to be clear, you have not argued that demographic decline is good — just that it’s not necessarily as certain to sink China as some people seem to suggest, right?
Bert: It’s not necessarily bad, and especially not for economics, it is not necessarily bad. There are some that argue is actually good. That may be a bit of a stretch, but there are some aspects of population decline that are good for the environment, for instance, and global greenhouse gas emissions. That I think is true, but that is true for any country, not just China. There is a school of thought that says, well, we are over-exploiting the world. We have simply too many people. Those that consume more are likely to be… if you want the first candidate for a population decline rather than China, which is only a higher middle-income country.
Kaiser: Right. Those lines of argument, I mean, they have a certain appeal, but of course, at their core, they do involve coercive policies, they involve infringement on basic human rights, and it’s understandable why people dismiss those Malthusian kinds of approaches. Yes, I think maybe we should. There is an upward bound for the carrying capacity of the planet, but I think most science today says we’re not there yet. In any case, look, even China’s leadership, Beijing’s leadership obviously thinks it’s a bad thing — otherwise, they wouldn’t be pursuing policies that are clearly aimed at arresting or reversing the decline. So, with that said, what are the main reasons why China’s low birth rates will prove to be such a challenge going forward.
Bert: Well, first and foremost, I think it’s economic growth. China did benefit in the past a lot from its demographic dividend, and almost one-third of growth in the 1980s and more than a quarter of growth in the ‘90s could be attributed to positive demographic trends. I.e., the decline in the birth rate and the fertility rate—started in the 1970s—was reinforced by the one-child policies in the ‘80, and then suddenly there were a lot more people working per population in the ‘80s and the ‘90s than before. That’s what’s called the demographic dividend. That explains quite a bit of growth in China’s path. No longer, over the past decade, there was no more demographic dividend. And going forward, there’s going to be a demographic tax of roughly between now and 2035 of one percentage point growth. So, that’s not doom, but it does mean that other factors that determine growth would need to work harder.
The second, and that is more related to policies, look, if you have a declining population, almost by necessity, you see an aging population. With that, you see more burdens, if you want, on the public purse. The old-age dependency ratio will go up, and quite dramatically so if you take a long-term perspective, and also healthcare costs will go up because more elderly people means that they have to visit the doctor more, they get more sick in general, not just in China, but people that are older, they spend a lot more either from the public purse or from their own purse on healthcare. And that’s a burden on society if you want. So, those are the two big ones. There are a few other ones that you can imagine, but those are the two very big ones.
Kaiser: Yeah. And that’s plenty already to wrestle with.
Bert: On the growth one, and we can discuss in detail, I’ve done quite a bit of research on that, but also with some of my former colleagues at the World Bank, we’re bringing out a study relatively soon in a couple of months. So, the growth rate, if you just look at demographics, you get about a growth deduction of one percentage point. The question is, well, what else can grow? Well, first, you can think about getting more growth out of the people at work. And that is you educate them better is one strand. And China has been educating its people better. And so, the people that are now coming into the labor force are much better educated. They’re the ones leaving the labor force. So, that increases overall productivity if you want.
Kaiser: Yeah, I mean, in fact, you actually argue at one point that China’s labor force decline which, as you say, has been with us for quite some time. One of the reasons for it is because people are spending longer in school before joining the workforce. Isn’t that correct?
Bert: Yeah, that’s correct. If you look at the participation rate, I mean, standard statistics look at age categories, 15 to 24 and 25 to 34, etc. But the 15 to 24 category, 10 years ago, there was 78% of that category participated in the labor force. Now it’s down to below 50. So, it means indeed a lot of people get more educated. The current cohort that enters the labor force has now more than 11 years of education compared to the seven years of education that those people that are now retiring had. So, there are smarter people coming into the labor force, basically.
Kaiser: Yeah, that’s encouraging.
Bert: That does not compensate for all of it. So, if you want, more needs to be done. The second, and that is the big, big question, is using labor better. And one of the big distortions in China is still the household registration system, the hukou system.
Kaiser: Right.
Bert: So, it keeps people, if you want, in the wrong place, in part in rural areas, but even city-to- city migration is not as straightforward as it could be. So, using people better out in the place where they’re most productive is going to be a big part of the policy action, in my view, going forward.
Kaiser: That could still unlock some of that potential.
Bert: Correct.
Kaiser: Because China has enjoyed this bountiful supply of inexpensive labor moving from the rural areas to the cities. So, you think that by hukou policy change, there are still people left to be moving to their optimal places where they can add the most value.
Bert: So, it’s still people left. It is also people that are currently working in cities without urban hukou. They’re basically forced to work in a specific place. They’re very little mobility from job to job. Even they are impeded to find the most productive use of their labor. But second, if you look at urban-rural, there’s still about 30% — the statistics are not that strong — but of the labor force working in agriculture. Well, on average, in high-income countries, and China is at the cusp of becoming a high-income country, it’s three — less than three. So, there’s still a lot of labor that can be reallocated from agriculture to say manufacturing and/or services, where they’re more productive. That doesn’t necessarily need to be the people that are currently in agriculture, but it can be the children or the children’s children. We’re talking about long-term trends that can be expected in China.
And the final one, again, it’s already a policy, but not very well implemented, is to make people work longer. The retirement rate in China is now an international comparison, very early, but also compared to China’s past. Basically, it was set in the ’50s, and it was 55 for women, 60 for men, 50 for hard labor. So, people retire very early. De facto, they find another job; it’s not that they completely stop working, but nevertheless, if you want, most of them retire around that age. Or the participation of people in the labor force, once they’re over 55, it declines very rapidly. Well, if you change that, and if you encourage people to work longer, first, by setting the official retirement age a lot higher, and second by basically encouraging them with financial incentives to stay longer in the labor force to build up a pension system, you can extend that quite dramatically so.
And I did some back-of-the-envelope calculations. I did a calculation: I said, “Okay, well, what if Chinese were to retire just like the Japanese do?” And Japan has made a lot of progress in the past two decades, but still, they’re not the record holders of old age working participation. So, you would find another Germany in terms of labor force if you were to do that. So, you can get 40 million people by 2035 extra at work, and that would already offset a lot of this demographic tax that we talked about. So, about half of it, you can simply remove by having people work longer.
Kaiser: How much of an increase are we talking about? How many years of additional work to get to Japan’s levels?
Bert: Well, it depends on the category. From 55 to 60, it’s not that much. From 60 to 65, you are talking about 15 to 20 percentage point increase in labor participation. So, it’s quite a bit. It’s not that you achieve overnight, but again, those trends are long-term, and you can target your policies if you were to achieve it towards that longer term. I simulated by 2035, you could maybe achieve it earlier, but…
Kaiser: Another thing that you mentioned in your piece is investment. It’s long been one of the most important drivers of China’s growth, but it’s also been a cause of unbalanced growth — All this fixed asset investment. So, is a decline in in the investment rate, and since investment equals savings, as we all learned in economics 101, a decline in the savings rate, is that such a bad thing for China and for the global economy?
Bert: Well, I mean, China is looking for more consumption. For that, you actually need to save less. That’s the first observation. But the second is that indeed, as you say, if people get older, they start digging into their savings. So, their savings rate is going down. The highest savings are sort of between 40 and 55 if you look at it internationally. The reason is that then the kids are out of the door, they have their own income, and then you can certainly save a lot. Your mortgage is paid, then you can certainly save a lot. So, you see very high savings rates between 40 and 55. Afterwards, you see a decline. Now, that’s going to happen in China, this decline. There’s some estimates. The IMF has done an estimate. The only credible estimate I’ve seen that, that really, it would cost 10 percentage point of GDP of reduction in savings, maybe up to 15 percentage point of GDP by 2035.
So, that’s a big decline. By necessity, you would then also have to reduce investments. The reason is that… otherwise, you get very large current account deficits, which I don’t expect China to run.
Kaiser: Right.
Bert: But then you look at, okay, well look at what these investments have really been doing, particularly since the global financial crisis. And the interesting fact is, and it’s a paper by Richard Herd, and more recently, we had him at a conference here that he updated the numbers, which showed that really China’s high investment rate over the past 15 years has really been infrastructure and it has been housing. So, and much less business investment. If you look at business investment, China is just about average for a middle-income country. But in infrastructure, China’s at the absolute top. As a matter of fact, they have OECD levels of infrastructure. Similarly, in terms of housing investment, estimated to be somewhere around 18 percentage points of GDP, some have even higher estimates, but this is Richard Herd’s estimate that I trust. That’s very high. Probably given where China is, that will gradually decline.
So, if you do less of investment in housing, less investment in infrastructure, and probably more in business investment, then growth can actually accelerate with less investment. It’s a big assumption there on how productive your infrastructure is, and there’s still infrastructure investment needed, but maybe not 15 percentage points of GDP. Less is probably better here. There’s lots of high-speed rail that maybe is no longer economically viable, does not contribute to economic returns in the future. So, that’s not easy to do. I mean, it’s easy to say, it’s not easy to do this very major reallocation of investment from a particular destination, i.e., housing and infrastructure, to other purposes. And for that, you need financial sector reforms.
But also something very crucial is really the, the government fiscal reforms. The reason being is that governments, they rely a lot on housing because land sales are important for their revenue. So, it’s this game that has been played for a long time, and you’ve talked about it with others on the show, that local governments get revenues from land sales and they then use that to invest in infrastructure with the purpose to keep growth going.
Kaiser: Yeah. In fact, real estate is such a pillar. I was just at Davos, and Vice Premier Liu He gave a talk. And he talked about how real estate accounts for 40% of bank lending, 50% of overall fiscal resources for local governments, and 60% of all household assets. So, yeah, I mean, it’s obviously a gigantic major pillar.
Bert: Right. But changing that also means that, and we’re going to talk about government services for the elderly later, but those needs particularly fall to local governments to finance.
Kaiser: That’s right.
Bert: Local governments need financing. And so, you need those fiscal reforms that we’ve been talking about, a long time of property taxes one, but probably a lot more in order to make it feasible for local governments to continue to provide a level of services that the Chinese people want. So, that’s not easy. It hasn’t been easy because it also requires distribution from rich provinces to poorer provinces. And China hasn’t been very good at that.
Kaiser: No, indeed. You’ve also suggested that there is a need to massively improve what the pension system now pays out. I mean, what is China considering doing in order to address what are bound to be huge shortfalls in the pension system? I mean, private pension accounts and individual retirement accounts do exist, don’t they? But how are they going to incur? Are they going to put the burden more on private pension accounts now or…?
Bert: Right. Look, for those among your listenership who don’t know, there’s two kinds of pensions in China — pension systems — One is the urban workers system. That is a relatively generous system, has been around since the state enterprise reforms. And then there was the urban and rural work residence system, forgive me, which is a fairly minimal, very basic pension. So, even today in the urban worker system, so the more generous system, that system will run out of money by the mid of the next decade. So, it’s a real issue. It’s a real issue that needs to be addressed one way or another. The second is in the era of common prosperity, I personally find it hard to believe that there would be such a disparity between the rural pensions and the urban workers’ pensions.
And the amounts are starkly different. On average, an urban worker gets about 2,700 RMB per month as a pension. And it replaces about 40% to 50% of their income, the last earned income. In rural areas, it is 100, sometimes 150. So, it’s starkly different, and it’s not something that is politically, in my view, sustainable if China indeed takes common prosperity seriously. So, the urban and rural resident system would need major beefing up. But that, of course, increases the pension gap, the pension debts, the implicit pension debt that economists say, basically the shortfall over time. One is to say, well, okay, the urban and rural residents also need to pay more contribution into the system. Fair enough. That’s one. A second one could be that the government says, well, we’ve got so many assets, i.e., state assets in China — some estimates are over 300% of GDP — use some of those assets to fill that pension gap.
And so, the profits of state enterprises would have to go to pension systems rather than through new investment, through retained earnings. So, that would be a great solution. But the third is that, and there you hinted at, is what China’s currently pursuing. They’ve been talking about for a long time now. It is actually the regulation is in place for private pensions. And so, like in the U.S. and other countries, on top of a government pension system, many people have basically pension insurance with private insurers. It’s a relatively standard insurance, but it’s different from a social insurance. The social insurance is also supposed to redistribute a bit between the higher earners and the lower earners, and a probably a bit better in insuring against longevity, as I say, inuring against living too long. A lot of the pension insurance give you an annuity for, say, 20 years or 30 years.
And if you live longer, you still run out of money. So, the insurance perspective from a public pension system is usually better than from a private pension system. I know not too many insurance representatives would be happy now, but it’s especially true in developing countries, not so much in developed countries, because there, they can get very long insurance indeed. That means that indeed, part of the private savings would have to go into those pension plans. And I think it’s a really good prospect. Look, one of the reasons, we talked about real estate, one of the reasons why Chinese invest so much in real estate is because it’s their pension plan. They invest in real estate and then sell an apartment or two once they get older and they need the cash. So having alternative insurance would actually be good. It would take the wind a little bit out of this real estate property market. And then, of course, the insurance companies, they could probably select better investments than, say, real estate, to work with that pension money.
That is ideally going to happen in China. It’s still quite early days. And last year was the first year that the regulations were in place, and there’s a modest contribution to these private pensions. I do think it’s a growth business, but it’s not the only part of the solution.
Kaiser: So, the providers of these often, these are like term life insurers. I mean, these are Ping An and companies like that are providing these, I know, my wife and I got roped into one of these that I’m still paying into every year. It’s really aggravating. I don’t even live in China anymore, but we’ll go back one day.
What about the healthcare system? Speaking of people growing longer, I mean, we’ve seen now how underinvestment in healthcare is really making itself felt right now. There’s another, what? I just read 13,000 more official COVID deaths, almost all among elderly people just last week. And that’s atop the 60,000 that have already been reported. What percentage of GDP should China be spending on healthcare? I mean, because China spends very relatively low and not much, and how will it fund this as the median age continues to rise?
Bert: Right. Well, it’s one of these big pressure points. Aside from pensions, it is the health system. I should say, it’s not in great shape at the moment. And a lot of investment, if you want, backlog investment already needs to be done. With aging, the pressures will increase. China now spends a little bit less than 6% of GDP on healthcare overall. It’s the government insurance and the private agents, people that basically pay out of pocket. That’s not as high as many OCD countries. It’s far less than say the United States, which spends 17% of GDP, frankly with poorer outcomes if you look at some of the health indicators.
But that’s going to change as China ages as a people will need more visits to the doctor, they need more health maintenance medicine. So, over time, you see pressures coming. The way the system is organized in China, still with heavy emphasis on hospitals, especially on tertiary hospitals, that is a very inefficient way of delivering those services that the elderly need. If you need a blood test, you shouldn’t go to a tertiary hospital, you should go to your general practitioner around the corner or your health clinic around the corner.
That system is not fully there yet. And second, where it is there, the Chinese citizens don’t really trust that system; that they get sufficient care in those health clinics, in those health centers, in the rural areas. I think a part of that is a misperception, when I was still with the World Bank, we looked quite a bit into it and we financed Anhui Province and Fujian Province to reform the system, but it’s simply the way Chinese people act. So, the government would need to reinforce this sort of primary healthcare development. Second, what is important to slow down a major increase in spending is to give incentives to the health providers through the insurance system. And currently, basically, I’m exaggerating, being unfair, but to basically reimburse the bills up to 80%, up to 90%, depending on what the doctor has done.
That should differ from place to place, i.e., for some services, you should be able to only get your reimbursement when you go to your primary healthcare, not to your tertiary healthcare. And that would massively shift incentive to using much more primary healthcare. Again, that comes with an obligation to improve the quality, but it will reduce these cost pressures. I don’t think China can fully avoid them, but without the changes, China will end up, according to projections, not just of the World Bank, but also others, somewhere between 9% and 10% of GDP by mid-century. So, that’s quite a chunk more. And in a way, you don’t want to spend this much. If you look at Singapore, I live in Singapore, Singapore spends less than 5% of GDP and it’s an aged society already. Of course, it’s very urban, but it has a very efficient system of healthcare delivery. That’s something that China should aspire to, because otherwise, the health cost will simply be too high.
Kaiser: So, we’ve already enumerated quite a number of transitions that need to be done. I guess I would ask you, if you were in charge, what would you prioritize? Can all these things be pursued in parallel or is there an order in which they should be prioritized? Raising retirement ages, continuing to encourage urbanization, fiscal reforms, reforming the pension system, reforming the way that healthcare is delivered, all these other things that you’ve suggested — what is most impactful? What should be done first?
Bert: So, I would personally start with the fiscal system. That’s in part my bias. My professional career in China in 1992 started with the fiscal system and the major reforms in 1994. But the reason I’m saying the fiscal system is that more public funding, properly funded is needed to solve some of those problems. And so, you need to strengthen your fiscal basis so that you can solve those problems. Because then it becomes easier to solve these other problems in your health system, in your pension system, and even in your education system where China now spends quite a bit on education, about 4% of GDP. But given the backlog that it has, Scott Rozelle talked about it, the backlog that it has in the rural areas, they need to still spend more. So, a lot of money is necessary in a fiscal system that is currently strapped. I mean, one reason why there’s so much acrobatics with local government financing vehicles and bonds issued off the books is because really the fiscal system is not strong enough to support all of the tasks that the government wants. So, that’s the first one.
Kaiser: So wait, concretely, though, that means a property tax. I mean, I assume that that’s…
Bert: Property tax is one, but frankly, and that’s important. I wrote about it’s not going to be easy in China for many reasons, but also, it’s not going to generate enough revenues, even if you’re optimistic, you’d say, “Well, you’ll probably get a percentage point of GDP out of it.” That’s great, good to have. It’s not enough. So, there will be other taxes. The broadening of the personal income tax is in the end the biggest opportunity for China right now. China raises about 1% of GDP in personal income tax.
Kaiser: Compare that to…
Bert: Well, on the OECD, on average, it’s eight percentage point of GDP.
Kaiser: Wow.
Bert: But if you look at the… Xi Jinping has already said he doesn’t want to goad this tax and spend welfare system. But even if you were to say, say, look at the Asians, like Korea has 4% of GDP, Japan has 5% of GDP. So, it’s a real opportunity there. Again, it also hits, of course, the priority of common prosperity — taxing a bit more the rich and then having money to spend more on poorer people is a good idea for common prosperity. So, that’s the second big chunk that is there. The third, and that is by now my favorite imaginary tax, but that would be a carbon tax. If you go through the numbers, I mean China, is the largest greenhouse gas emitter in the world, and they emit about 12 gigatons of carbon every year. If you were to put an economic price to it, then, Kristalina Georgieva said at $75 a ton, okay, well, if you take overtime, you go to $75 a ton, China could raise five 6% of GDP easily.
So, that’s a major revenue generator. You can’t do that overnight because you would destroy your industry. But if you say 10, 15 years from now, we’re going to do it, again, it would be good for the revenues, but it would also hit one of the major priorities of Xi Jinping, namely net zero by 2060. So, there is revenues to be had, and I hope China will pursue them. You need to do that early because each and every one of them has administrative implications. There will be some opposition. It won’t be an easy one. The second is the pension system, because again, it’s a big implicit debt that is out there.
And people are always resisting change in the pension system. If you only look at France and the yellow vests protests, a lot of that is about pension reforms. But at the same time it is really necessary. And the key to having pension systems reform without protests is to give individuals the financial incentive to simply stay longer in the labor force. In other words, you need to stretch your buildup of your pension, and don’t stop at 60 or 55, but stop at 65 or even 70. And that will over time, basically tell people “work longer.” But it’s also important from a government point of view, I mean, a lot of the workers that are now retiring at 60, a lot of them already have a university education. They’re smart people. It’s a bit of a waste to have these people retire and then spend their time in think tanks as happens to be the case with a lot of government workers. So, keeping them at work longer also makes sense from an economic point of view. But you need to give the incentives so that people almost voluntarily say, “Yes, I’m going to work longer because I want to work longer.”
Kaiser: Right. So, these three priorities already line up pretty well. So, we start with fiscal reforms and then these all feed into one another. Pension reforms are fed into by raising retirement age. And the healthcare reforms…
Bert: The healthcare reforms are already on the way.
Kaiser: And they allow people to work longer because if you have the better healthcare outcomes, you have a longer living, a more productive workforce. So, they’re mutually reinforcing.
It’s funny though, I feel like none of this is what the media reports about the demographic decline end up discussing though. Instead, they focus on these measures. And I don’t think this is the fault of the report necessarily. It’s because it is the most visible, immediate actions that the Chinese government seems to take. It seems to be about increasing fertility rate.
Bert: Correct.
Kaiser: I mean, and I don’t think we’re wrong to say, see the efforts to kill the cram schools, the online tutoring industry as trying to lower the costs of child-rearing, right? It does make some sense to me. Even just today, I mean, I saw in the New York Times about China subsidizing IVF procedures, in-vitro fertilization, which is, I think it is something that is good, of course, for people who want to have children for the government to cover that under the national medical insurance. I’m sure that’d be great, but it seems to me like it would have a vanishingly small effect on actual birth rates. But this is the sort of thing that gets seized on not just by the media, but also that seems to be put forward by the government in response. They’re not talking about fiscal reforms or about raising retirement.
Bert: Well, so, I mean, first of all, I think you’re right. I mean, a lot of these actions, they’re actually quite positive. And it’s good to have some good childcare that doesn’t cost so much. It keeps especially women in the labor force. Traditionally in China, still, the care for the family still burdens a lot of the women. So, it’s great to have good childcare so that women can participate. Smart—or usually now tertiary educated—women can stay in the labor force for longer if not until 65. That’s great. The second, don’t forget the elderly care, because a lot of the burden of elderly care, again, comes to the family and it falls on the women. So, a better system of elderly care is important as well to increase that labor force participation.
And there’s a couple of other things that the government can do. Indeed, international experience shows that it is really hard once your fertility rate is down to get it up again. And look, there is a darker side to these targets where there’s some rumors that the party demands people to have two children or three children. And, of course, China has a history of the one-child policy which is not a happy history, which is enormous hardship on families, on, on a, particularly on, on women in the past. And even the one-child policy, this very strict one child policy did not result in one child. As a matter of fact when it was stopped in 2016, the total fertility rate was 1.7. So, it was a 1.7-child policy. Now, it was never back to one, despite all the measures that the government took.
Frankly, going forward, if it stays 50, positive measures such as better childcare and lower education costs, that’s probably good for the family life. It’s good for Chinese people. I do not expect to give that a major jump in total fertility. Mind you, China’s already very low for its level of income. Total fertility is now around 1.2 to get a replacement. So, to stop the decline, you would have to go to 2.1. And that is a very big jump. There’s no country in the world that I’ve seen make that jump. There’s one further consideration there because suppose you were to start doing that, first of all, it takes 20 years before those new babies get into the labor force. So, it takes a long time before those measures will have an effect. And second, there is still the risk, of course, that there’s a lot of drop-out from the labor force of family members that have to take care of the children as long as childcare is not perfect.
I know the magic trick in China is quite often the grandparents. That by itself has a downside as well. And part of the problems that Scott Rozelle has identified, and others, his co-authors have identified is indeed the left-behind children, i.e., the grandparents are still somewhere in the rural areas where actually the education systems are not that good, where also it’s not a great learning environment for children. So, one needs to think about whether that is indeed the optimal solution. I think the supportive measures that the government has thus far announced, I think they would be good for family life and it would make it a bit easier to raise children, but I don’t think it’ll make a huge difference for the birth rate or for the fertility rate.
Kaiser: No, no, indeed. Well, as you say, China is not the first country in the world to face a shrinking population. Not the first among its Asian neighbors either. What can Beijing learn from the ways in which others, including those Asian neighbors, and also including both positive and negative lessons, what can they learn for how to handle this challenge? And what lessons do you think they’ve already taken on?
Bert: Right. There’s now about 30 countries in the world, 30 plus countries in the world that have a declining population already. The EU as a whole is about to decline. Korea is about to go into decline. Japan, of course, is already in decline. Where I live, Singapore, it’s close to a population decline. And so, look, what can the government do aside from those things that we have discussed? But it is really a whole different mindset in society and preparing workplaces better for people to be able to work longer. I mean, I look forward to working until I’m very old. But your workplace also needs to be suited for that. As a knowledge worker, it’s much easier. But even in factories and in somewhat more manual labor, you can redesign your workplace
And that’s happening, for instance, Germany and in Japan where people are looking at different ways of organizing the workplace. Robotics will help. They won’t replace necessarily workers. I mean, some of techno optimists say, “Oh, we’re just going to replace all these workers with robots.” I think it’ll be a little different. But I think AI and robots will help people stay much longer into the labor force than previously. So, that is something that I think governments can look at as a preparation.
Kaiser: Of course, the fear right now is that ChatGPT will replace knowledge workers like you and me.
Bert: Yeah, I’m okay. I’ve seen some of the outputs. I’m still quite comfortable with that. I don’t think we’re quite there yet, but yeah, there’s lots of progress, and frankly, lots of stuff that I write, I wouldn’t mind if I get some help from a smart computer, as long as you know what your value added is.
The third is, and that I find very interesting is to really look at the whole of the city design and how people live and how things… It doesn’t cost necessarily something more, but you do need to, in urban planning, you need to take care of it. It’s more about walkability of the city. It’s about connecting places where elderly people go to the place where they live. So, basically hospitals and community centers with or closer to where people are.
Singapore has this very fancy thing, which is, I’m not sure, it’s a bit of a fad, but it’s never that. It’s interesting that, as somebody above 60, and I just reached that age, you get a card, a senior card, and in some places, you can hold it against this button that you use for crossing the street, and then it slows, then you have a longer green phase than ordinary people. That’s for elderly people like me. I find that an interesting adaptation to a lot more elderly in your society. So, there’s a lot of things that the government can do as well. We haven’t really talked about it yet, but that’s the elderly care, which in OECD countries had cost a lot of money. And frankly, OECD countries made a lot of mistakes because, including my own country, the Netherlands, where there was a lot of, in the earlier phase of aging, so the ‘70s and ‘80s, there was a lot of institutionalization of elderly people, i.e., put elderly people into elderly care homes.
That’s a hugely expensive solution. And all of the OECD countries have come back from that. So, keeping people at home as long as possible is the least expensive solution, aside from being probably a lot more pleasant for elderly people. It’s official government policy in China, not quite sure whether they’re there yet. I think it requires a supply response. And in some regions, they’re very good at it. I’ve seen an app where you can, as an elderly, you can order all the elderly services by app, but then in other parts of China, those services are not yet that strong.
Kaiser: Do you think that there are cultural variables at play here so that… famously in China, we are supposed to respect the elderly and cherish the young, but there’s multi-generational families and expectation that you will care for the aged. Do you think that factors in economic? Does it show up economically in the statistics?
Bert: So, it is a very good point. And yes, it still shows up, but that tendency is becoming less strong. I.e., the three generations housing, apart from the fact that some of the housing simply is not suited and the parents live in the rural areas, and the kids, they’re in the urban areas, but also the tradition is changing to some extent. We’ve seen in some of the research. And funnily enough, it’s not just because of the kids, it’s also the elderly. So, more and more elderly say, “I don’t want to be living with my kids. It’s a pain.” There’s some change in mentality from both sides, if you want. A, by necessity because people are more mobile, they live now in different places compared to before. But B, also, elderly that can afford to live by themselves. They actually prefer to live by themselves. That’s a new trend that wasn’t there a generation ago because few could afford. Now people can afford, have more choices, and the choices are changing.
Kaiser: Bert, I want to thank you. And I also want to make sure that everyone subscribes to your excellent Substack if you’re interested in China. Just search for Bert Hofman Substack — that’s H-O-F-M-A-N Substack, and you’ll find it. Sign up for the free one if you want, or sign up, pay for the… Is there a paid version? No?
Bert: No, no, it’s all free. It’s all free.
Kaiser: Oh, it’s even better. All free. Yeah. Definitely check it out. Bert has some fantastic essays there. Thank you so much for taking the time. I can’t wait to have you back on the show for another topic. It’s obvious that you’re a rich mind of great observations and insights on China. Let’s move on to recommendations.
First, a very quick reminder that the Sinica Podcast and all the other shows in the Sinica Network are powered by The China Project. And the best way to support the work that we do with Sinica, which allows us to bring you conversations with people like Bert Hofman, is to become an access premium subscriber at thechinaproject.com. It’s not free like Bert’s Substack, but you do get a one month trial subscription to try to access for just $1. You can at least do that, right? You won’t regret it. Anyway, okay, on to recommendations. Bert, I can’t wait to hear what you have for us.
Bert: All right. Well, I thought about it a little bit and I thought my best recommendation was something that sort of is thinking about China from Southeast Asia because that is quite different from thinking about China in China and thinking about China in the United States, or Europe for that matter. So, I’ve chosen my colleague, Wang Gungwu, who is an historian, specializes really on the Chinese diaspora. Has worked, he’s actually from Malaysian origin, born in Indonesia, worked in Australia and Hong Kong, Malaysia, and now then in Singapore. And the man is a great resource. He’s a university professor — 93 years old. So, very productive. And he wrote in 2019 a book that I think is undervalued. It is called China Reconnects. And it is really a book about China now and it’s current stage, sort of looking back into its history. That sounds quite benevolent, but Professor Wang posed it as an issue saying, “Look, China in a way sort of feels that it has learned enough from the West, and now it tries to reconnect with its imperial past, which has a lot of similarities with some of the systems that are currently in place in China. I think it’s a fascinating book. It’s not very thick, so it’s an easy read. And it’s also on Kindle, so people can get it there. I have a second recommendation, if I may.
Kaiser: Oh, absolutely.
Bert: And that’s really my wife’s recommendation. My wife, Shanti [Hermine 46:27], is a filmmaker and there’s no democracy at home with me where we always watch what she wants to watch, and that is largely Korean, but she has recommended me something which is a Canadian series, and it’s called The Last of Us. Now, it’s a series after a game. I didn’t know about the game, but it’s a fantastic series, basically a post-apocalypse type of setup, but with very interesting, great writing and deep, deep meaning. So, it’s in HBO Max. You can watch it.
Kaiser: Yeah. I’m about to talk into it. I’m looking forward to it because I heard that it’s the same people who did Chernobyl — The HBO show.
Bert: Correct. Yeah.
Kaiser: I mean, it can’t be bad. Yeah. I have some trepidation about anything that comes out of a video game as..
Bert: Well, this is redeeming that. This is a redemption for all those bad things that come out of video games according to my wife.
Kaiser: Okay, well, good, good, good. I have a novel to recommend this week. It’s called Great Circle. It’s by Maggie Shipstead. It is a wonderful tale. It spans what, nearly five decades, really from just before, maybe from 1914 or just in the years before the first war, all the way into early 1950, but with another story that’s interwoven, which is said in the present. So, the main story is about a woman named Marion Graves and her brother Jamie — Jamie Graves, about Marion’s obsession with flying, with becoming a pilot in the era of first, Lindbergh, and then Amelia Earhart and all these other people who… real characters who sort of populate this in the background. She has this obsession with eventually flying a great circle, circling the earth over both poles, and sets out to do this in 1950.
Meanwhile, in our present time, there’s a first-person account that’s interwoven, told from the point of view of a Hollywood actress who is a big celebrity because of some teen show, some Disney-like show, and then a successful kind of romantic fantasy series where she’s this big star chased around by paparazzi doing dumb things. But she wants to take on a serious role. She wants to play this woman flyer, Marion Graves, this female pilot. So, it’s a wonderful story. The circle metaphor is in there a lot. Great writing, really fully realized characters. I enjoyed every bit of this. Really good strong sense of history. The writing is so strong. I cannot imagine anyone not liking this novel. So, check it out. And thanks to my sister, Mimi, for recommending it to me because it’s really good. Great Circle by Maggie Shipstead. Well, Bert, thank you so much, and Happy Year of the Rabbit to you.
Bert: Thank you for having me. It was a great pleasure. Indeed, Happy New Year.
Kaiser: Is it your 本命年 běnmìngnián? You said you just turned 60, so are you a rabbit or you’re a…?
Bert: I’m a tiger. I’m a tiger.
Kaiser: You’re a tiger.
Bert: Yes.
Kaiser: Okay. All right. Well, you got through your benmingnian unscathed.
Bert: Right. It was a pretty rough year, though. Being a tiger, takes some responsibility, but I hope the rabbit is the calming, reflective influence that it’s supposed to be.
Kaiser: I hope so too. Thank you so much. I really enjoyed talking to you.
The Sinica Podcast is powered by The China Project and is a proud part of the Sinica Network. Our show is produced and edited by me, Kaiser Kuo. We would be delighted if you would drop us an email at sinica@thechinaproject.com or just give us a rating and a review on Apple Podcasts as this really does help people discover the show. Meanwhile, follow us on Twitter or on Facebook at @thechinaprod, and be sure to check out all the shows in the Sinica Network. Thanks for listening, we’ll see you next week. Take care.
