A silver lining for aging Asia

Alicia Garcia Herrero艾西亞
4 min readDec 8, 2020

Alicia Garcia Herrero, Natixis Asia Pacific Chief Economist, Bruegel Senior Fellow

Many Asian economies will age more rapidly over the next several decades, including Hong Kong, Japan, mainland China, Singapore, South Korea, Taiwan and Thailand. Asia’s working-age population peaked in 2015 and will gradually decline at an accelerating rate in the coming decades.

By 2050, the elderly population in these countries on average is expected to increase to 27% from 7% in 1995.

Reduced labor supply creates a drag on growth, but this can be mitigated by higher labor participation, investment in capital-intensive sectors, and government policies that address productivity.

That said, it is a gravity-defying act. With fewer workers and an increased elderly population requiring more savings to sustain spending in retirement, greater pressure on public finances is expected.

As such, the more prepared an economy can be while still relatively youthful, the more likely it is to age gracefully. With lower potential output, the goal to lift GDP per capita rapidly and, thus, the standard of living is more difficult. Some Asian countries, such as China and Thailand, will still not be moderately developed economies while they age rapidly.

In that regard, it seems important to draw some lessons from the frontrunner in aging, namely Japan. The first lesson is that, even when aging with a high income per capita like Japan, productivity tends to slow down. As demand for health care increases, this sector will take a much larger share of employment pushing down productivity.

Furthermore, government policies — which basically follow the wishes of the majority — tend to favor the senior sector versus the young, which implies a disproportionally large expenditure in health care and pensions versus childcare and education. This makes any government attempt to increase the fertility rate quite futile.

Beyond Japan, China’s aging is relevant not only for China but for the world given the sheer size of its economy. By 2050, one in four Chinese will be elderly, versus one in 10 in 2020.

The reduction in the supply of available workers, other things given, will push up wage costs and will drag down growth as the economy has fewer productive adults.

Moving forward, population aging will further weigh on China’s potential labor input and thus weaken its competitiveness. The economic transformation toward more capital- and skilled-labor-intensive activities should help buffer such a shock, but this needs more efficient organization of the factors that enhance labor productivity.

Another important consequence is increased fiscal pressure. The immediate impact of that is likely to be limited, but over the longer term the issue could become more concerning if the economy continues to decelerate.

Still, there is a silver lining to an aging Asia. Japan is the pioneer in defying the gravity of aging on growth, with clear shifts toward health care on the demand side and robotics on the supply side. With a graying population, sales of pharmaceutical and medical equipment have grown, but the government has tamed the expense through price control.

Japan has also become one of the biggest producers and users of industrial robots. Fewer workers mean e-commerce will be essential to reduce costs and increase productivity.

Although a shrinking population may be challenging for the finance, automobile and lifestyle sectors, evolving consumer patterns will bring opportunities. The costs of health care have stimulated the demand for pensions and investment services, meaning asset management is more relevant than ever.

Car sales will also be supported by the popularity of mini-cars and the preference of ongoing driving by the elderly.

In terms of lifestyle, traveling is the top choice among all hobbies for retirees. However, insurance, communication and education could face pressure with the need to transform their business models and increase the reliance on overseas markets.

While Japan has shown a clear path of an aging society, its example is not the only destiny, as Taiwan shows that capital-intensive sector specialization and industrial policies can mitigate the impact of aging on growth.

The reasons behind the sprouting of Taiwan’s tech sector are heavy R&D expenditure and supportive government policies. As such, Taiwan has managed to keep its growth of total factor productivity afloat against the aging population.

From a global perspective, ongoing input for robotics will be one of the key game changers in industrial production and services.

All in all, aging is of course not good news for growth, but there are ways to mitigate its impacts, both by finding alternative ways to increase productivity but also by investing in capital-intensive sectors.

*This article was originally published by Asia Times at