Monday, May 01, 2006

Swagel on China

My former CEA colleague Phillip Swagel reports via email about his recent trip to China:

Being there gave me an interesting window on demographics and the problem of the aging society. You see it just walking on the street: there are just hardly any children around. It's eerie. The 1-child policy has been in place for 3 decades, and as a result China is heading into a snap demographic transition; they've created their own aging society but without putting into place social welfare systems or pensions. They actually went the other way by allowing state enterprises to jettison their former pensions (the so-called "iron rice bowl"). And their problems don't end there, since the demographic change means as well that they will soon be a society with near-vertical family trees -- no brothers or sisters means in a few generations there will be no more cousins either. So there's no formal social safety net and they are putting an end to the informal safety net of the extended family. No wonder they save so much -- it's all precautionary. We heard stories about the fee-for-service health system -- hospitals won't take out a new bag of plasma for a transfusion until the cash is handed over. And who knows what all of this will do to the social fabric in China, as the family structure of 1,000+ years comes to end.