Corporates operating in Asia’s strongest economies face growing socioeconomic and political risks

China’s demography has played a very significant role in its economic development, with a seemingly inexhaustible labour supply helping to restrain unit-labour costs. This has driven rapid economic growth based on cost-competitive exports and high levels of investment.

However, China is an ‘extreme’ risk country in Maplecroft’s Working Age Population Trends Index (WAPTI) because the enforcement of its one-child policy means that the demographic dividend has passed relatively quickly.

In fact, recent International Monetary Fund research indicates that the country could reach the Lewis Turning Point − the moment at which it becomes a labour-shortage economy – between 2020 and 2025.

Reaching this point will have important ramifications for the Chinese economy, according to Maplecroft, signalling a definitive moment in its transition from production-led growth, with its associated wage repression, to one in which labour holds greater bargaining power and the wage share of the economy can be expected to rise from today’s depressed levels, boosting household consumption.

Ageing Japan

While WAPTI shows the highest risk countries – those with slow-growing or possibly shrinking working-age populations – are found predominantly in the developed world, Japan is another rare non-European country in the highest risk category. Just over 25% of the county’s population is forecast to be over 65 by 2030, increasing to 38% by 2055.

This dramatic demographic shift means the total population of Japan is forecast to shrink by almost a quarter, from 128 million to 95 million in the half-century to 2050, leaving its substantial debt burden to be shouldered by a smaller population.

This presents a major risk to businesses and governments as a proportionally smaller workforce must support a growing non-working population amid an increasingly sensitive global economy.

Population figures

Crude birth rate figures, the dominant factor in determining population growth together with the age structure of the population, are calculated by the annual number of births per 1,000 people at midyear. A nation’s natural population growth – excluding immigration – can be calculated by subtracting its crude death rate from its crude birth rate.

Using this method with the latest World Bank data, we see that Japan’s natural population is decreasing at a rate of -2 per 1000 people while, at the other end of the spectrum, the populations of India, Indonesia and Malaysia are growing at a rate of +13 people per 1000 each year.

For businesses and governments alike, the distribution of ages among the population determines the level of risk. For example, in Japan, the working-age population is 62%, according to the World Bank, which is at the lower end of average. However, its non-working-age population is predominantly made up of citizens aged 65 and over, with this section accounting for 25% of the total population.

That leaves Japan’s 0-14 age group making up a mere 13% of its entire population and raises significant worries regarding the country’s future workforce.

Nations with young populations such as India and Indonesia will have to invest greater amounts of capital in education and nations with older populations need to invest heavily in the health and social care sector.

Key socioeconomic issues can arise from such imbalances, and history suggests this tends to lead to civil unrest unless significant adjustments are made, such as raising taxes or reducing spending.

Businesses must be aware of the demographic landscape in regions where they operate. An unfavourable ratio of non-working-age citizens could destabilise strong economies as the available workforce shrinks while the Earth’s population continues to expand.