Andy Xie, renowned Chinese economist, shared his insights on how the rising property prices are adversely affecting the fertility rates in East Asia, and what is the subsequent impact economically.
In any country, a demographic implosion is a financial catastrophe. Japan’s skyrocketing national indebtedness, for example, is driven by rising social security expenditure. At the same time, tax revenue has remained stagnant due to fewer and fewer taxpayers.
Japan’s situation could be worse if not for outsourcing to China to ease pressure on its labour force. Hong Kong and Singapore have avoided Japan’s fate with immigrants from mainland China. When China’s population begins to decline, East Asia could become a vast financial catastrophe.
In theory, raising productivity could offset the economic effects of a declining population. The reality is that a declining population is associated with slower productivity growth. Productivity tends to come from investment. When no investment is needed for creating jobs, productivity suffers. Further, when the median age in a society is over 50, it is hard to see how it could speed up innovation.
East Asian countries need to face up to their demographic crisis now. Marginal incentives like cash for the second or third child won’t do. They must ask why their fertility rates are so much lower than in the richer Western countries.
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Dr Andy Xie 謝國忠, Shanghai-based independent economist, has just been named “ 50 Most Influential Persons in Finance”by Bloomberg, and is currently director of Rosetta Stone Advisors.Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.
Dr Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.