Taiwan - Fastest-Aging Society Greets Re-elected Ma

Ma Ying-jeou’ssecond term as president of Taiwan, secured in an election win three days ago, may be one of the island’s last opportunities to address the consequences of something unmentioned on the campaign trail: the world’s fastest-aging society.

Ma’s push for closer ties with China won a fresh mandate as he defeated Tsai Ing-wen, who said the tighter bonds may risk Taiwan’s autonomy. While Taiwan’s top planning body predicts the island’s population will start falling in 11 years, coping with an aging society and low birth rates were absent from the debate because the challenge is intractable, said Chuang Meng-han, an industrial economics professor at Tamkang University in Taipei.

Failure to tackle the change, by reducing the cost of raising families or allowing immigration, will leave Taiwan’s labor force shrinking, putting pressure on growth and asset prices. The economy’s trend rate of expansion is poised to fall to about 3.5 percent annually in the next decade, from 5.1 percent in the 20 years through 2010, according to DBS Bank Ltd.

“The impact will be huge,” said Chuang, who has analyzed the housing market. “Most people aren’t well-prepared for the aging society. The later the government faces the consequences, the more difficult they will be to deal with.”

Taiwan’s 2010 total fertility rate was 0.9 babies per woman, according to baseline estimates compiled by Taiwan’s Council for Economic Planning and Development. That’s less than in the 196 other countries and territories tracked by the United Nations. Taiwan’s 23 million population will fall to less than 19 million by 2060, according to the council.

Bear Market

By 2050, Taiwan will have an aging index of almost 413 percent, compared with Japan’s 339 percent, the CEPD estimates. That makes the island the most rapidly aging society, said Lo Yu-mei, a council researcher. The index is defined as the number of people aged 65 and over per 100 youths under age 15.

“Taiwan is heading the way of Japan, whose population is shrinking,” said Tim Condon, chief Asia economist at ING Groep NV in Singapore, who previously worked at the World Bank. “Taiwan’s stock market resembles Japan’s Nikkei in that both have been in a bear market since asset bubbles burst in 1990.”

Japan has struggled to overcome an aging and declining population, leading to two decades of depressed economic growth. The Nikkei 225 stock index is down 78 percent, the most in the world, since a peak in December 1989. Taiwan’s Taiex (TWSE) index is down 26 percent in the period, the third-worst performance.

Ma, 61, has put in place a monthly childcare stipend of NT$2,500 ($83) for newborns, payable to certain households earning an annual net income below NT$1.13 million until the child is two, to try and turn the birth rate around.

Property Risk

During the election, neither he nor Tsai of the Democratic Progressive Party recommended greater immigration to boost the population. The CEPD has said Taiwan has the world’s second- densest population among territories with more than 10 million people, limiting political scope for such a policy.

Aging raises the risk of substantial future home-price falls, said Laura Ho, an economist at Grand Cathay Services Corp. in Taipei. Property prices “are disproportionately high” and “older people are investing in property they won’t be able to find buyers for in years to come,” she said.

The president has vowed to consider imposing new taxes to rein in property costs. Housing prices in Taipei have more than doubled since 2000 and reached a record last year.

“Young people are discouraged from getting married because they can’t afford to buy a home,” Tamkang’s Chuang said.

Costly real estate and stagnant wages combined with the risk of recession to stir voter discontent. Gross domestic product fell 0.15 percent in the third quarter from the previous three months, as Europe’s fiscal crisis damped the export-led island’s overseas sales.

Stagnating Wages

Household income adjusted for inflation was lower in 2010 than in 2000. Joblessness, at 4.3 percent, compares with less than 2 percent three decades ago.

Ma says detente with former civil-war foe China, the island’s largest trading partner, will help bolster Taiwan’s $430 billion economy. He has relaxed trade, tourism and investment restrictions. Tsai argued his policy risks giving China too much sway over Taiwan.

Another consequence of closer economic ties to China has been an exodus of factories to the lower-cost mainland, crimping job opportunities at home.

Taipei-based Foxconn Technology Group (FOXCGZ), which assembles Apple Inc. iPhones and iPads, employs more than 1 million workers at its Chinese factories, compared with 10,000 in Taiwan. About 800,000 Taiwanese live in China, according to Taiwan’s Mainland Affairs Council.

Pace of Detente

In his victory speech, Ma said he will “control” the pace of rapprochement with Asia’s largest economy to ensure the policy retains public support. He took 51.6 percent of the vote in last week’s election, compared with Tsai’s 45.6 percent.

“Rapid ageing means declining labor input and, in the long term, suggests population will fall, which will slow the economy,” said Ma Tieying, an economist at DBS Bank in Singapore. “The savings rate will drop too, as older people usually have to spend their savings. That will be negative for investment.”

Taiwan’s predicament echoes a trend across Asia, signaling increased regional pension and healthcare burdens. Asia will account for 62 percent of the global elderly population by 2050, up from 44 percent in 1950, the Asian Development Bank said in a 2009 report.

While 2012, the year of the dragon, may boost Taiwan’s birth rate temporarily as it’s considered an auspicious period, population decline is inevitable, according to the CEPD.

“The economy isn’t in good shape,” Tamkang’s Chuang said. “But you need to have a stable income and feel secure about your job to have children.”

Chinmei Sung

Bloomberg

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