China will have to pay for an age wave of developedworld size with just a fraction of the developed world’s income and wealth!

INTRODUCTION
China is still a demographically young nation preoccupied with a young nation’s challenges— educating the young, creating jobs for a growing working-age population, and building a modern economy. China, however, is being overtaken by a stunning demographic transformation. In 1975, there were six Chinese children for every one elder. By 2035, there will be two Chinese elders for every one child.

During the single decade between 1995 and 2005, China added 107 million working-age adults to its population. During the single decade between 2025 and 2035, it will subtract 79 million.

What makes China’s age wave so daunting is not just its magnitude or the speed with which it is approaching, but the fact that it is arriving in a society that is still in the midst of modernization.

While today’s developed countries were all affluent societies with mature welfare states by the time they became aging societies, China is aging at a much earlier stage of economic and social development. No matter how fast its economy grows over the next few decades, it will have to pay for an age wave of developed-world size with just a fraction of the developed world’s per capita income and wealth. When China embarked on its “Open Door” program of economic reform in 1978, it was an impoverished country with few ties to the global marketplace.

Today it is a rising global economic power. China has become the factory floor of the world. In 2007, exports of goods and services reached 41 percent of GDP, ranking China (in dollars) as the world’s third largest exporter, just behind the United States and Germany. ...

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TABLE OF CONTENTS
Foreword 1
Introduction 2
Chapter 1: The Dimensions of China’s Aging Challenge 7
China’s Demographic Transformation 8
China’s Looming Retirement Crisis 10
The Broader Economic Outlook 15
Chapter 2: The Evolution of China’s Retirement System 19
From Iron Rice Bowl to Empty Accounts 19
Liaoning and Beyond 22
The Unfinished Agenda 25
Chapter 3: A New Direction for Retirement Reform 27
Building the Floor of Protection 27
Increasing Funded Retirement Savings 28
Designing a National Personal Accounts System 30
The Advantages of Funding 35
Reform and China’s Capital Markets 37
Conclusion: China at a Crossroads 42
A Note on Data and Sources 44
A Key to Chart Source Citations 46
Acknowledgments 47
About the Authors 48
About CSIS andThe Prudential Foundation 49

About the Authors
Richard Jackson writes on public policy issues arising from the aging of America’s and the world’s population. He is currently a senior fellow at CSIS, where he directs the Global Aging Initiative, an adjunct fellow at the Hudson Institute, and a senior adviser to the Concord Coalition. Jackson is the author or co-author of numerous studies on the implications of global aging, including The Global Retirement Crisis (2002), The Aging Vulnerability Index (2003), The Graying of the Middle Kingdom (2004), Building Human Capital in an Aging Mexico (2005), The Aging of Korea (2007), and The Graying of the Great Powers (2008).

Jackson regularly speaks on long-term demographic and economic issues and is often quoted in the press. He holds a B.A. in classics from SUNY at Albany and a Ph.D. in economic history from Yale University. He lives in Alexandria, Virginia, with his wife Perrine and three children, Benjamin, Brian, and Penelope.

Keisuke Nakashima is a research associate at the CSIS Global Aging Initiative and the co-director of the Global Policy Initiative, a virtual public policy think tank. His research interests include the economics of population aging and social security reform, and he is the author of numerous articles on aging trends in East Asia. Nakashima holds an M.A. in international relations from the Maxwell School of Citizenship and Public Affairs at Syracuse University and a B.A. in Anglo-American studies from Kobe City University of Foreign Studies in Kobe, Japan. He has also studied at the Paul Nitze School of Advanced International Studies at Johns Hopkins University and at Newbury College.

Neil Howe is an economist, demographer, and historian who writes and speaks frequently on the aging of the population, long-term fiscal policy, and generations in history.

He is a senior associate at CSIS, where he works with the Global Aging Initiative, a senior policy adviser to the Blackstone Group, and a senior adviser to the Concord Coalition. He is also founding partner and president of LifeCourse Associates, a marketing, HR, and strategic planning consultancy serving corporate, government, and nonprofit clients.

Howe is the author or co-author of numerous policy studies and books, including On Borrowed Time (1988), Generations (1991), 13th-Gen (1993), The Fourth Turning (1997), and Millennials Rising (2000). He holds graduate degrees in history and economics from Yale University. He lives in Great Falls, Virginia, with his wife Simona and two children, Giorgia and Nathaniel.

About CSIS
The Center for Strategic and International Studies (CSIS) provides strategic insights and policy solutions to decision makers in government, international institutions, the private sector, and civil society. A bipartisan, nonprofit organization headquartered in Washington, DC, CSIS conducts research and analysis and develops policy initiatives that look into the future and anticipate change.

Founded in 1962 by David M. Abshire and Admiral Arleigh Burke, at the height of the Cold War, CSIS was dedicated to finding ways for America to sustain its prominence and prosperity as a force for good in the world. Since 1962, CSIS has grown to become one of the world’s preeminent international policy institutions, with more than 220 full-time staff and a large network of affiliated scholars focused on defense and security, regional stability, and transnational challenges ranging from energy and climate to global development and economic integration. Former U.S. senator Sam Nunn became chairman of the CSIS Board of Trustees in 1999, and John J. Hamre has led CSIS as its president and chief executive officer since April 2000.

The CSIS Global Aging Initiative (GAI) explores the fiscal, economic, social, and geopolitical implications of population aging. CSIS established GAI in 1999 to raise awareness of the challenge and to encourage timely reform. Over the past nine years, GAI has pursued an ambitious educational agenda—undertaking cutting-edge research projects, publishing high-profile reports, and organizing international conferences in Beijing, Berlin, Brussels, Paris, Seoul, Tokyo, Washington, and Zurich that have brought together world leaders to discuss common problems and explore common solutions. To learn more about GAI, visit its website at www.csis.org/gai.

CSIS, 1800 K Street, NW, Suite 400, Washington, DC 20006
202-887-0200 www.csis.org

AboutThe Prudential Foundation
Founded in 1977, The Prudential Foundation is the nonprofit grant-making organization of Prudential Financial, Inc. It is part of Prudential’s Community Resources Department, a strategic combination of four units: the Foundation, which strives to build children and families’ self-sufficiency; the Social Investment Program, which originates and manages socially beneficial investments; Local Initiatives, which coordinates employee volunteerism and fosters community outreach; and Business Diversity Outreach, which facilitates diverse market development and outreach efforts for Prudential businesses.

The mission of the Community Resources Department is to strengthen Prudential by investing financial resources, business expertise and associate volunteer skills in programs that increase human potential and individual self-sufficiency through education, job skills, economic revitalization and basic community health.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $602 billion of assets under management as of September 30, 2008, has operations in the United States, Asia, Europe, and Latin America. Leveraging its heritage of life insurance and asset management expertise, Prudential is focused on helping approximately 50 million individual and institutional customers grow and protect their wealth.

The company’s well known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Prudential’s businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services.

For more information, please visit http://www.news.prudential.com/.

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