What does the Chinese “silver economy” mean to the rest of the world Markets | June 20, 2012

China has one of the fastest aging populations in the world. According to the World Health Organization, it is estimated that by 2040 402 million people, or 28% of the total Chinese population, will be over 60 years old.

Jian Shi Cortesi, Investment Director, Asia Equities at GAM Investments

© GAM

Jian Shi Cortesi, investment director of Asia Equities at GAM Investments, analyzes the growing importance of this demographic group, known as the “silver economy,” in China’s transition to a consumption-based economy.

China’s GDP is still mostly investment, not consumption
Despite the frequent high-profile headlines that China regularly sets new records for online sales, it’s important to remember that China’s GDP remains predominantly driven by investment, not consumption. The service sector only accounts for about 50 percent of Chinese economic output. In most industrialized countries, this percentage is 70 percent or more. This, along with the exponential growth of China’s average salary over the past 20 years, means China’s services sector still has a lot of catching up to do internationally – despite all the current problems surrounding the koruna.

Millennials and Gen Z are often in the spotlight
These two groups come to mind when we think about reorienting the Chinese economy towards a more consumer-oriented model. Some affectionately referred to as “single aristocrats,” their members tend to stay unmarried longer, then get married and have children, which gives them a longer period of increasing their disposable income. “Despite the slowdown in economic activity and the weakening of consumer confidence caused by Covid-19, Chinese consumers remain eager to buy products with high value proposition. Most importantly, the Chinese consumer market is not driven by one group. ” , white Jian Shi Cortesi.

Aging population with high purchasing power
One factor that is seldom addressed is China’s “silver economy”. As China has one of the fastest aging populations in the world, it is an important demographic for Chinese consumption, especially as China’s older generation enters the market for the first time, it has accumulated considerable wealth and purchasing power. Almost all members of this generation have mortgage-free homes, meaning that much of their income is freely disposed of.

The CCP wants to do more for this population
The 2035 political perspective of the Chinese Communist Party, published in 2020, underlines the importance of this group. The fourteenth Chinese five-year plan, announced the same year, also emphasized improving people’s well-being and included provisions to expand health care and pensions, since then further increasing the purchasing power of the older generation.

Retirees in China are more and more willing to spend
In addition to supporting government policies, there has also been a shift in attitudes among the older generation in recent years. In the past, they were frugal, spent a lot of time at home and looked after their grandchildren. The “new” older generation has the time and money – in particular, they are bolder and more willing to spend money to get the most out of their golden years.

Which industries should benefit from this
This is closely related to increased health awareness and a growing desire to look younger. The older generation spends a lot of money on healthy food and dietary supplements. In fact, dietary supplements are among the most popular gifts for the elderly in China and top the wish list of Chinese travelers traveling abroad. The desire to look younger is evident in both men and women. In this generation, not only is hair dyeing common, but also aesthetic treatments have experienced a boom in recent years. In China, older consumers told us that they are not only investing in these aesthetic treatments, but are also buying more cosmetics and jewelry, which is enjoyed by both native brands and Western luxury brands.

Other areas of growth resulting from greater wealth in the hands of the older generation are wealth management, financial planning and insurance. Along with increased savings and disposable incomes, this generation shows an increased demand for services aimed both at securing their own financial well-being in retirement and passing on their wealth to the next generation.

When it comes to retirement, there are signs of change
More and more people will spend their old age in nursing homes instead of living with and cared for by children. While government sponsored retirement homes tend to be modest, real estate companies have seized the opportunity to take advantage of this trend by building middle-class and exclusive retirement homes that cater to more affluent older people. Indeed, some of the former four- and five-star hotels in the suburbs have been rebuilt to meet the demand for high-quality seniors.

Adaptive economy will serve trends
It is clear that the Chinese consumer economy is extremely dynamic, with numerous growth drivers in a variety of sectors, coming from many different and important segments. The key role is played by the older generation of China, which has increasing wealth at its disposal as the population ages and will become even more important to the Chinese economy in the coming decades. (kb)

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