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China is entering a “danger zone” where a financial crisis may become more likely because of increases in loans and property prices coinciding with an aging of the population, a Bank of Japan (8301) official said.
“If a demographic change, a property-price bubble, and a steep increase in loans coincide, then a financial crisis seems more likely,” BOJ Deputy Governor Kiyohiko Nishimura said in a speech for a conference in Sydney, posted on the central bank’s website today. “And China is now entering the danger zone.”
China is at risk of emulating crises in Japan in the 1990s and the U.S. in the 2000s, according to Nishimura, who cited a Chinese working-age population that is “close” to peaking as a proportion of the total. Demographic changes can provide fertile ground for “malign property bubbles” because of the effect on demand for real estate, he said.
Asia’s manufacturing powerhouses -- Japan, South Korea and China -- are among the fastest-aging countries in the world, while developing nations in Southeast Asia are among the youngest in the region.
Increasing evidence from a range of nations shows that changes in population composition have “a significant effect on property prices, especially the land component,” Nishimura said. At the same time, “not every country experiencing this sort of demographic change has a malign property bubble and a financial crisis,” he said.
Nishimura said that peaks in the working-age population in Japan were accompanied by property-market highs, and a “similar” picture emerged in the U.S.
Cai Fang, a demographics adviser to the Chinese leadership, said yesterday that the nation’s potential economic growth rate may be about 1 percentage lower in the second half of this decade after the labor force peaked.
Cai said last year that the “age structure of the population is a driving force of economic growth” and the nation may move away from its one-child policy in coming years.
Implemented to alleviate poverty, the restriction on family size will cut the number of 15- to 24-year-olds, the mainstay of factories that drove growth for two decades, by 27 percent to 164 million by 2025, according to United Nations estimates.
Premier Wen Jiabao is maintaining curbs on China’s housing market even as the nation’s economy slows because the government wants to rein in prices inflated by the stimulus spending that countered the global financial crisis.
The world’s second-biggest economy grew 7.6 percent in the second quarter of this year, the least since 2009. The Shanghai Composite Index fell about 4 percent this year on concern that weaker growth will erode corporate profits.
China’s new home prices climbed in July from a month earlier in 49 of the 70 cities tracked by the Chinese government, the most since May last year. Evidence the housing market is picking up follows interest-rate cuts in June and July by the People’s Bank of China.
Within Asia, factories, jobs and investment may flow south to nations such as the Philippines as a result of demographic changes.
“The demographic dividend is over for Japan and Korea, and it will be over for China soon,” Yoshimasa Maruyama, chief economist at Itochu Corp. (8001), Japan’s third-largest trading company, said in an interview earlier this year.
China’s latest census showed that people age 60 and older accounted for 13.3 percent of the population in 2010, 2.9 percentage points higher than in 2000. Children age 14 and under were 16.6 percent of the total, down 6.3 points.
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