The Future of The Indo-Pacific Through the Lens of Demographics

Image Source: NPR

The Democratic People’s Republic of Korea (DPRK)’s ballistic missile launch on November 19 was not a typical launch test. What surprised the world that day was not its latest destructive missile that could reach the continental United States, but the first public appearance of Kim Jong-un’s little-known daughter. The young girl with a white coat symbolized the regime’s new generation. State media proclaimed that the regime’s nuclear weapons would be “monuments to be passed down to our descendants for generations.” It is fascinating to think about what kind of future lies for the little girl and her generation in 20-30 years, to have a glimpse into the future and of the region’s demographic changes.

The demographic shifts in the Indo-Pacific will have far-reaching impacts on regional security and global economic dynamics. Both US allies (Japan, South Korea, and Taiwan) and its main competitor (China), face rapidly aging societies. On the contrary, India and some Southeast Asian countries (particularly Indonesia) will benefit from a younger workforce, known as the demographic dividend.

China: No Longer the Most Populous

Next year, India will overtake China as the most populous country in the world. According to an estimate by a Chinese demographer, China’s population already peaked last year. In 2021, only 10 million babies were born, the lowest since 1949 when the communist regime was established. The proportion of those 65 or older increased from 8.9% to 13.5% over the last decade and is expected to reach 30% by 2050. The aging population has become a daunting policy challenge for the Chinese government, as its leaders fear that the country is “getting old before getting rich.”

China’s slower population growth or even decline will negatively affect its economic development. Rising demographics have been one of the principal driving forces enabling economic growth throughout history, as demonstrated by China when its massive population growth facilitated the country’s rapid development with the provision of cheap labor and a large domestic market. Hence, a decrease in working-age adults will hamper the Chinese government in achieving its economic goal of becoming a moderately prosperous society by 2049, which was already weakened by the COVID-19 pandemic. Its aging population will also drive up social costs and fiscal burdens for the government. The country currently spends only 7% of its gross domestic product (GDP) on social welfare, much lower than the OECD average of 20%. There also exist immense economic inequalities between urban and rural areas, where demographic changes will disproportionately impact the latter. This will put pressure on local governments already struggling to pay back mounting debts, and that can ultimately metastasize into a global financial crisis. 

With growing domestic financial burdens and a diminishing workforce, China also might not sustain its lavish international infrastructure projects such as the Belt and Road Initiative, which is powered by cheap Chinese loans and labor. However, some argue that the demographic changes will not automatically lead to the decline of the Chinese economy given that younger generations are more educated and productive than the older generations. Also, China’s technological innovations in the manufacturing industry, including in automation that increases productivity, can mitigate against a decreasing labor force. It is nonetheless questionable whether the Chinese economy can continue to innovate and grow when its political system remains overly restrictive and totalitarian.

Aging and Shrinking Allies

At the same time, major US allies in the region, namely Japan, South Korea, Taiwan, and Singapore are aging fast, creating both economic and security risks. Economically, these countries are facing challenges in boosting their fertility rate and providing health services and social welfare benefits to the growing elderly population. A shrinking population and labor force mean a smaller tax base, further worsening governments’ fiscal imbalances. For instance, South Korea already poured $200 billion to boost its population over the past 16 years but failed to produce meaningful outcomes. The Japanese government is also grappling with rising health and social security expenditures.

These demographic changes have national security implications. A decrease in population leads to a reduction in military personnel. South Korea, which requires all able-bodied men to serve in the military, is already undergoing force reduction. The Korean military maintained a 600,000-strong force until 2018, but its troop size has since rapidly fallen. According to the Korea Institute of Defense Analysis, its troop size is already below 500,000 and will decrease to 330,000 in 20 years. Japan and Taiwan also face similar problems with their forces. Although these militaries seek to compensate for the loss of manpower with advanced weapons systems, the downsizing of forces will certainly not help against numerically superior enemies such as China and North Korea. (North Korea is also aging too but at a slower rate, and its military force has been historically larger than the South even though its population is roughly half that of the South).

India and Indonesia’s Moment

New Delhi is well-positioned to benefit from the demographic dividend. More young people are joining the labor force, while the decrease in birth rate eases the country’s dependency ratio–the number of dependents divided by the number of the working-age population. Experts point out that India’s current demographic profile is similar to that of China and Brazil before they achieved their economic booms. Indonesia is likewise in an advantageous position, as over 70% of its population is in prime working-age condition. Laos, Brunei, and Cambodia, though they have smaller economies, will also benefit from the favorable changes in their demographic structures.

However, there is also a risk of instability for these economies that need to provide more jobs and social services to their growing populations. External economic shocks and increasing automation can threaten job markets and cause social instability. It is important to note that demographic changes also played a role during the 2010 Arab Spring. Both Tunisia and Egypt experienced high population growth and failed to provide adequate social services to their growing populace. Furthermore, if these countries fail to fully exploit the demographic dividend, they could fall into the middle-income trap – wherein a country reaches a certain level of income and fails to grow further.

Closing thoughts

The future regional landscape that Kim Jong-un’s daughter will inherit will be radically different from today’s world. China might no longer be a vibrant and expanding economy as it is now. South Korea and Japan, North Korea’s main adversaries, might have much smaller populations to the extent that South Korea could even face extinction while Japan could become a city-state in the far-off future if current trends hold. India and Indonesia might wield more influence in the region based on their burgeoning population and economies. But what kind of future the next generation will have depends on how these countries prepare for and adapt to changing demographics.

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