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China's Silver Economy

China has one of the fastest growing ageing populations in the world. According to the World Health Organisation, an estimated 402 million people, or 28% of the total population of China, will be over the age of 60 by 2040. GAM Investments’ Jian Shi Cortesi examines the increasing importance of this demographic, termed the ‘silver economy’, for China’s transition to a consumer-led economy.

14 April 2022

Despite the attention-grabbing headlines we often see about e-commerce records routinely being topped in China, or robust sales from tourist destination Hainan Island, it is important to remember that China’s GDP is still largely investment led, rather than consumer led. Indeed, if we look at service as a percentage of GDP, it accounts for approximately 50% of Chinese GDP. In most developed countries, this rises to 70% or higher. This, together with an exponential rise in the average Chinese salary over the last 20 years, means there is much scope for China’s service sector to catch up.

Millennials and Gen Z often get much of the limelight in terms of their role in rebalancing China’s economy towards a more consumption-led model. These groups, sometimes affectionately known as ‘single aristocrats’, typically stay single for longer, marry later and have children later, giving them a longer period of rising, disposable income.

Crucially, however, China’s consumer market is not driven by any one single group. Notwithstanding the economic slowdown and weakening of consumer sentiment caused by Covid, consumers are still eager to buy products with high value proposition and there are multiple drivers contributing to this.

An ageing population with significant spending power

One of these drivers, which rarely gains as much attention, is China’s ‘silver economy’, referring to its older population. Given China has one of the fastest growing ageing populations in the world, this is an important demographic group for Chinese consumption, particularly given China’s older generation has, for the first time, accumulated significant wealth and spending power. Almost all of this generation own their homes without a mortgage, which means a large proportion of their income is available for discretionary spending.

The Chinese Communist Party’s 2035 policy outlook, published in 2020, emphasised the importance of this group, with ‘young’ and ‘old’ both keywords in relation to demographics and consumer trends. Further, China’s 14th five-year plan, also published in 2020, included a section focused specifically on improving the wellbeing of people in which it set out provisions for the expansion of the coverage of healthcare and pensions, further bolstering the older generation’s spending power.

A change in attitude

In addition to supportive government policy, we have witnessed an attitudinal shift among the older generation in recent years. In the past, they were thrifty, spending a lot of time at home and caring for grandchildren. The ‘new’ older generation has time and money - and crucially is more adventurous and willing to spend money to make the most of their golden years.

Closely linked to this is an increased health consciousness and a growing desire to look younger. Regarding the former, we see the older generation spending heavily on health food and supplements. In fact, health supplements are among the top gifts for older people in China and sit high on the wish lists of Chinese tourists travelling overseas. The desire to look younger is evident among both men and women. It is not only extremely common for this generation to dye their hair, but aesthetic treatments, including Botox, dermal fillers, photo rejuvenation and mesotherapy, have boomed in recent years. During our on-the-ground research in China, older female Chinese consumers told us that, in addition to investing in these aesthetic procedures, they buy more cosmetics and jewellery, to the benefit of both domestic brands and Western luxury brands.

Another area of growth stemming from the larger pool of wealth in the older generation’s hands is wealth management, financial planning and insurance. With more savings and disposable income, this generation is showing an increased demand for services both to help safeguard their own financial wellbeing in retirement and to pass on their wealth to the next generation.

With regard to retirement, we are seeing a shift as more and more people spend their later years in senior homes instead of living with and being cared for by their children. While government-sponsored senior homes tend to be rather basic, real estate companies have taken the opportunity to capitalise on this trend by building mid- and high-end senior homes to tailor to wealthier elderly people. Indeed, some former four- and five-star hotels in the suburbs have been converted to meet demand for high-end senior facilities.

Clearly then, the consumer economy in China is extremely vibrant, with multiple drivers of growth across sectors coming from many different and sizeable segments. Forming a key part of this is China’s older generation who, with ever more disposable wealth at their hands, will become even more important to China’s economy as the country’s population ages over coming decades.

Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. There is no guarantee that forecasts will be achieved. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Assets and allocations are subject to change. Past performance is no indicator for the current or future development.

Jian Shi Cortesi

Investment Director
My Insights

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