Economic and demographic transition pose major challenges for countries worldwide, particularly in large developing countries like China; however, strengthening social welfare programs can offset negative effects and help promote a sustainable future, according to Karen Eggleston, a scholar of Asia health policy at Stanford University.

“Unprecedented economic growth in China spanning the last three decades has lifted hundreds of millions out of poverty and restored China to the prominence in the world economy that it once enjoyed centuries ago,” said Eggleston, who is a Center Fellow at the Walter H. Shorenstein Asia-Pacific Research Center.

“Demographic change not only shapes the trajectory of [its] development, but interacts with macroeconomic and microeconomic forces” in numerous ways.

Eggleston, who presented “China’s Demographic Change in Comparative Perspective: Implications for Labor Markets and Sustainable Development” at the Jackson Hole 2014 Economic Symposium “Re-evaluating Labor Market Dynamics,” says a combination of societal changes makes China distinctive, and that the country can offer insights in comparative perspective. She joined two other experts for a panel discussion on demographics during the three-day conference led by the Federal Reserve Bank of Kansas City, which draws dozens of central bankers, policymakers, academics, and economists from around the world.

The research stems from a project that Eggleston heads on policy responses to demographic change in Asia. The initiative, which is a part of the Asia Health Policy Program, grew out of a 2009 conference cosponsored by the Global Aging Program at the Stanford Center on Longevity. Its outcomes have included the publication, Aging Asia, a special issue of the Journal of the Economics of Aging focused on China and India co-edited with David Bloom of Harvard University, and two forthcoming books on urbanization and demographic change in Asia.

China in flux

China is the most populous country in the world with more than 1.3 billion people. Its sheer size alone creates heavy demands as demographics change, and the economy continues its shift from a centrally-planned system to a market-based system.

China’s population age 60 and older is projected to increase from one-tenth of the population in year 2000 to a staggering one-third by year 2060. Simultaneously, the population age 14 and under is projected to decrease by one-third between years 2010­ and 2055 (Figure 2).

Eggleston, and others who closely watch the situation, say these demographic changes will bring a myriad of challenges to the labor market and to cultural norms related to intergenerational support, work and retirement.

China’s low birth rates have largely been influenced by family planning campaigns that begun in the early 1970s, and later, the “one child policy,” a population control policy that allowed for the birth of only a single child in many families. Recently, the government has relaxed that policy, and analysts believe the change will eventually help to balance the population age structure and infuse the workforce with new employees, filling the void caused by retiring workers in the coming years.

In the meantime, preparing support structures for the older generations’ departure from the labor market is essential. Social welfare programs, including health insurance and retirement and childcare services, will see significant demand, and require restructuring to handle the influx.

China’s aging population experience is similar to other countries in Asia. Japan, South Korea and India are also projected to see significant increase in median age over the next 30 years (Figure 1). 

Eggleston says China has made positive steps toward restructuring its institutions, including establishing government-subsidized health insurance programs and reforming pension systems. Most notably since 2002, China took a large step towards universal health care by implementing the New Rural Cooperative Medical Scheme for rural residents. Now, nearly all citizens have access to basic medical care, which can support healthy aging as well as mitigate large “precautionary savings” and help those struck by medical conditions requiring significant services.

A pension system for people in China’s rural areas, developed by the government in 2009, also set up a supportive system by providing increased transfers for seniors, and, interestingly, supporting labor markets by easing the worries of adult children who migrate to urban areas for work.

China has been forward thinking with its related public policies, but it certainly can do more, Eggleston says. Integrating technology into its health systems, and making its services more fiscally responsible could improve efficiency, and expand access to care.

The full paper and handout from Eggleston’s presentation at the conference are available on the Federal Reserve of Kansas City website.

With tensions between Japan and South Korea continuing over historical and territorial issues, Beijing is more than willing to use the history card to woo Seoul. In a recent visit to South Korea, Chinese President Xi Jinping said that "in the first half of the 20th century, Japanese militarists carried out barbarous wars of aggression against China and South Korea, swallowing up Korea and occupying half of China." Earlier this year, China opened an elaborate memorial hall in Harbin to honor Ahn Jung-geun, who killed Hirobumi Ito, the first Japanese resident-general of Korea. To Koreans, Ahn is a national hero; to Japanese, a terrorist. Xi's visit to Seoul was to repay South Korean President Park Geun-hye's own visit to Beijing last year. Neither Park nor Xi has visited Tokyo yet.

China is apparently seeking to pull South Korea over to its side in its widening strategic competition with the United States and Japan. Xi's "charm offensive" toward Seoul is based on the calculation that South Korea's strategic value will only increase in coming years.

For South Korea, there are compelling reasons to improve relations with China. Ties had been strained by Park's predecessor, Lee Myung-bak, emphasizing South Korea's alliance with the U.S. She must take into account that China is becoming ever more important to South Korea's economy. (Apart from Taiwan, South Korea enjoys the world's largest merchandise trade surplus with China, approaching $100 billion). Park also wants China to support her North Korea policy focused on ending Pyongyang's nuclear weapons program and preparing for unification. 

While China actively asserts its claim to leadership in Northeast Asia in courting South Korea, Japanese Prime Minister Shinzo Abe seems to deliberately ignore, if not dismiss, the importance of South Korea. Japanese policymakers argue, wrongly, that the Park government is "pro-China" and that Japan needs only to worry about China itself. Conservative Japanese media regularly bash the South Korean government and South Korea more broadly, and anti-Korean sentiments in Japan are on the rise.

Japanese focus is understandably on its alliance with the United States. But American policymakers openly worry that continuing tensions between its main allies in the region will undermine its strategic position regarding China and North Korea. President Barack Obama brought Abe and Park together in March on the sidelines of the Nuclear Security Summit, but with little to show for it. The United States is also concerned that the Abe government's nontransparent dealings with North Korea on the abductee issue could further damage Japanese-South Korean relations and vitiate U.S. efforts to press Pyongyang on the nuclear issue.

Northeast Asia is in flux. With its economic and military power growing, China is seeking to regain the dominant position in the region that it ceded to Japan over a century ago. In the process of reshaping a regional order, the Korean Peninsula will again be very important. Already, two major wars occurred over Korea when old and new powers competed for hegemony -- the Sino-Japanese War of 1894-95 and the Russo-Japanese War of 1904-05.  It is crucial for both Japan and South Korea to maintain friendly relations with a rising China, but it is just as important that they improve their own bilateral relationship. Both have much to lose if the current trajectory in the region is not corrected. Moreover, Japan and South Korea have much in common, from their social and economic systems to democratic values, much more in fact than either has with China.

So, what should be done?  Above all, both Japan and South Korea must work much harder to resolve the issues that continue to arise out of their shared history of colonial rule and war. South Korea needs to move beyond victim consciousness, and Japan needs to show more farsighted political leadership. Specifically, Japan should unequivocally reaffirm the Kono Statement regarding the "comfort women" issue, and Abe should make it clear that he won't visit Yasukuni Shrine again during his tenure as prime minister.

The 1993 statement was a key marker on the history question for South Koreans; the recent review of it sent the wrong message to Koreans. Japanese leaders are certainly entitled to honor those who sacrificed their lives for their country, but paying tribute also to convicted war criminals is an entirely different matter -- not only in the eyes of South Koreans but also of the international community as a whole. For its part, Seoul should make clear how much it values good relations with Japan and state that it is ready to work with Tokyo in a constructive fashion to fully and finally resolve the remaining historical issues.

Next year will be the 50th anniversary of the normalization of relations between Japan and South Korea. It should be an occasion to celebrate what that has meant for both countries -- regional peace and stability and economic prosperity. But even more importantly, both Tokyo and Seoul should also use the anniversary as a golden opportunity to develop a new vision for their relationship. The future of Northeast Asia will be brighter for all the countries in the region if its two major democracies show greater wisdom.

Gi-Wook Shin is a professor of sociology and director of the Walter H. Shorenstein Asia-Pacific Research Center (APARC) at Stanford University. Shin's article (with Daniel Sneider, the associate for resarch at Shorenstein APARC), "History Wars in Northeast Asia," appeared in Foreign Affairs (April 2014).

This article was originally carried by Nikkei Asian Review on 17 Sept. and reposted with permission.

Stanford researchers have introduced a major new study on North Korea policy at a hearing at the South Korean National Assembly. Entitled “Tailored Engagement,” the report concludes that South Korea is the only country today that may be both willing and able to try a new approach toward the worsening North Korea problem.

“There is considerable urgency for Seoul to act,” according to the report released by the Korea Program at the Walter H. Shorenstein Asia-Pacific Research Center (APARC) in the Freeman Spogli Institute for International Studies, which comes in response to increasing tensions and heightened nationalism in Northeast Asia.

“Only the Republic of Korea has both the need and the potential influence to change this dangerous trajectory on the Korean Peninsula.”

Published by Gi-Wook Shin, the director of Shorenstein APARC; David Straub, the associate director of the Korea Program; and Joyce Lee, the research associate for the Korea Program, the report is the culmination of more than a year of intensive research activities at Stanford University, including three international conferences focused on Northeast Asia’s security and political situation.

During the past year, North Korea continued to develop nuclear weapons and North-South Korean relations worsened, while increasing U.S.-China strategic mistrust has made it less likely that those two countries can cooperate to change North Korea's behavior.

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“I was very impressed by the concern that the Korean Congressmen showed about the current situation on the Korean Peninsula and by their interest in our reasoning and recommendations,” Shin said. “Almost all of the Committee’s 18 members attended, and engaged in a lively exchange of views during the three-hour-long hearing.”

In their report, Shin, Straub and Lee propose a process that involves a series of increased exchanges with North Korea. This would be applied in a principled, systematic way, based largely on expanding a domestic consensus in South Korea that treats South Korean engagement of the North as necessary for improving the situation on the peninsula, not as incompatible with maintaining pressure on Pyongyang to abandon its pursuit of nuclear weapons.

The report lays out four main steps that South Korea can implement to reduce the risk of regional conflict, while also creating a foundation for peaceful unification with North Korea.

• Focus on the pursuit of mutual interests and benefits rather than on symbolism and appeals to national sentiment.
• Apply market principles and international standards in economic activities.
• Collaborate with other countries and third-party companies in both economic and people-to-people projects.
• Be pragmatic and flexible in pursuing engagement at both the state-to-state and grassroots levels in complementary ways. 
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South Korea is well suited to engage the North because of their shared history, and its status as a major middle-power status has also increased its sway with both China and the United States.

No longer a “shrimp among whales,” South Korea has transformed since democratization, leaving that modest proverb behind and gaining an influential role in the region.

Now the country has an opportunity to begin to bridge the gap with North Korea, but first, it must create an internal structure that supports engagement.

In implementation

The North Korea problem is complex and wrapped in a varied history of engagement efforts by South Korea and other countries. Lessons of success and failure from past administrations provide important insight, the report says.

“The main impediment to South Korea’s assuming a greater international leadership role on the Korean question is not a lack of national power,” the report states, “but a lack of domestic political consensus about how to deal with North Korea and the consequent inconsistency in ROK policy across administrations.”

The South Korean government changes executive leadership every five years, and with it, there has been great inconsistency between conservative and progressive policies. The current administration that assumed office in 2013, led by President Park Geun-hye, pursues a North Korea policy of trustpolitik, wherein the government aims to build trust through a step-by-step process.

According to the report, the tailored engagement approach can inform and build on President Park’s policy. Three main actions can be taken by South Korea’s administration to implement productive engagement, the report states:

• Reorganize the Korean government itself to facilitate a more coordinated formulation and implementation of North Korea policy.
• Achieve much more consensus within South Korea on how to deal with North Korea.
• Seek to win support of the major powers, especially the United States and China for its approach to North Korea.

Developing trust is essential to de-escalate tension between the Koreas. Without progress in confidence-building, the two countries can hardly collaborate on even straightforward projects, such as expanding the existing Kaesong Industrial Complex, a bi-lateral industrial park located just north of the North-South border.

Solving more basic issues and participating in joint initiatives can help pave the way toward inter-Korean reconciliation during President Park’s administration, and the next.

“Reconciliation and convergence would improve many aspects of the situation on the Korean Peninsula, including eventually facilitating North Korea’s abandonment of its nuclear weapons program and the achievement of unification,” the reports says.

Asia Economy Daily wrote an article (in the Korean language) about the research team's presentation. A version of this article was also carried as a news release by the Stanford News Service. NK News, a news oufit focused on North Korea-related news, also wrote an article (in the English language) and can be found on NKNews.org. The Voice of America covered the presentation by Shin and Straub at the Brookings Institution. The article, written in Korean, can be accessed on the Voice of America online.