Over the past year, the Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC) has engaged in leading-edge research on demographic change in East Asia. Karen Eggleston, director of the Asia Health Policy Program at Shorenstein APARC, discusses the recent book Aging Asia: The Economic and Social Implications of Rapid Demographic Change in China, Japan, and South Korea, and the workshop on the economic, social, and political/security implications of demographic change in East Asia, held January 20-21 at Shorenstein APARC.

Across Northeast Asia, countries are facing the issue of an aging population, which causes socio-economic challenges that have policy implications. You explore this phenomenon in your forthcoming book Aging Asia: The Economic and Social Implications of Rapid Demographic Change in China, Japan, and South Korea. When did aging begin to become an issue and what are some of the greatest factors that you address in the book?

Aging started at different times in the countries of East Asia. The country with the oldest life expectancy in the world and the oldest age structure of its population is Japan. It had a very short baby boom after the war and has had a steep decline in fertility. Mortality has also been falling around the world, and so this creates a change in the population. Japan is already at the fourth stage of demographic transition. South Korea is rapidly moving towards that and already has one of the lowest fertility rates in the world. Of course, neither of them have policies to reduce fertility; in fact, they are trying to encourage it. China, on the other hand, has long been trying to control fertility and is not as extreme in terms of the population age structure, but it is rapidly changing. China will be older in median age than the United States soon—this is not a trivial factor when you think in terms of the absolute size of the Chinese population.

One of the things that we wanted to study in this project is the premise that the demographic transition is a "problem." It is true that you need to think about and have policy responses to it. But it can also be seen as a sign of success, and as an opportunity. We wanted to reframe the issue and think about evidence on both sides. There is some research highlighted in the book, for example, that looks at the impact of population aging on economic growth, which is one of the first things that comes to many people's minds. For example, if you have a lot of elderly people, they are not in the work force and they need to be supported. It is true that this can be bad for economic growth, but there also are policy and individual responses that may moderate the effects. Our research is trying to highlight several different aspects of aging, including the question of opportunity. For example, there is more investment in individual children now and elderly persons' savings have actually contributed to economic growth. In some aspects, this has been a sign of resiliency for Japan where there are a lot of transfers to the working-age population.

Ronald Lee at the University of California, Berkeley and Andrew Mason at the East-West Center at the University of Hawai'i, who is participating in the January workshop, have been working on the concept of a "second demographic dividend." They find that as countries have an older age structure, there are more people that are saving. In the widely accepted "first demographic dividend," there are more people in the working-age part of the population—more people employed and more people contributing to the GDP. You get a boom contributing to growth. We know that this contributed to Japan and South Korea's earlier growth, and to China's in the 80s and part of the 90s, but only one or two percent of GDP. The question then is whether it is a problem that with aging you are losing that first demographic dividend. A second demographic dividend might arise because people who are preparing for a longer retirement life are saving more, and those savings are then invested in the economy and the investment drives economic growth.

Is there any correlation to demographic issues faced by the United States?

Interestingly, the aging issue is more pronounced in East Asia than in the United States for several reasons. We have a higher fertility rate than in Japan and South Korea, and many other countries in Europe as well. We also historically are much more open to immigration than most other countries, and this has led to a certain vitality in the population mix that has slowed the impact of demographic change. That said, of course, there are issues with having a lot of baby boomers. Sometimes, depending on the specific question or the specific area of policy, you find other factors that are much more important than aging. For example, the growth of healthcare spending has been in the news a lot lately. Although obviously there is an impact from having more elderly people, there are much bigger issues, such as what we are spending per person per age group and the growth of that spending. Just aging per se is not as big of an issue as people might think.

In late January, you will be holding the workshop Comparative Policy Responses to Demographic Change in East Asia: Defining a Research Agenda. What are the major issues you will explore in the conference? Who will be involved? Finally, what is the publication or research project that you will launch from this?

We had an Aging Asia conference in February 2009, co-sponsored with the Global Aging Program at the Stanford Center on Longevity. The outcome of this is the forthcoming volume, co-edited with Shripad Tuljapurkar of the Department of Biology at Stanford University. We started with a basic survey of the region and thought about the basic trends-demographic, social, and economic-and built upon that to figure out where the gaps are in the literature and where the interesting research questions are. That is where the January 2011 workshop comes in as the next step. We are bringing in some of the same and some different people to focus on three specific themes: economics, society, and politics/security. The upcoming event again focuses on East Asia and there will be a public component, but it is a smaller event and its main goal is to dig deeper into these themes to figure out an interesting research agenda on the policy responses to demographic transition.

We decided to focus again on East Asia, which is the research focus of a lot of our Shorenstein APARC faculty. Masahiko Aoki and Michael Armacost are going to chair sessions, and Gi-Wook Shin is going to kick it all off and talk about the social aspects of demographic change. Andrew Walder will be participating in that session as well. Thomas Fingar will be covering the political and security implications. All Shorenstein APARC faculty have been invited to participate and think about how this issue of demographic change—and particularly policy responses—might be related to their own areas of research. 

An illustration that I like to give when people ask about how demographic change is related to other things is from Andrew Walder when he was talking about China's transition in the 1980s. He received a question about whether or not there had been an impact from the One Child policy. He said that obviously there are many different impacts, but the one thing that he noted was that students in China now, especially if they are only children, are under a lot of career pressure. This has changed the space or the freedom for self-exploration. Why does this have broader implications? Young people see access to political power as one key for their careers and this changes their views about joining the Communist Party, which has big implications for China's political future. This is just one illustration of how we are trying to explore the broader implications of demographic change.

Finally, what is the outcome that you would most hope to achieve through Aging Asia and the upcoming demographic change workshop?

I think that the biggest hope would be to develop a much better understanding of what is going on with demographic change: what are the processes and how is society changing? What are the individual challenges that families are facing and what are they are doing about it? What is the broader social or even global perspective on how this is going to shape our future world? For me, I think about the world that my children are going to grow up in.

Through our research, I hope that we will impact not only the understanding of what has driven past developments, but create policy recommendations for each of the societies that were are examining—including our own—on the opportunities and the challenges related to changes in population. That hopefully will be useful as these different societies think about how to respond.

Our research on the economic, the social, and political/security aspects of demographic change is intended to be tangible for individuals and families as well as for broader national policy.

While Shanghai and Hong Kong are often viewed as the financial centers of China, Beijing, the capital, is in reality where all financial decisions are made-decisions that affect the country's banking system and overall financial structure, which has implications on a global level. Carl Walter, a managing director of JPMorgan China, spoke at a Stanford China Program seminar on November 1 about the frequent changes in China's banking system since 1949 and the cost of these reforms within and outside of China.

China's banking system is currently controlled by the Ministry of Finance (MOF), which has competed at several points with the People's Bank of China (PBOC) for influence within the state bureacracy. During the Cultural Revolution period, MOF first moved to the fore of China's banking system, merging together the until-then separate PBOC and Bank of China (BOC) and eliminating all other banks. With China's "Open Door" economic reforms of 1978, the banks were again separated, with PBOC having oversight for three commercial banks and MOF for two, including BOC. In 1994, authority for all commercial banks, such as BOC and the Agricultural Bank of China (ABC), moved to PBOC and MOF took control of three newly established policy banks, such as China Development Bank and the Agricultural Development Bank. Premier Zhu Rongji drove these and all other banking reforms until 2003.

Major bank restructuring has taken place since 1998, the big four banks were re-capitalized, problem loans spun off into four "bad" banks and the international accounting system adopted in preparation for international share offering on both domestic and international markets. All four banks successfully raised capital internationally and domestically over the past five years. Two large sovereign wealth fund-like entities came into being-Huijin, controlled by PBOC, and China Investment Corporation (CIC), operated under MOF- that were used to hold the Chinese state ownership of these banks.  The year that it was established in 2007, CIC acquired Huijin and MOF thereby indirectly gained control of all of the banks under PBOC.

The greatly increased level of bank capital achieved through restructuring and recapitalization was eroded, however, due to the enormous growth of loans in 2009 so that China now is faced with raising virtually the same amount of capital again, stated Walter. Everyone is paying the price, including international and domestic equity investors, who are being diluted, and China's own government, which to avoid dilution, must buy new shares at high market prices. The values of these shares, moreover, may be inflated due to the techniques used earlier to remove bad loans from their balance sheets. This has left banks exposed to these now worthless portfolios. To that extent, international accounting firms and market regulators put their reputations on the line when they support capital raising by the banks internationally. In short, the politics and economics of China's bank reforms and the struggles to control the banks have been internationalized.

Walter suggested that China is trapped with a banking system that is suited to the country's political system, but not to its economy. His forthcoming book, Red Capitalism: The Fragile Financial Foundations of China's Extraordinary Rise, co-authored with Fraser J.T. Howie, examines this issue and the recent history of China's financial system in depth.

Beyond his childhood ties to Hawai'i and Indonesia and his self-styled designation as "America's first Pacific President," President Barack Obama has demonstrated significant and genuine interest in Asia and in developing trans-Pacific ties. He embarked on November 5 for the second presidential visit to Asia during his term, and while there he will visit India, Indonesia, South Korea to attend the summit of the Group of 20 (G20), and finally to Japan to attend the annual heads of state meeting of the Asia-Pacific Economic Cooperation (APEC) conference. Secretary of State Hillary Clinton will travel a week ahead of Obama to attend the Association of Southeast Asian Nations (ASEAN) gathering and the East Asia Summit (EAS) in Vietnam, followed by visits to Malaysia, Papua New Guinea, New Zealand and Australia. Her trip will include an added-in stop to China's Hainan Island. To address major issues surrounding the President's trip to Asia--including the "China question" and historic U.S. bilateral alliances--four scholars from the Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC) gathered for a public panel discussion on October 27.

Thomas Fingar, Oksenberg/Rohlen Distinguished Fellow of the Freeman Spogli Institute for International Studies, spoke about the symbolic aspects of Obama's visit, noting the importance of a presidential visit for showing a sense of real commitment to the region and an acknowledgement of the "rise" of countries like China and India. On a more pragmatic side, he also suggested that meeting in person with other leaders is crucial in order to "bring about deliverables." The omission of a visit to China should not be weighed too heavily, Fingar said, pointing out that the President visited China last year. The stops in Japan and South Korea are tied to important multilateral meetings, though they will also reaffirm longstanding ties with those allies, while the visit to India is an indication of growing relations between the two countries. Of particular importance is Obama's participation in the G20 Summit in South Korea and the APEC meeting in Japan because, Fingar stated, a major purpose of the visit is about the "United States having a role in building new multilateral institutions." Finally, while much of the success of the Asia trip rests on how well Obama conducts himself, Fingar expressed confidence that the President would skillfully manage the visit.

During his visit to Indonesia, Obama will meet with Indonesia's President Susilo Bambang Yudhoyono for a bilateral discussion of such issues as economics, security, and higher education. Donald K. Emmerson, director of the Southeast Asia Forum, said that the postponement of earlier-planned visits to Indonesia has lessened some of the enthusiasm for Obama's "homecoming" to Jakarta. China's omission on the trip agenda is noteworthy, he suggested, and Clinton's addition of a stop in Hainan is due, in part, to help alleviate recent tension between the United States and China regarding China's claim of sovereignty over the South China Sea. Clinton's involvement in the EAS is an "important multilateral engagement" for the United States because of the presence of its ally Japan and the fact that the United States and China both have a voice there, unlike the ASEAN Plus Three meetings that do not include the United States. While in recent months the U.S.-China relationship has become more strained, Emmerson asserted that the "United States is not going to get into a cold war with China."

Obama will travel from Indonesia to South Korea for the G20 Summit, another major multilateral engagement during his travels. David Straub, associate director of the Korean Studies Program, described several significant aspects of this time in South Korea. While not technically an organization, Straub said, the Summit is an important forum for the discussion of economic stability and growth. Similar to Fingar, Straub noted the efficacy and significance of in-person meetings. The Summit provides an opportunity for world leaders to have face-to-face discussions on non-economic issues, such as North Korea's political situation. Straub suggested that President Lee Myung-bak's investment in the Summit is based, in part, on raising South Korea's global prestige, which is tied also to increasing the status of the G20 to become the premiere global financial organization. Finally, Straub stated that alongside the G20 meeting, Obama and Lee are expected discuss bilateral relations, which are at an all-time high, including the stalled U.S.-South Korea free trade agreement (Korus FTA). The FTA, which would be the most significant free trade agreement for the United States since NAFTA, has faced opposition and mixed support on both sides.

Obama's visit to India will be the third U.S. presidential visit there in the past decade, which is indicative of changing U.S. perceptions of India brought about through the IT boom and growing economic ties, suggested Daniel C. Sneider, associate director of research for Shorenstein APARC. Sneider pointed to a broader shared agenda despite a lack of clarity on some issues, such as Pakistan, and a focus on India as Asia's "other" growing economy. He stated that he would be watching for the United States and India to work together to emphasize India's role in East Asia, highlighted by India's participation in the EAS. India's Prime Minister Manmohan Singh has championed a "look east" policy and expressed stronger interest in East Asia, especially China. In terms of Obama's visit to the APEC heads of state conference in Japan, Sneider noted the importance of this trip also for the U.S.-Japan alliance. The newly formed government of Prime Minister Naoto Kan has worked to ease tensions in the alliance and both countries hope to use the visit to bolster a more positive image of the alliance. Certain points of contention, like the move of the U.S. military base on Okinawa, have been put aside for the time being. Sneider stated that recent China-Japan tensions have also served to reinforce the importance of the relationship.

Events during Obama's Asia visit in the next two weeks will help to solidify or possibly call into question his image as the "Pacific President," and undoubtedly influence the role of the United States in Asia for the future.

The North Korean leader Kim Jong-il and his youngest son and presumed successor, Kim Jong-un, jointly attended military maneuvers on an unspecified date. This was the first official outing of the 27-year-old youngest son of the "Dear Leader." These maneuvers were held just before the Sunday celebration of the 65th anniversary of the founding of the Workers Party of Korea. David Straub, associate director of the Korean Studies Program at Stanford University, discussed the informal transfer of power that took place last week.

What was learned last week about the succession to Kim Jong-il in North Korea?

The maneuvers confirmed with near certainty the past few years of speculation that the third son of Kim Jong-il has been informally designated as his successor. This process is now public. This is the first time that the name of Kim Jong-un has been published in North Korea. However, as long as his father is alive and can govern, he will remain in power. But, clearly, his health is not good. This official outing of the son seems in preparation for the possibility that Kim Jong-il may die suddenly. Kim Jong-il suffered a stroke in 2008, after which he disappeared for several months. Upon his return, he had lost weight and appeared stiff and impaired on his left side.

Was Kim Jong-un touted as the successor?

There were no signs until a few years ago. First, it was Kim Jong-nam, the eldest son, who was favored. Officially, he fell out of the race when he was caught entering Japan with a forged passport. At the time, he told Japanese officials he wanted to take his son to Tokyo Disneyland [the target of an attempted contract killing by Kim Jong-un in 2008, the eldest now lives happily in Macao, ed.]. It is then the second son, Kim Jong-chol, who was poised to be the successor. But in Pyongyang, it was thought that he was not sufficiently ambitious and aggressive. Then, all eyes turned to Kim Jong-un, who has the personality of his father: ambitious, aggressive, and ruthless.

The main question then was how Kim Jong-un would be promoted. Most observers were betting on a gradual process. In this sense, it is not really surprising. He was appointed as a four-star general, which is a mostly symbolic distinction. He was also made vice-president of the Central Military Party. This underscores how strong the military is in North Korea. What surprised me most is that the younger sister of Kim Jong-il was also appointed as a four-star general. In line with the predictions of observers, Kim Jong-il has mobilized his immediate family to create a sort of regency capable of supporting his son in the event of his sudden death.

What is known about Kim Jong-un?

He was probably born in 1983 or 1984. However, the regime may try to say he was born in 1982. In Chinese culture-and also in North Korea-numbers are significant. Kim Il-sung, his grandfather, was born in 1912. Kim Jong-il was born in 1942. That would put Kim Jong-un in a kind of celestial lineage. It is almost certain that he attended school in Switzerland, where he was a quiet student. He had a false name, Pak-un, and one or two close friends. He also liked basketball. He then returned to Pyongyang. Some unconfirmed reports say he studied at a military university. A few years ago, it was said he had been appointed to the office of the Workers Party and the office of National Defense Committee, which is the highest organ of power in North Korea.

Who now heads North Korea? What is the power structure like?

The general view is that Kim Jong-il is the supreme leader-an absolute dictator-and he has tremendous latitude. He bases his legitimacy on the fact that he is the son of the founder of the regime. But nobody can run a country alone. He must therefore take into account various factors. In North Korea in recent decades, the military has played a growing role and seems to occupy a dominant place today.

A university professor based in South Korea believes that the regime in Pyongyang has greatly copied Japanese pre-war fascism, even though Korea fought against imperialism. The scheme is based on a totalitarian structure, relying in particular upon the military. Information is very strictly controlled and the population is monitored, as in East Germany. The structure remains very closed, and the leadership is afraid to open up to the outside world and receive investment or foreign aid. Finally, family occupies an important place. North Korea is part of China's cultural sphere, with a strong presence of Confucianism. The notion of the state is close to the family structure model. The king is seen as the head of the family.

Does a period of transition put the regime in danger? What took place before?

It is inevitable that one day a regime that is so rigid and incapable of transformation will suffer major changes. However, we cannot say when or what form this will take. But it is clear that unusual things can happen during a period of change like this. The last transition was very similar to the current process. The difference is that Kim Jong-il had been clearly designated as the successor by his father and he had decades to gradually gain experience and consolidate his power within the system. Kim Jong-il managed most affairs of state since 1980, when the last Workers Party meeting was held. He was the de facto leader for 14 years. When his father died in 1994, however, he took three years to formally become established as the leader. The difference today is that Kim Jong-il suffered a stroke in 2008. Some people in North Korea are afraid that his son had not had enough time to prepare for power. Kim Jong-un must particularly ensure that the military is loyal to him. That is why he was made a general.

What legacy does he leave his son Kim Jong-un?

Although North Korea has said for decades that it follows the principles of juche or self-sufficiency, it largely sustained itself during the Cold War by trade with the USSR and its satellite states, and China. It received much help. Now that the USSR has collapsed and China has turned to a market economy, the economic situation in North Korea has become untenable. The country suffered a terrible famine in the mid-1990s. Nobody knows for sure how many people died, but it was certainly several hundred thousand. Some say that there were more than one million deaths, out of a total population of 22-23 million people. The government then had to loosen its grip on the system. This has helped the country recover. Today, access to basic resources is much better in North Korea than it was fifteen years ago.

The country was also helped by foreign aid from Japan, South Korea, the United States, and China. Now, because of the crisis over its nuclear program, the only foreign aid that comes into Pyongyang is from China. The North Korean regime faces a dilemma: its only resource is its workers. It fears opening up to accept foreign capital and technology, which would expose the people to outside reports that fundamentally contradict the regime's decades-old claims. That is why the few commercial contacts are with ideologically similar countries, like Syria or Iran. As for the industrial project in Kaesong near the border between North and South, it is very closely monitored by the authorities.

What is the situation at the diplomatic level?

North Korea has no close allies in the world. It cooperates with Cuba, Syria, or Iran, but these countries are isolated. Their relationship is either rhetorical or in connection with the nuclear program. As for its neighbors, North Korea does not like them. The South is seen as an existential threat; it is another Korean state, comprising two-thirds of the Korean nation, and has been a phenomenal success. The situation is different with China. Officially, both countries are driven by an eternal friendship, but this is based primarily on strategic considerations. Nevertheless, China provides a lifeline to North Korea.

Finally, I think in the last two decades, Pyongyang has toyed with the idea of a strategic alliance with the United States to counterbalance Chinese influence. But for domestic political reasons and because of the situation of human rights in North Korea, the Americans have never pushed this idea further. The North Koreans have realized that this strategic relationship was probably a dream.

The fundamental problem behind all of this is due to an accident of history. After the liberation of the peninsula from Japanese occupation in 1945, the division between the Soviets and Americans-for practical reasons-was not intended to be permanent. Today, there are two states, each of which thinks that it best represents the Korean nation and that  it should be in charge of the affairs of the peninsula in its entirety. It is a zero-sum game. All issues about the current succession flow from this.

The United States and the ASEAN group of nations have further strengthened political, economic and security ties, after their second full-scale summit in New York.

President Barack Obama said the Association of Southeast Asian Nations, which groups ten countries, had the potential for true world leadership. President Obama also made it clear that he saw Asia as a vital plank of US foreign policy.

DR EMMERSON: In the run-up to the summit, there was a big question. Would the partnership be declared as being strategic in nature? That was a key word in the discussion and what happened was the leaders basically finessed the issue. It's not hard to suspect that they worried that if they declared a strategic partnership with the United States, this would cause alarm in Beijing. Because let's remember in the run-up to this summit, we've had a lot of activity - the split between China and Japan over the disputed islands, one could continue with some evidence of a more muscular Chinese foreign policy, its commitment to its claim to possess basically the entire South China Sea, escalating that to the level of a core interest, presumably equivalent to their interest in recovering Taiwan. I could go on, but in many case, it was understandable that the subtext of the meeting was what will China think? So basically what the summit did was to finesse the issue. They decided to pass on the question of raising the partnership to quote - a strategic level - unquote, to the ASEAN US Eminent Persons Group, presumably expert advisors that would be convened and would make recommendations down the road.

And one of the most remarkable things about the statement was how much ground it covered. I mean, among the topics and issues that the leaders committed themselves to do something about, were 14 as I count them, 14 different subjects. Human rights, educational change, trade and investment, science, technology, climate change, interfaith dialogue, disaster management, illicit trafficking, international terrorism, I could go on. So it is clear to me that one of the tasks that ASEAN and the US will have to face in the coming months, is to try to insert some sense of priority.

LAM: On that issue of priority, the US President, Barack Obama, of course, postponed a couple of visits to Indonesia due to pressing domestic demands. Did he in anyway express American commitment to the ASEAN region?

DR EMMERSON: Yes, this was particularly kind of, I suppose you could say, evident in the fact that the meeting occurred at all, finally it was organized. It lasted two hours. He was apparently quite engaged and engaging during that period of time. And I think there is no question that the United States under his administration is committed to South East Asia as a region, indeed has agreed with the leaders of ASEAN, that ASEAN should play a central role in the process of building regional cooperation in East Asia.

LAM: And, of course, one of the topics that came up as well was the South China Sea, that entire region, given the competing maritime and territorial claims vis-à-vis the Spratley and Paracel Island groups. Do you think China is watching the US relationship with ASEAN, this growing relationship - do you think Beijing might be watching it with unease?

DR EMMERSON: Yes, absolutely. I am confident that they are watching it with considerable unease and I note that the statement that the leaders made, made no reference whatsoever to the South China Sea, presumably because of sensitivity with regard to Beijing's possible reaction. The topic was implicitly mentioned, but not explicitly.

LAM: And what about within ASEAN, the grouping itself? The UN Secretary-General, Ban Ki-moon, on the weekend said that the ASEAN nations' credibility might suffer if they did not take a tougher line with Burma and this is in view of the upcoming elections in November. This is presumably directed at specifically China and India, but it could also be referenced to ASEAN could it not, because Burma is a member of ASEAN. Do you see that changing anytime soon with ASEAN, that ASEAN countries, leading members like Indonesia, Malaysia, Singapore, that they might take a stronger stand with the military junta in Rangoon?

DR EMMERSON: The election in Myanmar, if I can call it an election, since it will be highly compromised and manipulated will take place, at least is scheduled to take place November 7th. Indonesia does not take over the chairmanship of ASEAN until the 1st January. So the question is, since Indonesia is a democratic country, arguably, the most democratic of any country in South East Asia, will it use its opportunity to try to put pressure on Burma in the year 2011? My own view is that ASEAN will probably not fulfill Ban Ki-moon's hope, will not exercise significant pressure on the junta. Instead, we could get the opposite situation in which so long as there is not major violence associated with the election, it will essentially be received by ASEAN as a kind of minimally-acceptable basis for assuring the Burmese junta that ASEAN still treats them as a full member. In other words, it's quite possible that the junta may get away with what I take to be a kind of facade effort to legitimate their rule.