Demography / Aging Societies
Population aging in the Asia-Pacific is likely to have serious consequences for each country's society, political sphere, and culture. The problems caused by population aging require effective solutions but, as demonstrated by strikes in France and elsewhere against pension reform, proposed solutions are not always politically viable. Over the next 20 to 30 years, governments across the globe will be forced to find policy compromises to deal with shrinking labor forces and falling savings rates.
The first speaker of the session, Prof. Graeme Hugo, The University of Adelaide, opened by commenting that demographic change seemed to be often neglected as a major factor behind economic change. He explained that he would present on what demographic change means for a country's economy and policy.
Demography, and particularly aging, is the greatest challenge the Asia-Pacific faces over the next few decades. In 2010, the number of people of working age living in high-income economies in the Asia-Pacific is going to peak. In low-income economies, the rate of growth of the working population will decline temporarily before increasing over the long term. All of this is going to have serious ramifications for labor and migration in the region over the coming decades.
In the next 40 years, the proportion of aged in the world population will double. At the same time, six out of the ten most rapidly aging economies are located in Asia. Since the 1970s, Asia has experienced a massive demographic shift. The population of the continent has doubled while the rate of growth has halved. Modern medicine has increased the average Asian's lifespan by one-third over the last few decades. At the same time, fertility rates have halved. The combination of these two factors is driving aging.
The state of demographic change across the region varies enormously and so it is difficult to generalize. For this reason, it is useful to think of aging not in terms of the specific situation of each economy but in terms of how far each economy has progressed along a typical aging model. Such models suggest that as economies develop they shift from a situation in which there is high mortality and fertility to one of high population growth characterized by low fertility and mortality. As they shift, mortality rates seem to decline before fertility rates do.
A key characteristic of Asia over the last 30 years has been the youth bulge phenomena, in which a high proportion of the population is young. This has had extremely beneficial effects for many economies, a consequence often referred to as a "demographic dividend."
Demographic dividends are delivered through three factors:
Econometric work on China suggests that 20% of its economic growth has been thanks to demographic dividends.
|Economic growth in Asia is likely to proceed at varied rates in each economy.
Part of the reason for this is the differences regarding which age group
is larger in each economy. Different age groups affect growth in different
ways. Up until 2020, there will not be any growth in age groups under 55
in Asia. Many economies will actually see significant declines.
This is a reversal of the norm in Asia. Up until 2000, the percentage of the population taken up by the workforce in economies across the region increased faster than the growth rate of each population. In the next 30 years, the opposite will occur.
If trends persist, Asian workforces will grow until the end of 2010 and then shrink for the coming 40 years. The young dependent population will shrink. Aged dependents will increase. By 2030, there will be more aged dependents than young dependents. Asia is going to have to deal with an increasing dependency ratio.
An important point in all of this is gender imbalances. Across East Asia, preferences for men are beginning to appear in each population. However, looking at Asia, a majority of the people who will be coping with old age in the coming decades will be women.
The fastest growing group in every population in the region is the oldest of the old. This group is projected to grow five times larger by 2050, mostly due to improvements in health care. This group and their juniors, the elderly, will be forced to deal with a number of issues in the coming years. With the erosion of traditional support systems and low government resources to assist them, many will be forced to rely on only what they have accumulated over their lives for support, and it is feared that for a large part of the elderly population this will not be enough. Family structures in Asia are changing. More and more often, older people are living by themselves or as a couple. Many families are not living in the same communities as their parents. People are having fewer and fewer children.
|Prof. Hugo explained that there were no silver bullets for coping with
aging populations, but that there were four policy areas which he recommended
countries focus on: population, productivity, participation and preparation.
Governments know that aging will happen and how it will happen. Prof. Hugo
suggested that, armed with this knowledge, they should take action immediately.
The second speaker of the session, Prof. Takao Komine, Hosei University, presented on the way aging would affect the economies of Asia until 2050, proposing that over the next 40 years, demographic changes in the countries of Asia would follow the trends seen in Japan. In Japan, around 1960 the fertility rate fell to less than 2.1 children per couple. Around 1990, the proportion of elderly people in the population exceeded 40%. Sometime between 2000 and 2005 the labor force began to decline. Next it is projected that the total population will begin to decline. It is further projected that Singapore, the Republic of Korea, China, Thailand, and Vietnam will also reach this fourth stage before 2050.
It took most western nations 50-100 years to make the shift from aging societies to aged societies. In Japan, this shift took only 25 years. In other countries in Asia, this process will occur as fast as it did in Japan, or faster. Western countries were able to cope with the prospect of having an aging society over a long period of time, while Japan and other countries were being forced to prepare themselves in a short period of time. Demographic changes and economic growth are interrelated. With decreases in the labor force, available capital and savings rates are likely to decline. Decreasing trends in the labor force coupled with sustained productivity levels will lead to decreases in average income levels. It is estimated that most countries in Asia entered into a population bonus, or demographic dividend period, between 1965 and 1970. This is when Asia experienced very high growth rates. However, sooner or later, every country is going to shift toward what is termed a "population onus." This is when the working age and youth populations decline coupled with an increase in elderly dependents, leading to a period of dulled economic growth.
Japan certainly benefited from demographic dividends. Up until 1990, economic growth was fueled by a large and dedicated labor force. After 1990, however, the country entered into an onus phase. It is now estimated that, if trends persist, by 2050 there will be 1.1 elderly dependents living in Japan for every member of the working population, the highest dependency ratio in the world.
One effect of the shift toward a population onus period is declining savings rates. Although the domestic rate in Japan is relatively high compared to other Asian economies, it is now the lowest among all OECD nations. Another potential impact of the shift is the effect it may have on policy decisions. By 2050, most voters in Asia will be elderly, and this may affect the types of legislation that are enacted.
If the countries of Asia wish to avoid a population onus, they should utilize female and elderly workers more. Overseas funds should be sought out to deal with declining savings rates, and policymakers should be aware of coming changes in voting structures.
The third presenter of the session, Dr. Yang Yiyong, Director General and Professor, Institute of Social Development Research, National Development & Reform Commission, P.R.C., explained that China is seeing the highest aging rates of any economy in Asia. It is imperative for the economy to work against the effects this is going to have on its economy over the coming years.
The average retirement age in China is 51.2 years, a value so low as to create real problems for society. It is estimated that by 2050, 29% of the population, 438 million people, will be over 60 years old. The over-65 population is currently 100 million people. Nearly half of all families take care of two or more seniors.
Many in China now believe that the solution to the economy's pension problems will be the mixing of government pay-as-you-go retirement schemes and personal contribution plans. Under this scheme, part of an employee's pension will be paid by their employer, with the employee handling the rest.
|The average annual cost of pension schemes in China reached 800 billion
RMB in 2005, and not everyone is covered yet. Only 14% of the population,
174 million people, is covered by the national elderly insurance scheme.
Most people in the countryside are forced to rely on only what they can
save themselves. There is still much work to be done until China achieves
universal pension coverage.
Dr. Yang explained that one way China could increase pension coverage and deal better with the burden caused by such systems would be through increasing the retirement age. The current age in most places is 50, 40 for special cases. Raising this age has failed to win support among the people, but it may be a necessary step. Another solution would be addressing low female work participation rates.
Dr. Yang concluded that more information is needed about the state of retirement in China to implement effective policy.
A participant noted that the emergence of a population onus in Japan had caused tremendous economic difficulties and that Hong Kong (China), Singapore, Thailand, China, the Republic of Korea, and Vietnam were projected to enter an onus stage in five years. The participant asked if these economies would face similar circumstances to those of Japan, and if this meant the end of Asian economic growth. Prof. Komine answered that while it was true many Asian economies seemed to be turning toward population onus phases, no one could be sure whether this would have exactly the same effect on these economies as it did on Japan. Prof. Hugo agreed and said that for most of the economies there was still some time left. He continued that if economies prepared themselves now, they may be able to avoid hardships in the future.
A participant noted that demographers tend to base their predictions on the continuation of current trends rather than updated data, and questioned how accurate the predictions presented were. He commented that improvements in public health were likely to lengthen lifespans even further Prof. Hugo agreed, saying that policymakers needed to consider reworked scenarios when talking about mortality given rapid improvements in medical science. Prof. Komine responded that his data had been checked against actual census data to confirm that the trends shown were as accurate as possible.
A participant asked if it was possible to reverse declining fertility trends. He further questioned if China would let up on the one child policy, if Australia would ease up migration restrictions, and if it was possible to use a baby bonus like the one used in Singapore to encourage Japanese couples to have more children. Prof. Hugo responded that immigration was one option that could help fertility trends and that Australia was letting in more and more immigrants every year. He further remarked that Singapore had been an interesting experiment but that it did not appear that baby bonuses had helped much. He postulated that the only way to effectively increase fertility rates was to address social imbalances between the sexes, adding that when women and men had equal rights to pursue careers, fertility rates would rise in developed nations. Dr. Yang answered that he thought China's one child policy would last two more decades at least, explaining that China had two major problems facing it which needed to be balanced and dealt with: population control and aging. Prof. Komine added that he believed immigration was a decent long-term solution but that it would not likely improve fertility rates in the short term.
A participant stated that she had heard the argument that if developing nations could increase their populations rapidly, they could push themselves closer to the economic status of developed nations through the ensuing demographic dividends they would receive. Prof. Hugo responded that there were benefits and drawbacks to a country having high fertility rates. He explained that there was also great economic benefit in reducing the burden of dependent children on the working age population, and concluded that the best outcome was for each person around the world to have the freedom to have as many children as they like when they like.
Environmental Sustainability in Urban Centers
The rapid urbanization of the planet is an inescapable reality. In order to keep up with the complex issues this will bring about, the decision-making processes of each society must be adapted to ensure stable and sustainable development. In contemplating this task, the topics of good and effective governance were addressed, as well as the expectations and criteria for ideal cities, which are always changing. Participants noted that there is no simple blueprint to follow and that decision makers will have to bear in mind the circumstances of each individual city and act accordingly.
The chair of the second concurrent session, Hon. Michel Rocard, Chair, FPTPEC, provided an outline of the goals of the session, highlighting its three main objectives:
Hon. Rocard also reminded the meeting of the four conclusions that were raised from the last seminar in Auckland:
The first speaker in the session, Prof. Joachim Bitterlich, Executive Vice President International Affairs, Veolia, presented the results of a survey on urban lifestyles, covering the priorities and concerns of urbanites, entitled "Life in the City 2008." The survey encompassed over 8,500 city dwellers in 14 cities: Chicago, Los Angeles, New York, Sydney, Mexico City, London, Paris, Berlin, Lyon, Alexandria, Prague, Shanghai, Beijing, and Tokyo.
To start, Prof. Bitterlich provided background information on the growth of urban centers and its relation to the human race. Currently half of the world's population resides in cities. Population growth is stable and it is forecast that by 2030, 60% of the world will live in cities, with almost all demographic growth occurring in already developed areas.
|The faces of cities will change drastically, so governance decisions will
have to change as well. The relationship between urbanites and cities and
the concerns of inhabitants and governments must be taken into account
and then reflected in new designs, management, and infrastructure.
Veolia's survey of urban lifestyles was designed to understand the impact of these developments, forecast future trends, and understand the expectations of urbanites. A second survey on the seven megacities of Sao Paulo, Paris, Tokyo, Mumbai, Cairo, Shanghai, and London aims to analyze the state of city life, changes in criteria, appreciation for the city's practical offerings, and public perceptions of cities. The survey will also try to examine each of these items' position in relation to environmental issues, analyzing the value attached to each concern.
The requirements of urbanites which, in the past, were mostly quantitative (water systems, transportation, etc.) are now, as cities are growing, more qualitative (quality of life, etc.). These concerns need integrated solutions to deal with the complexity of the issues and therefore environmental service operators must evolve to address and solve them, thus enhancing lifestyles in cities.
The Veolia research was undertaken with the belief that the quality of a city reflects the quality of the lifestyles experienced in it. It is a pragmatic approach to avoid making guesses when assessing urbanites' likes and dislikes, or their aspirations and frustrations. The approach attempts to simply evaluate attachment or aversion to a city.
Research and development play a central role in trying to predict future expectations and goals to create the cities of tomorrow. However, there is no single all-encompassing solution. Each city needs concrete tailor-made solutions and these are only sustainable if they take into account the aspirations of urbanites and vital challenges such as health care and environmental protection.
From the results of the survey, Prof. Bitterlich divided the 14 cities into categories before delving more deeply into the expectations and concerns of urban residents. There are six types of cities, with London, Paris, Lyon, and New York falling under the category of "convenient and cultural cities"; Chicago, Sydney, and Los Angeles were "easy-tolive cities"; Alexandria, Berlin, and Prague were seen as "fun-loving cities"; Shanghai and Beijing were "two cities in full bloom and looking to the future"; Tokyo was considered "the neutral city"; and Mexico City was classified as "the frightening city."
Perhaps the ideal city would incorporate the cleanliness of Los Angeles, the small size of Lyon, the ease of meeting people in Berlin, the transport system in Tokyo, the diversity of the population in New York, and the economic vitality of Shanghai. It is clear, of course, that such a city does not exist. Prof. Bitterlich commented that the most interesting point to arise in the second study was that global respect for one's city was linked to one's choice to live in the city. The study looked at what the main concerns were of residents in each city and found that in Beijing, Paris, and Mumbai, it is the cost of housing; in Cairo, the main concern is pollution; and in Chicago, London, and Sao Paulo, crime is the most worrying factor. The top criteria study participants cited for judging cities overall were health and hygiene, personal safety, transport systems, the costs of living, and the ease of finding a job. As a result, the top priorities for cities seem to be reducing traffic congestion, developing public transportation, improving water quality, and general environmental enhancements such as improving air quality or developing green spaces.
When participants were asked about environmental issues, they mostly indicated that individually they were ready to take up the cause but, when the roles of the public and private sectors for improving the environment and establishing sustainability were also examined, different expectations and attitudes were exhibited. Of the participants, 19% held a pessimistic view of their city and 13% were disappointed with their city's efforts. On a more positive note, 32% stated they were taking a proactive role in sustainable development issues and 22% were optimistic about their city's future.
|On the other hand, 14% of urbanites responded that, although they themselves
incorporated environmental issues into their lives, they did not believe
this changed their city radically.
To conclude his presentation, Prof. Bitterlich stated that Veolia wished to continue its research by looking at different areas and concerns in order to offer companies and governments better information to choose their priorities and work out solutions. He mentioned that the most interesting area that had not been touched upon was governance and that all states have to look much more at the question of improving the governance of cities in light of environmental issues and sustainability.
Next, Dr. Tan Khee Giap, Chair, SINCPEC, shared his work developing a preliminary yet comprehensive and pioneering index for ranking Global Livable Cities (GLC) for use in policy simulations. He explained that his study was more extensive in terms of geographical coverage and the categories considered than previous studies, and proceeded to provide an overview of his results, with particular focus on Asian cities. An ideal city would be characterized by:
The last criterion is vital as, without capable governance and leadership, the other four could presumably not be achieved. These categories serve as indicators of GLC values showing how "ideal" a city is, and each is further divided into subcategories to provide more comprehensive results.
In the global rankings, not many Asian cities made it into the top 20 apart from Hong Kong (China), Singapore, Tokyo, Yokohama, and Osaka. A possible reason for this is that Asian cities are growing so quickly that many aspects of the index may have been overlooked. When the 36 Asian cities from the overall 64 global cities are isolated and ranked separately in the different categories, there seems to be a trend and a certain degree of consistency, whereby Singapore, Hong Kong (China), Sydney, Auckland, and Melbourne are normally in the top five.
Dr. Tan acknowledged that a global ranking is, to some extent, a "beauty contest" and that it is unfair to cities that rank lower. Therefore, he ran a "what-if " simulation whereby he picked the weakest 20% and artificially raised their lowest indicators to the average level to see how their ranking would improve.
Finally, he mentioned that he was hoping to expand his research both in terms of the number of cities and the number of indicators, for which he would require new raw data from the field.
After Dr. Tan, Prof. Coral Ingley, Chair, NZPECC, spoke of the need for good governance in the context of the rapid urbanization of the globe, and discussed possible definitions of governance and emerging models by which to measure it. Governance is partly about the interaction between governments and other social organizations, how governments relate to citizens, and how decisions are reached in a complex world, but it is also about the direction and roles of larger decisions.
Common definitions of governance cover topics including institutions and groups, economic and political context, informal and formal capacity, those involved, and cooperation and mediation. Governance is broader than government or management, with an emphasis on the process and progress of city development and management of one's own community. It is also a neutral concept, whereby all the actors can produce positive or negative effects.
Central to the concept of governance is participation, inclusion, and engagement. The UN places vital importance on good governance for achieving equitable and sustainable urban growth and development. Good governance is essential for attracting services and investment, and without it people would not be empowered. Moreover, it is perhaps the single most important factor in eradicating poverty and promoting development.
Different frameworks have been suggested by several sources, such as the Institute on Governance or UN-Habitat. The universal themes of these frameworks seem to involve the efficiency of governance; equity and sustainability; the participation of the population and interaction between the government, the private sector, and the civil sector; and the accountability and transparency of responsible decision makers.
|Prof. Ingley explained that models can only provide guidance. Constant
rethinking of urban governance is necessary, which is why it is such a
dynamic and challenging topic. Nevertheless, looking at the effectiveness
of urban governance illustrates the importance of good governance to achieve
goals and it is an encouraging sign that local indexes are now being developed
by cities and governments.
To conclude, Prof. Ingley drew on Camilleri and Falk's Worlds in Transition and noted that governance operates at numerous levels, be they local, national, regional, or global, both simultaneously and interactively, thus there is no choice but to incorporate smaller underlying players into the decision- making process. Prior boundaries between governments, institutions, and society are blurring and becoming less useful. What is required is a new architecture, extending across and through existing structures in the form of the greatly enhanced capacity of human communities and institutions at all levels, from the local to the global.
A participant was surprised to find that, based on the criteria presented in the session, transportation and environmental issues seemed to be the top concerns of many citizens but, despite this, Mumbai seemed to have the highest satisfaction of any big city. Another remarked that, in making attempts to rank cities, there were many subjective elements. Prof. Bitterlich acknowledged that in the end the rankings were based on relative judgments and perception. However, he continued that if one is prudent with their conclusions there was a lot to learn from city rankings.
A participant asked whether or not gender bias might be a useful indicator for cities in which the lifestyles of women were constrained. Dr. Tan admitted that gender bias had not been taken into account.
When questioned about the practical use of such research, Dr. Tan defended his work, explaining that the Chinese media had reported that the country's cities had not made it into the top rankings, which provoked Chinese citizens to raise questions and put pressure on authorities to make improvements.
Climate change is projected to increase disaster risks as storms, floods, and droughts become more frequent and more intense through time. There is a growing need to rethink disaster risk management in order to mitigate the potential adverse impacts of natural disasters and create resilient and sustainable communities. Recognizing that there is significant scope within APEC and other similar fora for developed and developing economies to learn from each other, the usefulness of risk management measures, including technology-based solutions, risk transfer approaches, and climate change adaptive responses, were discussed.
The chair of concurrent session 3, Dr. David Hong, Vice-Chair, CTPECC, noted that effective pre-disaster planning and post-disaster recovery efforts are integral to ensuring successful disaster relief.
The first speaker in the session, Dr. Liang- Chun Chen, Director, National Science and Technology Center for Disaster Reduction, defined pre-disaster relief as a combination of science and technology support and cross-agency collaboration to supply proactive solutions before a disaster strikes. Science and technology are strongly linked with emergency responses and operations. Technology can predict and monitor natural disasters, and the scientific outcomes provide strong decision-making support before, during, and after emergency operations.
According to the United Nations International Strategy for Disaster Reduction (UNISDR), six of the major natural disasters in the world in 2009 took place in APEC economies, three of which were typhoons in Chinese Taipei and the Philippines.
|When a typhoon is expected to land in Chinese Taipei, the Central Emergency
Operations Center (CEOC) receives an analysis of the potential typhoon,
with information about specific times, locations, and intensities. The
CEOC assessment group will identify the hazard potential, flood potential
areas, and landslide and debris flow potential areas. This information
is then conveyed to the operating commander. Forecasts of the typhoon direction
or movement and possible precipitation are the two fundamental inputs for
developing predisaster operations. Based on predictions about rainfall,
variation of time, and spatial distribution, highly vulnerable locations
are screened out for early evacuation (e.g., communities damaged by Typhoon
Morakot in 2009 will be evaluated during risk assessment). After a typhoon
warning is issued, the National Science and Technology Center for Disaster
Reduction (NCDR) carries out an internal meeting every three hours and
analyzes rainfall estimation, flood potential, and debris flow potential.
The situational assessment group in CEOC as well meets every three hours
to generate suggestions about warning zones, evacuation, and reinforcement.
Following these steps, a CEOC working meeting reviews and discusses review
situation reports, readiness reports, assistance and deployment, and emergency
responses. The CEOC's decisions are conveyed to the commander. The commander
informs local governments, and they then take corresponding action.
Dr. Chen noted that (1) integration and collaboration between science and technology and emergency responses are essential for the implementation of disaster relief; and (2) in the face of challenges induced by extreme weather and compound disasters, further improvements are needed to better prepare for typhoons, including enhancing the effectiveness and efficiency of science and technology for extreme events, deliberating emergency operation and pre-disaster relief for compound disasters, and establishing a platform for comprehensive information sharing to support emergency response, situation awareness, decision support, and relief.
Chinese Taipei has made remarkable progress in decreasing the number of typhoon-related casualties and missing persons through pre-disaster relief efforts (e.g., one casualty from Typhoon Sepat in 2007, compared with 214 reported casualties and missing persons from Typhoon Toraji in 2001). Despite setbacks from Typhoon Morakot in 2009 and other disasters, Chinese Taipei has since then enhanced early evacuation and empowered communities and, as a result, casualties and missing persons from Typhoon Fanapi in 2010 were limited to two.
Pre-disaster relief is important. Scientific analysis and institutional collaboration enable the identification of situational scenarios and implementation of actions, including early warning and early evacuation. By extension, adverse impacts from typhoons are reduced.
The second speaker in the session, Dr. Don Gunasekera, Senior Economist, The CSIRO Centre for Complex Systems Science, provided an overview of the natural disasters in 2009. In 2009, there were about 335 major disasters across the world, most of them flood-related. A total of 111 economies were directly affected as a result of the natural disasters. Of these, 18 economies represented 79%, 95%, and 87% of the total 2009 reported number of deaths, victims, and economic damages, respectively. Eight of these 18 economies were in the Asia-Pacific region.
What does the future hold? It is known that climate change is projected to exacerbate environmental degradation and increase disaster risks. In 2005, 10 million people experienced coastal flooding annually due to storm surges and landfall typhoons. It is estimated that by 2080, 50 million people will be subject to such risks. Furthermore, in 2030, 50% of the global population is estimated to live within 100km of the coast compared with 23% in 2005. Through time, increasing population densities, increasing sea level, and increasing extreme weather events will likely put more people at risk for coastal flooding, typhoons, and storm surges. There will likely be increases in economic damages and lives at risk.
There are many risk management measures available to address natural disasters. The usefulness of three broad groups of measures including adaptive measures, risk transfer approaches, and the applicability of new approaches and technologies were highlighted.
First, adaptive measures are useful because they take advantage of the synergies that exist between climate change adaptation and disaster risk reduction. It is recognized that increasing populations as well as stress and pressures from climate change are likely to increase the risks associated with natural disasters. For instance, persistent drought conditions as a result of climate change are expected to affect poor farmers in particular. Strategies for addressing this issue include developing drought-tolerant crop varieties and improving water storage infrastructure. Also, better natural resource management governance can reduce disaster risks. Better institutions, better governance arrangements, better frameworks, and better legislation need to come together for communities to harness these activities and become resilient and better manage natural disaster risks.
The second area of focus is risk transfer approaches, such as risk transferring and risk pooling. Only about 1% of households and businesses in low-income economies can afford to insure against natural disasters, compared to 3% in middle-income economies and 30% in highincome economies. The World Bank, the Food and Agriculture Organization (FAO), and various other donor communities, with the help of some US and European academic institutions, have developed index-based insurance schemes to help poor farmers take out insurance against natural disasters. The message to the donor community is that it should (1) help subsidize this type of indexbased insurance schemes, particularly in agricultural communities as poor economies have few affordable options; and (2) provide backup capital to private and public sector insurers.
Lastly, new technologies and approaches are fundamental. One example is geographic information systems (GIS) technologies. Giving early warning requires taking information from satellites and climate models to develop future disaster risks and providing the information to targeted communities. It also requires making early warning systems user-friendly, so that the message can be relayed in a simple manner.
Scientists argue that, in light of the increasing population density, increasing urbanization, and increasing livestock production, biological hazards pose a growing concern. Most human pathogens circulate in animals or else originate in non-human hosts.
|Potential emerging infectious disasters (EIDs) "hotspots" are
in lower latitude poor developing economies. Hence, there is a growing
need for better and targeted surveillance of at-risk groups to help identify
early case clusters of potentially new EIDs and better understanding of
the links between EID events and climate change (how changes in climate
change influence EIDs).
Dr. Gunasekera concluded that population growth, rapid urbanization, poor natural resource management, and climate change driven pressures can all increase natural disaster vulnerabilities. Poorer communities will be more vulnerable and less resilient. The important take-home message is that the "business-as-usual" approach to donor assistance is less likely to help meet post-disaster needs. There is a need to start rethinking how some of these issues can be addressed, such as through risk transferring, risk pooling, and public-private partnerships to manage natural disaster risks.
The third speaker in the session, Dr. Mikio Ishiwatari, Senior Advisor, the Japan International Cooperation Agency (JICA), introduced disaster management efforts in Japan. In Japan, climatic changes, including increasing daily rainfall over 200mm and hourly rainfall over 100mm, are necessitating changes in flood risk management. A major flood is now projected to take place not once every 100 years as previously projected, but once every 40 years. Under an uncertain and changing climate, the conventional method of water planning, i.e., construction of dams and dykes, can no longer be directly applied.
Against this backdrop, JICA recently formulated a handbook on flood risk management under a changing climate. The handbook is predicated on the concept that "stationary is dead"-that is to say, the climate is changing and climate prediction is always accompanied by uncertainty. Furthermore, JICA proposes that the flood control philosophy is dead and that higher dykes cannot continue to be built according to increasing flood scale. The handbook recognizes the need to (1) respond to a continuously changing climate; (2) plan and implement infrastructure projects through predicting future impacts with uncertainty; and (3) change systems of water management according to developing technology to predict and adapt to climate change.
JICA's five basic concepts for an approach to coping with a changing and uncertain climate resiliently and sustainably are:
Thus, JICA's climate change adaptation measures propose a new philosophy of "multi-layered measures in river basins." First, strategic areas will be protected by structures. Second, land use in unprotected areas will be regulated, combined with urban planning. Third, some areas will unfortunately have to accept flooding and, therefore, community-based activities, including early evacuation and early warning, will be critical.
JICA has applied its proposed method of climate change adaption in the Philippines. In the Tagoloan River Basin in the Philippines, JICA projects that flood volume will increase by 10% in 15 years and 20% in 100 years. In this light, JICA has revised its original master plan for the region. Under the revised plan, dykes will be constructed only in urban and industrial areas, and land use will be regulated in the unprotected areas. Development will only be carried out in the protected areas.
In Cavite, the Philippines, JICA projects that peak flood volume will increase by 25% or 50%. The number of houses at risk is expected to increase from about 20,000 houses in 2008 to over 70,000 houses by 2050.
|Urbanization and climate change are expected to exacerbate flood-related
damages threefold. Under this scenario, JICA's proposal is not to construct
higher dykes, but rather to implement small river improvement works, land
use control, and retarding basins in urban areas. Other climate change
adaptation measures include producing hazard marking and communicationbased
activities, including workshops and evacuation drills.
Dr. Ishiwatari recommended that Japan share the information and predictions collected or made based on its technology with other countries. Japan has over 1,000 years of experience tackling floods and should therefore provide advice on climate change adaptation. Also, Dr. Ishiwatari recommended that ASEAN+3 standardize climate change adaptation procedures for achieving certain minimum requirements in any country. He also encouraged countries in the region to share their indigenous knowledge and practices. Through peer reviews, Japan can provide advice on technology, and countries in the region can advise Japan on community activities, which are one of Japan's weaknesses.
Following the presentations, mechanisms for regional cooperation were discussed in further detail. Dr. Ishiwatari reiterated that through bilateral exchanges, Japan could provide technological support, and countries with a good communitybased system such as Vietnam could share information about their community efforts. He noted that increasingly, social and environmental issues were being recognized as important issues within APEC, and that there was significant scope within the forum to expand this agenda and to learn from the experience of major developed economies to increase the importance of these issues. Lastly, he stated that donor economies would have to start rethinking the way they assisted poor economies trying to manage disasters. Dr. Ishiwatari noted that there were limitations to the construction of dykes and governments would only be able to protect certain areas. However, such a policy would not be accepted wholeheartedly by all communities, and these issues, including the relocation of poor populations living in at-risk areas, would need to be considered in the context of APEC. He continued that there was also consensus that Latin America and Africa too were facing issues of disaster relief, and lessons from the Asia-Pacific region could be applied to those continents.
The final topic of discussion concerned the political feasibility of risk management instruments such as index insurance schemes. While many instruments were identified as useful tools, difficulties remained, such as whether taxpayers in donor economies would accept the use of taxpayer money for such schemes in developing economies. Dr. Gunasekera noted that donor assistance needed to be directed to both pre- and post-disaster relief, not one or the other. Although donors were traditionally enthusiastic about providing post-disaster humanitarian relief, they did not always recognize the need for medium- to long-term assistance, he continued. He suggested that mechanisms such as index insurance schemes could help empower poor economies so that over time they did not rely on donor aid. He concluded that policy change was always difficult, and that APEC had a large role to play in fostering wider discussions on these issues.
Pacific Economic Outlook (PEO): Macrofinancial Linkages and Financial Deepening (PECC Project)
Pacific Economic Outlook is a PECC project to examine macrofinancial linkages and financial deepening through a study of how PECC economies react to volatile capital flows. In this session participants discussed the main findings of the study.
Prof. Ronald I. McKinnon, Stanford University, in his presentation entitled, "China's Exchange Rate, Trade Balance, and the Wage Explosion," stated that there are basically two views on the role exchange rates play. The prevailing view is that the exchange rate is an instrument for controlling net trade balances. However, this is not the case in open economies. The alternative view is that the exchange rate is an extension of monetary policy.
|In China, growth has been consistently higher than what authorities have
planned. China faces a problem with its current account surplus. The question
is: should China be changing the value of its exchange rate to deal with
its exchange surplus? In East Asia, almost all imports and exports are
invoiced in Dollars. This poses a problem for an economy like China with
regard to financing. Because the economy is unable to lend in renminbi,
China has been building up dollar claims. This is a reflection of the underdeveloped
capital market in China. However, the United States seems to often misinterpret
this buildup of dollars as an undervalued renminbi and thus puts pressure
on China to appreciate its currency.
The US attitude toward China now is similar to the way the US treated Japan between the 1970s and mid-1990s. Under similar circumstances, Japan gave in to US pressure to appreciate the yen. The tremendous exchange rate shock that ensued imposed deflation on Japan and drove it into a zerointerest equity trap. This ironically did not affect Japan's trade surplus. In the same fashion, now that China's bilateral surplus has grown significantly we have entered the era of China bashing. China gave in slightly to pressure from the United States in July 2005 and began to gradually appreciate the renminbi, attracting hot money. In September, the United States voted to impose tariffs on China unless they appreciate their currency. In the 20 years leading up to 2005, the exchange rate was only allowed to develop to 8.28 RMB/USD, which deterred inflation. Surpluses began to develop after 2000 in accordance with the decline in savings by the United States, and China's current aggregation of surplus savings can be attributed to increases in corporate profitability.
In the last half of 2008, during the great credit crisis, the Dollar soared in foreign exchange markets. China responded to this by resetting its rates to 6.83 RMB/USD. This is causing hot money flows to increase. Moreover, Chinese exports fell virtually 50% in late 2008 and the beginning of 2009. This would have devastated the Chinese economy without the huge credit expansion. Increased expenditures for construction, real estate, and other fields offset the dramatic fall in exports. In this way, a stable exchange rate in China allowed for the credit expansion.
Prof. McKinnon explained the immense change in Chinese corporate savings, which have now surpassed household savings. The fall in disposable income of Chinese households has spawned a decline in consumption, which is the reverse side of the rise in corporate revenues. In this way, it is the change in distribution in income in the economy that is behind the trade surplus. China boasts significant levels of internal investment, but amazingly internal savings are even higher. What would happen if there were a sharp appreciation to saving and investment in China? The macroeconomic approach to analyzing the effects of the exchange rate on the trade balance suggests that a sharp appreciation of the renminbi may collapse investments in China, which would actually cause the surplus to grow larger. The solution is to have a completely stable renminbi with no movement.
Labor costs are an issue which is coming to the forefront in China, as demonstrated by the strikes that are taking place in the south over wage settlements. Based on the logic that keeping the nominal exchange rate stable will encourage wage increases to continue, continuous threats of increasing the value of the renminbi will probably make employers reluctant to raise wages. The current trend of rising wages cannot persist unless the exchange rate stays stable. Japan once enjoyed high wage growth but, after the United States forced Japan to appreciate, the country experienced an enormous slump in wages because employers worried that the value of the yen would rise. Nominal wages in Japan continue to decline.
Over the long run, wage growth should match productivity growth. However, this is unachievable if there are expectations that the renminbi is going to appreciate. The exchange rate must be kept constant and rapid wage increases must be allowed. This is needed in order to restore international balance. Prof. Akira Kohsaka, International Coordinator,
PEO Project and Professor, Osaka University, summarized the present findings of the PEO project. In 1997 and 1998, a positive correlation appeared between the volatilities of emerging and advanced economies, whereby crises passed from emerging markets to advanced markets.
The current financial crisis, however, started with advanced economies and spilled over to emerging markets. This correlation has manifested itself in diverse ways across emerging markets throughout the world.
In regards to capital flows, bank loans, for instance, have risen only in Europe while falling gradually in other regions. Meanwhile, portfolios have displayed strong growth in Asia but only mixed results in Europe and Latin America. Geographically speaking, bank loans are mostly from Europe. Concerning regional linkages as well, bank loans are mostly Europe-to-Europe. In terms of portfolio investment, on the other hand, the United States accounts for a greater share than Europe. However, in East Asia it has been foreign direct investment (FDI) that has served as the most important capital flow, while bank loans and portfolio investment have decreased in share. This pattern of share change is consistent across Europe and Latin America as well. Moreover, Asia (even when excluding China) also has a significant amount of outward financial flow, accounted for mostly by foreign exchange reserves. From these trends we can assume that, due to the low level of external debt and sufficient amount of foreign exchange reserves, the occurrence of a second Asian financial crisis is unlikely. Another important observation is the increasing importance of regional emerging markets as investors.
Compared to emerging markets in Europe and Latin America, East Asia does not rely very much on foreign finance, possesses a relatively deeper financial depth, and maintains financial linkages to advanced economies. However, available statistics may not be a concise indicator of the resilience of domestic financial systems. Other research shows that the recovery from the Asian financial crisis was only mediocre. This is particularly exemplified by stagnant credit growth and slow private bond market development. Indeed, economic growth after 1997 has been supported by FDI and internal finance, not financial intermediation.
|The policy implications of these findings are that there exist many risks
with regard to exchange rates, financial flows, and other areas. On the
national level, for instance, it may be important to address macroprudential
policy and reserve accumulation in order to cope with volatile exchange
rates and international financial capital flows. In terms of regional financial
cooperation, there is the Chiang Mai Initiative (CMI) and Asian Bond Markets
Initiative (ABMI). These are both potential solutions, but there are questions
surrounding how successful they have been in the past.
Dr. Pakorn Vichyanond, Research Director for Financial and Capital Markets, the Macroeconomic Policy Program, Thailand Development Research Institute (TDRI), offered his own alternative to Prof. McKinnon's suggestion to utilize wage adjustments as a substitute for appreciation to reduce savings. He proposed that the large amount of savings that belong to corporations be transferred to governments and other agencies. He stated that government spending in proportion to the GDP had been constant for the past three decades, so some attention should be paid to stimulate government spending (subsidies and reduced taxes for the poor, etc.), and that this would also serve to reduce inequality, which had been a problem in China for a long time.
He underlined that inequality paired with fragmental development had constrained China from being able to liberalize its exchange rate, and that financial market development had yet to be adequately achieved on an even level throughout China, hindering sufficient foreign exchange market activity. He said that the central authorities of China had rightly hesitated to float the economy's currency, as they were not confident in the ability of private enterprises to cope with floating rates. When Thailand liberalized capital flows in 1997, Dr. Pakorn noted, the price of foreign capital was not floating and commercial banks were thus not ready for competition. This, he suggested, was what laid the foundation for the 1997 crisis that spread throughout Southeast Asia. He concluded that to reduce its trade surplus, China should design and implement structural reforms to allow state enterprises and corporations to increase consumption and reduce savings without liberalizing the exchange rate, and that trade distortion should not be ignored.
Prof. Huang Weiping, Renmin University, brought up the significance of statistics. He noted that statistics show that there were only two years that exports played a bigger role than domestic consumption in development, and that the low level of consumption could also be attributed to the fact that in China, only 30% of the new buildings were included in investment statistics while 70% of the new buildings were included in figures for consumption. Contrary to popular claims, he said, if housing mortgages were included in China's consumption, the ratio of consumption to GDP remained almost consistent.
He emphasized that changes in the foreign exchange rate had almost no impact on China's foreign trade; however, these changes did significantly impact domestic economic development. Revaluation of local currency, as evidenced by the Japanese case as well, almost always lead to the creation of a bubble, he surmised, adding that there was too much focus on the appreciation and depreciation of the renminbi in addressing trade surpluses. He suggested that much of the dialogue about the value of the renminbi was based on the assumption that the renminbi was overvalued, but there was little research to back such accusations. He suggested it would be worthwhile to organize a group of international scholars to achieve an equilibrium regarding the renminbi exchange rate. He also noted a potential shift in capital flows from the real economy to a virtual economy, which could be expected to take place with the development of the bank market in China.
Ms. Kumiko Okazaki, Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan, introduced some findings from the PEO project regarding financial linkages in China. She began by recalling that China's reform shift from the soviet banking system to the current multibank process was slow, and until the 1990s the banking system possessed few market-oriented mechanisms.
|However, she explained, reforms excelled when China joined the WTO and
by the end of 1999 the M2/GDP ratio was about 180%. This type of sudden
increase can usually be attributed to some sort of incident or mechanism,
Ms. Okazaki argued that China's lending market was largely dominated by banks, but that bank loans only accounted for 60% of fixed asset investment in China, suggesting that the Chinese financial system did not function on an efficient level. She continued that China also had an underdeveloped bond market, and that despite China's ability to prevent global financial shocks using its financial stability engendered through financial banking reform and strict financial transaction control, balance of payment statistics showed that capital transaction flows were still very low in China. In accordance with the globalization of China's economy, she said, there were large capital inflows and outflows, indicating that China would continue to integrate with the global economy and that there would be stronger demand for freer exchanges of cross-border money. Ms. Okazaki concluded by saying that Chinese financial institutions needed to prepare for changes in China's market structure.
Prof. McKinnon pointed out China's mysterious buildup of surplus profits in the corporate sector, saying that the question lied in how to change dividend arrangements to channel dividends back to the personal sector. He said that dividend policy remained a mystery in China, but that nevertheless, major wage increases achieved by keeping the exchange rate stable would to some extent transfer corporate sector savings to the household sector because companies would have to pay workers much more. While wage increases were once masked in China by the great migration from agriculture to industrial labor, he commented, this was forecast to come to an end soon as most of the younger generation in China already had industrial experience.
Regarding the problem of hedging, China could not relax its exchange rate fluctuations because it could not resolve the hedging problem for its exporters, he suggested. This was linked to the fact that China was an immature creditor, he said, continuing that without government intervention, the private sector would not be able to buy all of the Dollars that Chinese exporters earned in order to allow them to hedge.
Prof. Kohsaka concluded the session by noting that the day's discussions had shed light on a historically common fear of appreciation that was present in emerging markets. He explained that the emerging markets in East Asia had tried to address the "macroeconomic policy trilemma" of achieving capital control, monetary autonomy, and exchange rate stability, adding that while it was impossible to realize these three objectives simultaneously, there was also no guidance available concerning relative ratios of importance that should be allotted to each of the three. The high savings rate had not been properly intermediated by China and other emerging markets, and households worried about the lack of a social security system, while the corporate sector implemented precautions against the malfunctioning domestic financial market, spawning a stronger reliance on internal financing, he explained. He added that Financial disintermediation in China occurred via two mediums-structural and cyclical, and that cyclically, disintermediation faced issues materialized by the precautionary attitudes of households and corporate firms. He concluded by positing that there might have been irreversible structural changes in financial disintermediation in the emerging market of East Asia.