Ageing Asia - a widening demographic problem?

Until India overtook China in 2023, the latter was the most populated country in the world with a population of around 1.4 billion.

Yet China’s demographic outlook is worsening. In 2024, the county’s total population shrank for the third consecutive year¹. In the same year it also registered a birth rate of 6.8 births per 1000 women, a figure that had almost halved from the equivalent figure of 12.1 reported in 2006².

In contrast, people are now living longer. China’s life expectancy has risen from 64 in 1980 to 78 in 2025. According to the World Health Organization, by 2040, almost 30% of the population will be aged 60 or older. This is one of the highest proportions in the world³. Now comprising almost 18% of the world’s population, current trends suggest China’s share of the global headcount could fall to 7% by 2100. This could have profound economic and social implications for what is currently the world's second largest economy.

Yet falling and greying populations across many parts of Asia are currently no less extreme than elsewhere. Italy and Spain suffer from some of the world’s lowest fertility rates of 1.2 and 1.1 respectively⁴.

The result is their populations could halve by the beginning of the next century.

Uniquely, China’s current predicament was the consequence of a deliberate government decision. A one-child policy was introduced in 1979 to offset rapid population growth and fears this would lead to food and other resource shortages. If unchecked, the country’s leadership feared the population explosion could threaten the country’s stability. 

The policy ended in 2016, but the damage was done. The historic preference of one-child families favouring sons means there aren’t enough females in the country to boost the birth rate. The government now offers annual payments of around $500 for each of the first three years of a child’s life. 

However, China’s government is taking strategic steps to combat the deteriorating outlook. These include raising the retirement age and investing in artificial intelligence and automation to replace manual labour. It is also exploring how it can unlock the “silver economy”, i.e. services focused on the retirement market. This includes healthcare, smart technology (which helps prolong independent living), tourism and leisure activities. It is also focusing on specialist financial services such as insurance and pension products.  

Japan got there first – shrinkonomics

Japan’s population peaked in 2008 at 128 million people. Since then, it has been falling. Current trends project it to be less than 70 million in 2100, little more than half the 2022 population. At the same time, the country has the world’s longest life expectancy. This has led to an increase in the old age dependency ratio⁵. 

The generation born just after the second world war are now all over 70 years old. The period when these baby boomers could have been expected to have children coincided with a global recession. This followed the early 1970s energy shock when the oil price nearly quadrupled between October 1973 and January 1974⁶.  Japan’s fertility rate fell below the 2.1% replacement threshold required to prevent a decline in the native population. It has not subsequently regained that level, according to government data⁷.  

There are reasons why Japan’s birth rate remains so low. The conservatism of Japanese society discourages unmarried women from having babies. However there have been fewer marriages. The high cost of raising children and difficulty for mothers in balancing careers and a family deters many from having children. Some of these issues resonate with societies in the West, but there is less slack in Japan than elsewhere. 

In contrast with other developed countries, Japan shied away from immigration to resolve its labour force shortages. This has been changing over the past decade, particularly since the pandemic. Yet the level of annual immigration needed to compensate for the shrinkage in Japan’s working age population makes this an unrealistic solution. What other options does it have? 

Many Japanese companies set a mandatory retirement age at 60, though this is being raised to 65 years old. Even if workers continue past retirement, they rarely remain employees. They become contractors with a consequent loss of income. Keeping hold of elderly workers is a simple and effective step. The government is investing heavily in robotics and artificial intelligence (AI) to improve productivity. It is also taking steps to boost the fertility rate by, for example, increasing childcare allowances and expanding day-care facilities.

Attracting mothers back into full time employment could help. As with those working on past retirement, more than half of mothers return to work in non-full-time roles. These are typically on less attractive terms.  

However, SJP’s view is that despite pressures, Japanese equities offer attractive valuations and distinct return drivers, underpinned by ongoing corporate reforms that are boosting capital efficiency. Small and mid caps remain especially discounted versus large caps.

Who’s next? The grey wave spreads

If the ageing demographics in Japan are bad, they are even worse in South Korea. With a fertility rate of less than 0.8, it has the world’s lowest birth rate⁸. By 2072, almost half the population could be aged 65 or older. There are some structural similarities between South Korea and Japan. These include a poor work-life balance and the high cost of housing. Meanwhile a patriarchal society means a disproportionate burden falling on women in the home. On current trends, South Korea’s population could begin to decline before the mid-point of this century⁸. 

A notable barrier to raising children in South Korea is the expense of private tuition. Ministry of Education data from 2024 shows 80% of domestic households pay for some form of private tuition. This costs an average US$327 every month. For an average family, this is equivalent to 11% of monthly household income⁹. 

South Korea’s government has identified a familiar list of solutions to resolve what the country’s president described as a “national emergency” in May 2024. Yet there is a widespread acknowledgement the US$200 billion spent in the 16 years to 2022 has proved ineffective in encouraging a pickup in the birth rate. 

Incentives such as extended paternity leave and monthly payments reflect moves in both China and Japan. Critics point to the short-term nature of the incentives to help explain the lack of success. If couples have decided not to start a family, it will likely take something more substantial than financial incentives to make it work. 

Research released last year by the Organisation for Economic Cooperation and Development (OECD) shows South Korea has the largest pay gap between men and female among OECD member states. Men earned an average of 29% more than women in South Korea. This compares with the OECD average of 11.3%¹⁰.  It will need societal adjustments to take place in Korea (and Japan) for the growing demographic deficit to begin easing but can it happen in time? 
 

For India “the trend is your friend”

Greying populations in Asia are changing the power dynamics across the region. According to the International Monetary Fund (IMF), India is expected to overtake Japan to become the fourth largest economy in the world by the end of 2026. Only the US, China and Germany will rank above it. The IMF predicts that on current projections, it could displace Germany and take third place within the next fifty years¹¹.  

On a per capita basis, the picture is different, with the figure for India twelve times lower that of Japan. Yet “the trend is your friend” and India’s GDP may overtake China before the end of this century to become the world’s second largest economy¹².  Even before mid-point of this century, India is expected to have more than 800 million people of working age between 20 and 59 years old¹³. How can anyone else compete? 

Shrinking workforces and low fertility rates across Asia will increasingly pressure pension schemes, healthcare providers and governments, pushing up borrowing costs. Artificial intelligence (AI) may help alleviate the situation, as will focusing on the silver economy. Other measures include biting the bullet on more controlled immigration and pursuing more imaginative and substantial social reforms. Yet it takes time for positive changes to work their way through the system. This suggests the demographic picture and economic underpinnings for many historically regarded Asian Tigers could continue to worsen. 

An overall SJP perspective

There is no doubt that Asia faces profound demographic challenges. South Korea and Japan face rapid population ageing, low birth rates, and insufficient policy responses. It is also clear that structural obstacles – such as high living costs, societal expectations, and ongoing gender pay gaps – hinder effective solutions. In contrast, India is poised for economic ascendancy thanks to its burgeoning workforce. This is despite lower per capita income. Across the region, shrinking workforces threaten economic stability, prompting calls for innovation, immigration, and major social reform. However, change is likely to be slow.

But there is also light on the horizon. While our view is that parts of the market are stretched, the demographic changes also create opportunities within and across sectors. One such example is the AI theme. This reflects genuine structural change and where companies are delivering exceptional profitability – albeit that strength is increasingly concentrated in a very narrow group of companies. While concerns around AI-driven market concentration and pressure on software earnings reinforce our preference for more attractively priced areas, it will be important to watch how themes such as AI diffuse into other sectors and how countries and industries respond to the challenges ahead. Ultimately, demographic changes are likely to have a deeper, long‑term influence on how opportunities evolve across markets.

Any opinions expressed are those of SJP and are subject to change at any time due to changes in market or economic conditions. This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any strategy.
 

Sources

¹Reprinted from the China Statistical Information Network. China's population. Accessed live information on 12 February 2026
²Reprinted from the China Statistical Information Network. China's birth rate. Accessed live information on 12 February 2026
³World Health Organization. Ageing and health in China. Accessed live information on 5 February 2026
⁴Italian Istituto Nazionale di Statistica Births and fertility of the resident population. 2004. Released 30/10/2025
Spanish Instituto Nacional de Estadistica:  Vital Statistics - Basic Demographic Indicators. 2024. Released 19/11/2025
⁵OECD. Economics Dept. Working Papers. Addressing demographic headwinds in Japan: A long term perspective. 
⁶Federal Reserve History. Oil shock of 1973-74. Released 22/22/2013
⁷Statistics Bureau of Japan. Statistical Handbook of Japan - 2025. Released 2025
⁸World Bank data. Fertility rate in South Korea. Accessed live information on 5 February 2026 
⁹Statistics Korea. Private education expenditures survey of elementary, middle and high school students in 2024. Released 13 March 2025
¹⁰OECD data. Gender wage gap.
¹¹IMF datamapper. GDP current prices. Accessed live information on 5 February 2026
¹²IMF datamapper. GDP current prices. Accessed live information on 5 February 2026
¹³IMF. Advancing India's Structural Transformation and Catch-up to the Technology Frontier. Released July 2024