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The USA and China were at pivotal points in their leadership in November 2012 but both governments also face major demographic challenges, which are set to become more acute in the coming decades. Presidential elections in the USA highlighted a clear division based on ethnicity, and the consumer profile will become more diverse. In China, new leaders face a demographic time bomb as its rapidly ageing population presents an increasingly urgent set of challenges. Such shifts in demography cannot be ignored and will shape government policy as well as labour and consumer markets in the world’s two largest economies.
The USA is known for being a nation of immigration and a melting pot of cultural diversity:
Policymakers must recognise the country’s changing demographics with key challenges including immigration reform and addressing the illegal populace. Income inequality remains problematic as the USA is one of the most unequal developed economies. The average household annual disposable income of the richest 10% of households in 2011 was 36.5 times greater than the poorest 10% of households.
China’s new leaders must tackle the challenge of being home to the world’s largest elderly population over the age of 65. This is partly because of the one-child policy since the
late 1970s (although it has loosened with many couples in rural areas and some in cities having two children) but also because of longevity and the fact that fertility rates would have followed the downward trend in other countries. The significance in China is that ageing is occurring much faster than in other developing economies, while the sex imbalance (more men than women) also poses problems for future fertility rates:
China’s business environment is already under pressure from rising labour costs and increasing competition from other manufacturing hubs such as Mexico. China’s new leaders must focus on creating a social safety net sufficient to deal with the mounting elderly burden, the lack of which is the primary reason for the country’s culture of savings. Failure to respond in time could result in widespread social instability adding to the risks for the country’s global competitiveness.