Harvard Public Health Review
Summer Fall 2006




HSPH Report: China and India

What's Behind Asia's Gold Rush?

For both China and India, advances in health have helped fuel prosperity

China and India pose a startling paradox. These emerging superpowers of the developing world, two of the fast-growing economies on Earth, saw a rise in gross domestic product per capita of 9.3 and 6.2 percent, respectively, in 2005. Yet half of the world's poor--those who subsist on less than U.S. $2 a day--live within their borders. Owing to the sheer vastness of their populations, China, with 1.3 billion inhabitants, and India, with 1.1 billion, have the potential to transform not only the well-being of more than one-third of the world's people, but the global economy, as well.

What accounts for these two countries' spectacular rise? And what does the future hold for the wealth--and health--of their populations? At the Harvard School of Public Health (HSPH), research by a team of economists, demographers, and specialists on China and India suggests that improvements in health, and the changes in the size and age makeup of the population that ensued, were major factors propelling the two countries' economic takeoffs. In a paper presented to the American Economic Association and at Stanford University's Pan Asia 2006 conference, HSPH's David Canning and David Bloom--together with HSPH colleagues Linlin Hu, Ajay Mahal, Winnie Yip, and Yuanli Liu--provide evidence to back their argument. What's more, these researchers suggest that investments in basic health care offer a reliable path to sustaining these two emerging economies far into the future (see "Why Has China's Economy Taken Off Faster than India's?" at www.hsph.harvard.edu/pgda/Bloom_Canning_China_India.pdf).

Canning, a professor of economics and international health at HSPH, and Bloom, who as the Clarence James Gamble Professor of Economics and Demography chairs the Department of Population and International Health, argue that health improvements boost developing economies--a notion they call "health-led growth." The idea stems in part from Bloom's groundbreaking work with David Canning, and with Harvard economist Jeffrey Williamson. The three have, with other colleagues, collectively traced much of the growth of Asia's so-called "Tiger economies" to health improvements and demographic change. Better health, the group has observed, was disproportionately enjoyed by infants and children, leading to burgeoning numbers of healthy children. While at first these children imposed a net burden on their adult caretakers and on society at large, as they matured these members of the "bulge generation" came to represent a potent economic force.

"Suddenly, they're young adults and they're working, saving, and doing productive things," Williamson says. Working-age people, he adds, began to significantly outnumber the non-working dependent population of the very young and elderly; moreover, being healthier and more affluent than their parents, they tended to have fewer children. That freed more women to enter the workforce. It also liberated capital for growth-stimulating investments and retirement savings. Bloom, Canning, and their coauthors (including consultant and former Harvard economist Pia Malaney and HSPH Assistant Professor Jaypee Sevilla) ascribed a significant portion of the success of post-World War II economies in Singapore, South Korea, Hong Kong, and Taiwan (the "Asian Tigers") to what they dubbed the "demographic dividend." In their view, health contributed to wealth in Asia--not just the other way around.

But health didn't work its economic magic in isolation. Rather, the researchers say, it spawned a demographic shift, whose benefits were realized and sustained through the dramatic expansion of high-quality education, effective governance, and a willingness to embrace global markets. "Health, trade, and an increase in the working-age population together have strong, multiplicative effects," Canning emphasizes. "You can't reap the demographic dividend if the workers aren't employed." Bloom and Canning note that government institutions, markets, and economic policies in China and India, although imperfect, promote growth, and also facilitate the productive employment and savings of the massive numbers of healthy people who reach adulthood in the course of the demographic transition.

Bloom and Canning find similar demographic forces at play in China and India; they also note key differences in these forces' intensity and impact. According to their analysis, the acceleration of both economies since the mid-1980s can be traced in large measure to improvements in health, as well as to a larger workforce per capita and an increased openness to trade. However, the authors note, China's economy has exploded, expanding by 8.1 percent per capita per year on average between 1980 and 2000, while in the same time period India saw a sustained growth rate in income per capita of 3.6 percent--a rate that, while rapid by the standards of most developing economies, is modest compared to China's.

What accounts for the difference? Part of the answer, the HSPH team suggests, is that dramatic demographic changes in China began decades before those in India. After 1949, China's Maoist government invested heavily in basic health care, creating communal village and township clinics for its huge rural population. That system produced enormous improvements in health: From 1952 to 1982, infant mortality in China dropped from 200 to 34 deaths per 1,000 live births. Life expectancy rose from 35 years to 68. And under the government's family planning program, fertility rates dropped by half, from six births per woman in 1970 to three as of 1979. This decline continued after President Deng Xiaoping took over in 1978 and the next year formally enacted the "one-child policy," which imposes social and financial pressures to persuade couples to keep their families small.

At the same time, China underwent profound market reforms, spurred by Deng's open-door policy. By embracing global trade, China invited a flood of direct foreign investment that continues unabated. Healthy, employed, with fewer children to care for, and looking forward to a long lifespan, working-age Chinese households began saving money in earnest--20 percent of GDP in 1980, rising to the astounding level of 40 percent today.

India's demographic transition, meanwhile, has been slower. Even now, India's life expectancy is 64 compared to China's 72, and its infant mortality rate, 63 per 1,000 births, is more than double China's, at 26 per 1,000 births. While China has brought its fertility rate from six children per woman in 1950 to under two today, fertility declines have been slower in India, from an average of about six children per woman in the early 1950s to a little under three today. India continues to make steady progress in population health, nurturing a demographic dividend that is only now hitting its stride.

In their paper, Bloom and Canning argue that improvements in health were the single biggest cause of the takeoff in growth in China and India after 1980. "We show that you need to invest in health not just for its contribution to well-being, but also because health is a source of productivity," Canning says.

Whether health will continue to sustain economic growth at current levels in the long term remains to be seen. In China, 1980 marked a turning point. Under Deng, the country's successful rural health care system was dismantled "overnight" when the central government turned its attention to market reforms, according to a 2005 essay for the New England Journal of Medicine by HSPH's William Hsiao, the K. T. Li Professor of Economics in the Department of Health Policy and Management, and David Blumenthal, the director of Health Policy for the Massachusetts General Hospital and Partners HealthCare, in Boston. Responsibility for health was turned over to provincial and village authorities, who were expected to raise local taxes to pay for it, but that revenue proved insufficient. As a result, Hsiao and Blumenthal report, some poor rural areas have seen a rise in infant mortality in recent years, and some infectious diseases, such as schistosomiasis, are reemerging. Finally, they note, the decentralization and underfinancing of public health services has undermined China's ability to mount an effective coordinated response to potentially pandemic infectious illnesses--a situation that came to light during the SARS crisis, and that the country's leaders have only recently begun to address.

In terms of projected growth and demography, China and India now confront very different scenarios. With a median age of 33, China's population is edging toward middle age, while India, with a median age of just 25, is still relatively youthful. The ratio of workers to dependents in China, Bloom and Canning observe, will likely peak at 2.6 in 2010, then decline, leaving ever smaller numbers of workers born of the country's one-child policy to support a vast aging population. In India, meanwhile, the demographic transformation will be less sharp but longer lived; the ratio of workers to dependents will peak at 2.2, but not until 2035, suggesting that the potential economic gains from India's demographic dividend are still to come (see chart, above). This suggests a tortoise and hare scenario: China, having sped ahead, will slow down, and India will enjoy some catch-up in terms of income per capita as its demographic transition matures.

But both countries must rise to meet monumental challenges. China is now confronting what has become known as the "one-two-four problem"--that is, one child caring for two parents as well as four grandparents. This harsh legacy of the country's one-child policy has profound implications for health and well-being in China as the population ages. It also promises to reweave China's social fabric and may place huge strains on the economy.

Particularly in rural areas, millions of elderly could saddle the country with what Nicholas Eberstadt, a political economist on the Visiting Committee at HSPH, calls a "slow-motion humanitarian tragedy, already under way." Eberstadt predicts a dire existence for this group, citing their lack of accumulated capital, their inadequate education, and the absence of a state-funded pension system to provide for them. "A third of Chinese women retiring in two decades will have no sons," he says, adding that most--despite being potentially ill and frail--will have to support themselves through farm labor.

India, despite recent progress, must grapple with staggering health issues. HIV infections alone are expected to quadruple in the next four years to 20 million cases, up from 5.7 million now, according to UNAIDS. Yet in 2005, the World Health Organization reports, India had less than one hospital bed, and one doctor, for every 1,000 residents. In the countryside, one doctor may be responsible for as many as 200,000 people.

A further problem is the emergence of chronic diseases, such as cancer, lung disease, heart disease, and diabetes, linked to rising rates of smoking and obesity and, ironically, longer lifespans and higher incomes. Both China and India face the problem of providing health care for people with these chronic diseases while still tackling a widespread infectious disease burden. In both countries, the public health system is failing to meet demand.

Although both countries now offer world-class health services to the minority who can pay, Canning is wary of this emerging trend in developing countries. "I don't have any problem with people paying for high-level care in developing countries through the private sector," Canning says. "But to really improve population health in the long run, you get more cost-effective results from inexpensive public health interventions directed towards the poor. By that I mean clean water, de-worming, oral rehydration for diarrheal diseases, vaccinations, and disease prevention. A major challenge in both countries is going to be how to treat chronic diseases in an aging population in what are still relatively poor countries."

Looking forward, China and India will have to address the fundamental demographic shifts occurring within each country, as well as swiftly widening socioeconomic disparities that could prove politically destabilizing. Bloom notes that while China has pursued a policy of mass education, India's educational focus has centered more on the middle class and elite. China is increasingly divided between affluence in the cities and poverty in the countryside; similarly, India's northern states are desperately poor, while the South claims the lion's share of educated, upwardly mobile people. Bloom and Canning have begun to investigate these regional differences with their colleagues.

"India and China are so big that the populations of some of their states and provinces, respectively, are larger than the population of many countries," Canning says. "And there are big differences between regions that potentially make treating each country as a single unit misleading."

Lessons learned from China and India have great value elsewhere, the HSPH researchers agree. China has made remarkable strides in alleviating poverty, Bloom says, adding that "aid agencies, donor countries, and developing countries will benefit from a greater understanding of China's experience." And India has nurtured an information technology sector with an increasingly global reach. The prospects for India look good for the next 30 years as its demographic dividend matures and it follows in China's footsteps. China's prospects are less clear. A rapidly aging population may lead to a reduced rate of economic growth and put new pressures on health and social security systems that are as yet unprepared for the task. Although India, too, will inevitably face similar pressures, its day of reckoning with population aging is less imminent.

Charlie Schmidt writes about health, science, and the environment for the Washington Post, Environmental Health Perspectives, and National Geographic Online.

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