In my previous article, I discussed mutual Sino-American interests in our respective financial recoveries. Specifically, US early retirement issues associated with the financial recovery were featured in that article. However, it may be true that China has some unique retirement dynamics in its own recovery.

I will be the first to admit that I am not an expert in Chinese demographics, particularly when it comes to China's work force. However, I understand from my Chinese friends, that in general, Chinese women are, more-or-less, forced to retire at age 55 and the same is true for Chinese men at age 60. The most obvious argument for such policies is they make room in the work force for new, younger workers. And, China has had to struggle to find adequate employment opportunities for many of its young people in the past. But as life expectances dramatically increase in China, is relatively early retirement a good use of otherwise seasoned talent?

Here in the U.S., we have age discrimination laws that prevent such policies. However, if an elderly person is not performing according to acceptable standards, his or her employer can dismiss the person after proper documentation of said unsatisfactory performance. As a side note, all other employees must be judged, evaluated and documented in the same manner as the elderly employee, or this too, is age discrimination.

From my limited experience in China during the 2008-09 academic year, it appeared China has invested significantly in its higher education infrastructure. Many campuses in China are modern and very large with many construction projects underway. There are nearly 30 million university students currently enrolled in almost 2000 universities. And, even though the Chinese economy has grown very rapidly during the preceding years, the economy has had difficulty absorbing so many college educated young people. One can only imagine how serious this problem of "unmet expectations" would be without a very pronounced system of "up and out" when it comes to the work force.

However, the down side to this policy is twofold. Can China afford to support more and more elderly people that have increasing life expectancies? Adding to this quandary is the fact that many Chinese workers that are forced to retire are still very capable workers. They have the training, energy and will to remain viable in the work place for many years. Therefore, it seems that China is missing out on a vast source of human capital. Of course, how and when people retire is a phenomenon that, practically speaking, changes slowly. Nevertheless, it seems strange that while the U.S. is encouraging its workers to work longer, the general policy in China is to retire workers at a relatively younger age.

With the current global economic down turn and the accompanying decreased international demand for Chinese exports, it would be very convenient for Chinese consumers to begin to consume the resulting surpluses in Chinese production. This scenario has not been lost on the Chinese policy makers. The Chinese government has fully realized that increased domestic consumption could absorb the anticipated increases in unemployment and it would most likely increase domestic standards of living. In addition, it may very well produce the badly needed completely new jobs that would put less pressure on the "up and out" approach to young worker employment opportunities. More new jobs relative to on-coming new workers would contribute significantly to real growth for the Chinese economy. However, in order to stimulate domestic consumption, people must have social security and welfare coverage. Otherwise, stimulating domestic consumption will be very difficult.

In the past, China has tried and failed to appreciably stimulate domestic demand. Much of this is due to the persistent culture that puts significant value on individual savings. For the older generations in particular, this is based on severe crises before and after the revolution. Today, it is more a matter of perceived survival, given the prospect of early forced retirement. Such habits die hard and these will probably continue to be key features of the Chinese society. Even the younger Chinese that I talk to say they and their parents are reluctant to reduce their saving rates. When I ask them why, they tell me they have no confidence in their government's "social safety net."

The bottom line is: if workers were not facing premature retirement, maybe they would have a greater tendency to consume.

 Dr. E. Tylor Claggett is a professor of finance and director of the Financial Planning Track at Salisbury University, US.

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