An elderly Chinese woman naps on a park bench Reuters China's population is the most "likely to get old long before it becomes rich" and the country's rapidly aging population could be hugely damaging to the country's economic growth, according to new research from HSBC.

HSBC global economist James Pomeroy argues, in the latest in a series of reports on demographics in the world's emerging markets, that while there are several major emerging economies — including Russia and many Eastern European nations — that could face big problems thanks to an ageing population, China is the most likely to take a big hit.

Here's Pomeroy (emphasis ours):

Ageing populations are likely to drag down potential growth and government finances may become more strained. Just when these countries need to spend more on reforms and infrastructure, funds may have to be diverted to provide pensions and healthcare.

Pomeroy adds:

China is the most obvious case of an emerging market with poor demographics, with the working-age population set to shrink from 2016 onwards.

China's median age is expected to rise above 40 in 2024, but despite a fast pace of growth, the country may not become "rich" until around the mid-2030s. The same fate looks set to befall Russia and much of Eastern Europe. The problem for these countries is that the slowdown in fertility rates has happened long before GDP per capita has crossed into "wealthy" territory (chart 4), meaning that slow population growth has become engrained.

Here's the chart:

Pomeroy continues (emphasis ours):

Efforts to correct this imbalance may be too late. China's attempt at increasing fertility rates, by removing the one-child policy may not help that much, especially in the short term.

Low fertility has become engrained in society and is something that is evident across parts of Asia, such as Korea and Singapore. There may be some pent-up demand for children in China which becomes clear with the one-child policy out of the way. But even if fertility rates can be raised, the impact on the population pyramid won't be seen for many years, and even then the impact would be marginal unless fertility rates can be raised well in excess of the 2.1 replacement ratio, which seems unlikely given that it is currently around 1.6.

That inability to increase fertility rates is only going to make things worse, with huge pressure being put on infrastructure to cope with ageing populations.

Healthcare expenditure will be forced upwards as China struggles to deal with having a higher volume of elderly citizens in need of later life care. Higher spending could also be the case with pension provisions, the bank adds. An ageing population in China could also end up affecting tax takings thanks to lower employment rates, which in turn creates "fiscal challenges," HSBC says.

All those factors combine to create a picture where GDP growth faces a huge drag. Here's HSBC's Pomeroy one last time (emphasis ours):

Finally, there is a risk that ageing populations hold emerging markets back from achieving full potential in terms of total GDP and development. Weak demographics may lower the potential growth rate and therefore hold back development and prosperity and so the necessary infrastructure to deal with an ageing population, such as robust pension systems and less labour intensive employment, may not arise. Slower growth and ageing populations may lead to a sharp rise in government debt, which in turn may lead to slower growth further down the line, if taxes need to rise.

While the bank is pretty downbeat on the effect demographics may have a serious effect on Chinese growth, it does caveat this by arguing that "China should still have enough growth potential to escape the middle-income trap" and can catch its neighbours in Japan and Korea in becoming a "rich" country.

That view is one also put forward by another HSBC economist, Frederic Neumann. In March, Neumann argued that both an "enormous reservoir" of underused workers in the country, and the rapid improvement in educational attainment in China, could help China skirt around major problems with its economy that may be caused by its demographic issues.