Tag Archives: one-child policy

Three-Child Policy Will Struggle To Raise China’s Birth Rate

THE THREE CHILD policy is now official. On August 20, the National People’s Congress formally passed revisions to the law that will let couples have up to three children.

The aim, self-evidently, is to raise China’s birth rate. The results of the 2020 National Census reveal that China’s total fertility rate has fallen to an all-time low of 1.3 — well below the replacement level of 2.1.

Five years ago, the one-child limit was replaced by two, acknowledging the adverse impact of the strict controls on reproduction introduced in 1980, when the worry was the prospect of too many mouths to feed. Now, the concern is too few youngsters to pay for the pensions and healthcare of the elderly.

The unintended demographic consequence of the one-child policy was to leave China with an ageing population and shrinking workforce much sooner than other countries at this stage of economic development.

There was also a huge personal and social cost in the suppression, often forced, of an estimated 400 million births over the 35-years of the one-child policy.

Yet legal permission is far from the only factor in couples’ decisions to increase the size of their family. Adequate and affordable housing, the cost and availability of education and social welfare provisions, particularly childcare, also matter. Without extensive reforms in those three areas, this latest change is unlikely to reverse the downward trend in births, at least in urban areas.

Since the introduction of the two-child policy, as few as 5-6% of couples in large cities have opted to have a second child. A pair of recent surveys by Xinhua and Weibo showed only 3-5% of respondents were ready to have another child.

The countryside, where there is still a preference for sons and the one-child policy was not enforced for couples whose first child was a girl, may prove to be different.

The other factor weighing on the birth rate is the infertility rate, which rose to 18% in 2020 from 12% in 2007 among couples of childbearing age. While the absolute level is not out of line with other upper-middle-income countries, the sharp rise is, and its reasons are not well understood.

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An Economic Consequence Of China’s One-Child Policy

One overlooked and unintended consequence of the one-child policy: it pushes up China’s savings rate. A study by Shang-Jin Wei and Xiaobo Zhang, first published in 2009, updated in January this year and just re-released by Columbia Business School, where Wei holds the N.T. Wang chair of Chinese business and economy, finds:

Not only that households with sons save more than households with daughters in all regions, but that households with sons tend to raise their savings rate if they also happen to live in a region with a more skewed sex ratio.

The cause and effect is straightforward: parents with a son raise their savings in a competitive manner in order to improve their son’s relative attractiveness for marriage. About half of the increase in the savings rate of the last 25 years, Wei says, can be attributed to the rise in the sex ratio imbalance.

Wei adds:

None of the discussion about global imbalances has brought family planning policy or women’s rights to the table, because people do not see these issues as related to economic policy. Our research suggests that this is a serious omission.

A thought to throw into the discussion on global imbalances at the forthcoming round of the Annual Strategic and Economic Dialogue between China and the U.S. that take place next Monday and Tuesday, loathe though we are to create yet another point of friction between Beijing and Washington.

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When China’s Demographic Dividend Becomes A Demographic Tax

Much of the follow-up attention given to the census results published this week has concentrated on the implications for China’s one-child policy. This Bystander is more struck by the long-term economic impact of the key demographic trends–low birth rates, a greying of the population and an unbalanced sex ratio (15% of young Chinese men won’t be able to find a partner among their fellow citizens in 20 years time).

These will, we believe, likely combine to make China a deficit country within two decades. Working population is a proxy for production, and when it grows faster than the total population (a proxy for consumption), as it has for the past three decades, the difference becomes exports. Some time over the next decade that trend will reverse and the reversal intensify over the subsequent three decades reaching its peak in 2050. The consequent demographic bias will work through to the trade account long before then.

For now, China’s demographic dividend has brought it more than just merchandise trade surpluses. Add on dramatically rising productivity from economic reform to the country’s working population growing much faster than its total population and the inevitable consequence has been a sharp improvement in per-capita income and living standards. The peak in the workforce forecast for sometime in the next decade will be accompanied by an explosive growth in the number of over-65s. China’s working population will begin to grow more slowly than its total population. The demographic dividend will become a demographic tax. As China is getting old really fast, it will become an increasingly heavy tax relatively quickly.

That will drive the transformation of the economy towards being more led by domestic demand. The supply of surplus labor available to low-cost export manufacturers will dry up. Manufacturers will move up the value chain, and a domestic market for products and services for the elderly will expand domestic demand, helping to run up domestic consumption and down domestic savings. The era of manufacturing in China predominantly for export comes to a close, replaced by an era of manufacturing and services provision in China for Chinese consumers.

How this all turns out in detail will depend on other factors, such as  changes in worker productivity, savings rates, institutional reform, whether monocultural China proves open enough to deal with future labor shortages through immigration, and, yes, what happens with the one-child policy. But today’s fast economic growth and huge export-driven current-account surpluses will by then be but a distant memory.

Footnote: Certainly the numbers can be used to argue the one-child policy policy should be scrapped. Wang Feng, Director of the Brookings-Tsinghua Center in Beijing, does just that in a commentary in Caixin.

To put the growth of the population in some perspective, since the previous census in 2000, China’s population has grown by 74 million to 1.34 billion. The increase alone would be sufficient to rank as one of the 20 largest countries in the world by population, with about the same number of people as Turkey or Iran. Over the same decade India’s population increased by 181 million. And while we are making such comparisons, on present demographic trends, by 2050, silver China, the nation of Chinese over 65 years old, will constitute a larger nation than the U.S. today.

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