Tag Archives: population

China’s Birth Rate Is A Cost, Not Numbers Problem

IT STRIKES THIS Bystander as odd that China’s decision to switch to a three- from a two-child policy is being described as a surprise. Demographic data does not change that quickly. That the country faces a reversal from its demographic dividend to a demographic deficit with the ageing of its population has been known for many years.

True, the 2020 census gave the inevitable decline of population growth as economies get more prosperous and more urbanised a new urgency. The 12 million new babies born last year were the least since 1961 — and two-thirds the level of 2016 when Beijing ended its one-child policy. 

The impact of the pandemic on couples’ willingness to have children may not be fully apparent yet. Nonetheless, a birth rate declining even faster than the mortality rate may mean the population will begin to contract in 2025. That is sooner than expected, with the economic impact of having relatively fewer workers to create output and to pay the taxes to care for the elderly.

The other question is whether allowing couples to have a third child will reverse the long-term trend. Allowing them to have two has had little effect. More significant deterrents to larger families are the high cost of childcare, education and housing.

Policymakers need to address those if they are to get the fertility rate up. It is another reason that Beijing needs to hark the calls of those, including most recently the OECD, to take advantage of the pandemic to push through structural reforms that will increase social protections.

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Small Cities Astride A Social Fault Line

Just A Small City In China Getting Bigger

More than half of China’s population now lives in cities, as has been widely noted, making the country predominantly an urban nation for the first time. Two-thirds to three-quarters will likely do so by 2020. It was one in nine when Mao took power.

Urbanization has been a main prop of rising living standards, and promoted as government policy. Arguably, China’s has been the most managed such migration from farm to factory in history. The flip side of that has been an ever-widening urban-rural income gap. While that has been true for the past 30 years, it was only under the most recent five-year plan that diminishing the gap became a high policy priority. Measures were introduced to support agriculture, farmers and the countryside. They continue under the current five-year plan.

The scale of the migration from country to city is immense, some 300 million people over the two decades to 2020, needing to be provided with shelter and jobs. That is the numerical equivalent of moving the entire populations of Guatemala or Mali or Ecuador every year for 20 years.

China has 661cities by the official count. They have the capacity to absorb some but not all of those arriving from the countryside. China’s list of urban conglomerations with populations in excess of 20 million may soon extend beyond Guangzhou, Shanghai and Beijing, but small towns and cities are designated under the current five-year plan to provide the new homes, jobs and social services that will be required to absorb 40% of the labor coming off the land. As the coastal provinces are transformed into high-end service economies and manufacturing is moved inland, the eastern megalopolises won’t need vast swathes of new unskilled labor. Hence the push to develop satellite towns and second- and third-tier cities in the poorer central and western provinces. Towns and small cities are also seen as a bridge across the urban-rural income divide.

Yet, as recent events in Wukan and a host of other places earlier bear testimony, it is proving to be a troubled passage because of the fault lines in local government and the weak legal framework for land rights. The later has meant that planned rapid development has been possible because land could be taken in the name of a greater public good, but the combination has made the process highly uneven, often exacerbating inequality and sowing social discontent, leaving migrant workers and villagers, in particular, disgruntled and shut out from the benefits urbanization is meant to deliver.

One one estimate, farmland expropriation for urban redevelopment displaced 60 million-70 million people between 1990 and 2007. That is an order of population the size of Thailand, France or Italy. Even the mass migration from Italy to the U.S. at the end of the 19th century over a similar period emptied out only a third of Italy’s population.

The growing pains of towns and small cities across the country, like large ones, are all too evident. Infrastructure development–for roads, sewage, potable water, flood defense–often struggles to keep up with the rapid pace of industrialization and urbanization. Similarly, social services, transport and education. Local environments, and so quality of life, pay a huge cost, too, as land is chewed up for development and inadequate infrastructure fails to prevent the despoiling of what is left.

Some towns and small cities work better than others. Top-down planning going spectacularly wrong, resulting in ghost towns such as the much-ridiculed Ordos in Inner Mongolia, may be the exception to the rule, but the variable results in other places is partly of their own making, partly systemic. There is high variability in both the quantity and quality of trained local officials, in their cosiness with local business interests, and, most importantly, in their relationships with the next level up of government.

That last matters so much because the hodgepodge of tax and bureaucratic powers of small towns are often contested with the next higher level of bureaucracy. As a result, selling land rights to companies and developers from larger cities has become the usual way for town officials to raise funds. Wukan may have been an extreme case, but being bilked out of land by corrupt or incompetent local officials who want to turn it over it for urban development is at the heart of hundreds of thousands of similar if smaller-scale and less prominent disputes and protests every year.

These protests increasingly worry Beijing. The Party’s legitimacy to rule turns on delivering rising living standards for all. Economic development was meant to forestall social unrest, not foster it. It should also concern the rest of the world. Urbanization is an essential precursor to rebalancing China’s economy towards domestic consumption.

Beijing’s new plans for managing social unrest are designed to deal with its growing problems with urbanization. It can no longer count on the traditional cohesiveness of rural communities and danwei in the big cities to self-police. The technological upgrading of police and their surveillance capacities, and the tightening of control over mass media, including microblogs, are central to controlling the larger scale of protest that cities enable. Dissidence, whose wellsprings tend to be in the universities and artists and writers studios in the cities, is being cracked down on. Yet, tackling the root causes of social disgruntlement requires reform of local government finances and governance, and most of all, land rights. Otherwise the influx of millions of migrants into towns and small cities will only exacerbate the fault line that is trembling below.

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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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