Two child policy won’t fix China’s demographics

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By Leith van Onselen

The relaxing of the one-child policy is being viewed in some corners as a potential fix to China’s rapidly ageing population, which threatens to stifle its economy.

As noted previously, the one-child policy was implemented in 1979 and is credited with preventing around 400 million births from 1979 to 2010. This policy initially produced a population pyramid optimal to economic growth – that is, where the largest segments of the population were neither young nor old, but in the middle (i.e. working age).

However, the demographic blessing provided by the one child policy is expected to turn into a curse, with the United Nations forecasting that the number of working aged people to dependents is set to almost halve over the 50 years to 2065, from a peak of 1.9 workers to dependents in 2015 to only 1.0 by 2065.

In fact, China is currently facing very similar demographic challenges to those experienced by Japan two decades ago. Like China now, the Japanese economy was toast of the world in the mid-to-late 1980s, but hit the wall from 1991 when its joint property and stock market bubbles collapsed and its working population began to shrank.

To illustrate, consider the following graphics.

First, the population pyramid of Japan in 1990 versus China in 2010. As you can see, they are very similar:

Second, Japan’s dependency ratio in the 1990s – i.e. the ratio of the non-working population, both children (< 20 years old) and the elderly (> 65 years old), to the working age population – is very similar to China’s in 2010:

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As are the the profiles of the number of working age people per dependent:

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Of course, a major difference between China and Japan is that Japan was a very wealthy country when its demographic time bomb exploded, with per capita incomes exceeding that of most other Western nations. By contrast, China’s per capita income is currently well below those of the West, which will make the transition to an ageing society all the more difficult.

A perverse impact from relaxing the one-child policy is that it could actually make China’s demographic profile worse before it gets better. In addition to supporting the ageing population, workers would now also be required to support a growing number of younger dependents, thus worsening China’s dependency ratio over, say, the next 20 years (but improving it thereafter).

Therefore, while liberalising the one-child policy should ultimately assist in rebalancing the Chinese economy towards domestic consumption – since younger people tend to spend a higher share of their income than older people – such benefits will take many years to realise, and the reforms will likely be a drag on the economy in the short to medium term.

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Comments

  1. I suspect that the demographic paradox, the more wealthy a nation become the more its fertility drops, will play out in China as well.

  2. The Chinese are looking long term here. They know that even if they allow 2 children per family the birth rate is unlikely to ever reach that, but might make the CCP look better. More importantly they know that they will never reach a high standard of living with 1.2 billion people.

    • We all know that the Chinese look 500 years ahead. I don’t know why they don’t just announce all of their laws 250 years ahead of implementation.

    • Don’t worry.

      The Chinese are coming to Australia. 100 thousands per year. lol

      in 20 years time 1/5 of Australian will be Chinese.

      the States is also taking a large number of Chinese every year.

  3. Why aren’t they importing Africans and Indians as skilled immigrants to help with their aging population? Are they xenophobic, racist mono-culturalists or something?

    Just goes to show that governments should keep their snouts out of social engineering. A good lesson for our own pro-high immigration pollies.

    BTW, The one child policy has led to over 13 million forced abortions every year in China.

  4. Periods of famines is a great recurring tragedy of Chinese history and the biggest driver for the ‘One Child Policy’. It was a matter of national survival back then, as import and exports were extremely limited during the Cold War. Things are different now, but nobody back could have predicted China will become the 2nd largest economy in the world.

    The idea of ‘one hundred children, one thousand grandchildren’ has been imprinted into Chinese culture, and it required draconian policies to change it. Overall, most of the Chinese population agrees that population control is necessary, as there are still too many people in China.

  5. I suspect the policy change is simply aimed at increasing, with a 20 year lag, the number taxpayers – driven hard-working intergenerational debt slaves. After all, princelings need support.
    The smoke screen that increasing population is meant to smooth aged care costs is also trotted out in Australia. It’s a furphy. Accelerated pop growth would actually work if infrastructure and the tax system were designed properly.
    The new 2 child policy in China contrasts the Aus technique of just ramping immigration when it looks like RE prices might be flagging.
    The written symbol for China translates to ‘central country’. Get used to it.