2nd child policy won’t cure China’s demographic woes

By Leith van Onselen

I have noted previously how China’s economy will soon face still headwinds from an ageing population (see here, here, here, and here).

Essentially, China’s ageing problem stems from its ‘one child policy’, which was brought into effect in the early-1970s 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 has turned 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 (see charts below).

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In 2015, the Communist Party leadership belatedly ended the ‘one child policy’, announcing that all married couples would be permitted to have two children.

This policy change has had an impact, with The Economist reporting in January that China’s birth rate shot up in 2016, with almost 18 million babies born last year, the highest total since 2000, and the biggest annual increase in three decades:

…some 45% of newborns last year were second children, compared with 30% before 2013. The commission estimates there will be 17m-20m births a year until 2020. Government officials now eagerly project that the rising birth rate could add 30m more people to the workforce by 2050.

Nevetheless, a survey conducted in 2015 found that three-quarters of Chinese said they did not want a second child mainly because of the expense and lack of support.

With this in mind, the Communist Party leadership is considering introducing birth rewards and subsidies to encourage couples to have a second child. From The Canberra Times:

The potential move was revealed by Wang Peian, vice-minister of the National Health and Family Planning Commission at a social welfare conference on the weekend, the state-owned China Daily newspaper reported on Tuesday…

Birth rates rose to 17.86 million in 2016, the highest level since 2000, after the country issued new guidelines allowing all parents to have two children amid growing concerns over the costs of supporting an ageing population.

“That fully met the expectations, but barriers still exist and must be addressed,” Wang was quoted as saying.

“To have a second child is the right of each family in China but affordability has become a bottleneck that undermines the decision”…

The implications on China’s economy of encouraging couples to have a second child are interesting. The reform would be positive in the very long-term, since it would help to ease labour shortages and spread the costs of a rapidly ageing population.

However, the implications over the short to medium-term for the economy are likely to be negative, as China’s shrinking working aged population would be required to support both a growing number of elderly citizens as well as more children, thus worsening China’s dependency ratio.

The ship has well as truly sailed on China’s demographics, and belated attempts to increase the birth rate will not avert the coming ageing headwinds, at least over the short to medium-term.

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Comments

  1. The biggest age 5 year age group is the 25-29 year old group and then it drops away quickly. So that means they have only really a decade and a half to get the birth rate up or else it will really struggle to slow the decline.

    • Philly SlimMEMBER

      And the other issue is that with sex-selection rampant since the 80’s (female babies killed / aborted) the ratio is something like 110-120 men to 100 women at those age groups.
      There are millions more men than women, 33 million more men than women across all age groups.
      Sheesh, i wonder what the PLA thinks about that much cannon fodder …

      • Perfect opportunity to have the biggest navy in the world! 😉 (Rum, sodomy and the lash…)

  2. Ronin8317MEMBER

    While the effect will be bad, not having the ‘one child policy’ would be far worse. The policy in the 1970s was developed as a preventive measure against another famine, as the Chinese cultural preference back then was to have as many children as possible. While a lot of the blame on the famine in 62 can be attributed to Great Leap Forward, the rapid growth in population is a cause as well.

    • [email protected]MEMBER

      I agree Ronin. It’s easy to judge when we’re not in their shoes.
      Children trying support an aged population there which will be the size of all of Europe – without the support systems we take for granted here – is mind boggling. I wouldn’t want to be having to make their policy decisions for quids!

  3. adelaide_economistMEMBER

    No worries. They can use Australia as a template. Apparently near uncontrolled migration regardless of economic necessity is a vital step in offsetting an ageing population, even when some of those migrants themselves are already of retirement age. Jessica Irvine and Bernard Salt told me so. Funnily enough I doubt the Chinese State is that suicidally stupid though.

    • sbinderMEMBER

      Hah. With the additional trouble that the Chinese would have to find about 10m willing permanent net migrants to move there every year, to have a similar NOM rate as a Australia. Any volunteers?

      • People from the sub continent would love to go to china to work, much better than conditions and living in India for many hundreds of millions, but would it be permitted? No chance !

    • +1
      Although said in jest and mentioning the dark lord and cruella deville – you’ve raised a really interesting point.
      If your economy can’t grow due to labour and demand constraints and your only choice is to import immigrants in any guise. Does this work in a mono cultural society where cultural pride and homogeneity is still a virtue? Surely they have seen the unmitigated disaster of the Eurabia solution- they won’t import the only demographic that fits numbers wise and age wise like Europe has done?
      Does that mean that China is cooked without productivity gains or participation gains if they won’t pull the third P lever?
      I reckon they will open up the Chinese diaspora entry from across the globe – must be a hundred mil or so in that? May even pop Sydney and Vancouver housing markets 😉

      Naturally the logical thought process should be: why follow the Solow growth at all costs model at all? Better for society and the environment and all that to have less people, happier, more productive with more resources.

      Secondly – as Eurabia and us and NZ by proxy take millions of third world immigrants who hate our original homogenous cultures – why not have fiscal invectives for having children from local populations? That old were old and need tax payers argument from the said dark lord Bernard and Cruella Irvine Deville surely he failed?

  4. Actually a declining labor force will result in upward pressure in wages which in turn will result in an increase in consumption. In addition upward pressure on wages will also increase investment in automation/robots which should see a substantial lift in productivity. A decline in the labour force will also facilitate the shutdown of excess industrial capacity (eg in the steel industry). The issue will be whether the increase in wages, consumption and productivity will be sufficient to pay for the increasing cost of all the additional pensioners. Given the productivity gap which still exists between China and developed countries there is cause for some optimism.

  5. Countries with stagnant or declining populations can compensate with higher participation rates to solve labour shortages. See for example

    http://www.tradingeconomics.com/germany/labor-force-participation-rate

    It is good if employers can no longer turn up their noses at people over 45 or 50 or can no longer refuse to take on young people who will need training. It is also good for productivity if automation can substitute for labour. So far as pensioners are concerned, in England in 1881 before the aged pension was introduced (to solve unemployment, not help old people), 73% of the men over 65 were still working.

    http://www.ehs.org.uk/dotAsset/12fc863a-7dba-4787-9307-3ec5bb2f3b6d.pdf

    The average baby boomer has had better diet, better health care, smaller families, and better living and working conditions than his or her 19th century ancestor, so we could probably do even better if we had to.

  6. “the number of working aged people to dependents is set to almost halve over the 50 years to 2065”

    And workers’ productivity will rise 300% while their retirement age will rise from the current 55 to 65 years.

    Bg deal.