A medical worker cares for a newborn baby lying in an incubator at Jingzhou Maternity and Child Health Hospital on the eve of the Chinese New Year, the Year of the Ox, on February 11, 2021 in Jingzhou, Hubei province, China.
Huang Zhigang | Visual China Group | Getty Images
BEIJING – China’s decades-old one-child policy has gained renewed attention in recent weeks, after officials have given mixed signals about whether they were any closer to abolishing the limits on how many children people can have.
Authorities have revoked the controversial one-child policy in recent years to allow people to have two children. But economists say other changes are needed to boost growth as births decline and China’s population ages rapidly.
“There are two ways to deal with this. One way is to relax birth control, something (which) will help at the margin, but even if it completely relaxes control (it is) probably difficult to reverse the trend,” said Zhiwei Zhang, chief economist from Pinpoint Asset Management.
“The other way of dealing with this, from the point of view of economic policy, is to make the industry more dependent on other sectors,” he said.
China’s economy depends heavily on sectors such as manufacturing, which require large amounts of cheap labor. But rising wages are making Chinese factories less attractive, while workers will need higher skills to help the country become more innovative.
The biggest problem for China is that the aging population fuels an existing problem: slower growth in labor productivity, said Alicia Garcia-Herrero, Natixis chief economist for Asia-Pacific. She is looking to see if China will see more growth in capital-intensive sectors, which is driven more by investments in automation.
Births fall 15% in 2020
China introduced its one-child policy in the late 1970s in an effort to reduce population growth. The country doubled in size, from more than 500 million people in the 1940s to more than 1 billion in the 1980s, according to official figures.
In the next 40 years, the population grew by just 40% – to 1.4 billion, more than four times that of the USA today.
I don’t think the relaxation of birth policy could have a major economic impact, because the slow growth of the population was not due to policy restrictions, not in the last 20 years.
Dan Wang
chief economist, Hang Seng China.
Similar to other major economies, the high costs of housing and education in China have prevented people from having children in recent years.
Despite a change in 2016 that allows families to have two children, births fell for the fourth consecutive year in 2020 and fell 15%, to 10 million, according to analysis in a public security report.
“In general, I don’t think the relaxation of birth policy can have a major economic impact because the slow population growth has not occurred because of political restrictions, not in the past 20 years,” said Dan Wang, of Shanghai. chief economist at Hang Seng China.
She said that, based on the experience of other countries, the most effective policy for a country the size of China would be to receive more migrants, but that would be an unlikely change in the short term.
Other options that policymakers are already looking at include raising the retirement age, increasing the skills of the existing workforce with more education and using more machines and artificial intelligence to replace human workers, Wang said.
Policy change just a matter of time
The one-child policy gained renewed attention last month, when the National Health Commission made public a statement authorizing research on the economic benefits of removing birth restrictions in the northeastern region. The area of three provinces, known as Dongbei, has faced economic difficulties and has the lowest birth rates in the country.
Two days later, the commission issued another statement saying that the news was not a test for the total revocation of the family planning policy, despite many online speculations that it was.
But removing the limits is probably just a matter of time, according to economists interviewed by CNBC.
Yi Fuxian, a critic of the one-child policy and author of the book “Great Country with an Empty Nest”, said he expected a decision later this year after China released the census results once every decade in April.
Challenges of China’s aging population
The Chinese government also said that implementing a strategy to respond to an aging population will be a priority for its next five-year plan, to be officially approved at a parliamentary session beginning this week.
Meanwhile, generations born before the one-child policy was implemented in the 1980s are becoming a significant segment. In the next 10 years, another 123.9 million people will enter the age group of 55 or older, the biggest demographic increase among all age groups, according to Morgan Stanley.
This demographic shift will create its own economic demands, said Liu Xiangdong, deputy director of the economic research department at the Beijing-based Chinese Center for International Economic Exchanges.
Liu said that more workers will be needed to care for the elderly, while retirement communities and other infrastructure adapted to an elderly population will be in greater demand.