Betting on Demographics

In late October, the Fifth Plenary Session of the 18th Central Committee of the Communist Party of China adopted a momentous decision ending the national birth regulating program known as the ‘one-child policy.’ From that moment, all couples in China were granted a legal right to have two children. Thus, China finally drew the curtains over its nearly 40-year old policy of strict control over fertility, which, at one time, caused a lot of debate and controversy both inside the country and abroad.

Changes in the country’s demographic policy – which in its current form leads to a rapidly aging population and to a rapid reduction of China’s labor resources in the future – are objectively needed. The working-age population from 2013 to 2015 in China was reduced by 3.7 million people. According to UN projections, the portion of the Chinese population over the age of 60 will have grown to about 30 percent by 2050, despite the fact that it was only 12 percent back in 2010. The change in demographic priorities aims to reverse this trend.

Indeed, according to many experts’ estimates, if the old one-child policy had been preserved, the current demographic and social trends would have inevitably had a negative impact not only on the very institution of family, but also on further economic development of the whole of China. The disparity in the number of taxpayers and retirees would deepen, and, accordingly, the tax burden of the working population would start to rise over time. Moreover, in the long term, the so-called ‘aging population effect’ would add growing pressure to the social budget of the Chinese state in view of the course taken by authorities to expand the coverage of China’s pension insurance system.

The extension of the one-child policy would likely also increase the country’s gender imbalance. The traditionally patriarchal Chinese prefer a boy being born in the family and often had abortions if the child was discovered to be a girl. Restrictions on ultrasound examinations introduced by Chinese authorities as a result only led to the emergence of an illegal market of diagnostic services. As a result, an overabundance of men without the prospect of finding a mate to marry is often regarded by experts as a potential cause for social instability. Of course, today, this disproportion is still not critical: the ratio of men and women in China (as of 2013) was approximately 51 to 49.

According to one study published in the journal Science, the one-child policy has even had a negative impact on the psychology of people born in China at the end of the 1970s, making them self-centered and less willing to take risks or engage in competition.

Chinese leadership hopes to overcome these social and demographic trends by renouncing the one-child policy. But perhaps even more importantly, it expects to improve the economy. Hence, the political elites of the country became convinced that – unlike in the late 1970s – today, China’s GDP can only grow if the current population level increases or stays at the present level. According to Chinese economists, in order to ensure a balanced socioeconomic development, it is necessary to maintain the population at around 1.5 billion people (today, it is not more than 1.36 billion), and the fertility rate should be 1.8 children per family (the current figure, by different estimates, ranges between 1.2 and 1.6).

No less important in the transition to a new demographic paradigm is the fact that Chinese authorities are trying to revamp the economy by stimulating domestic consumption through an increase in the number of children born to Chinese families. After the global financial and economic crisis of 2008 to 2009, the stated changes in the pattern of economic growth in China included such important components as dropping the country’s reliance on the export of Chinese goods for the sake of stimulating domestic consumption. The termination of the one-child policy is expected to contribute to an increase in domestic demand for children’s products, such as baby food, musical instruments, etc., as well as education, health care, and real estate.

But no matter how well-intentioned the efforts of Chinese authorities, there are serious reasons to doubt they will have a substantial impact on China’s population growth or solve the current social and economic problems. The fact is that over the past decades, China has undergone profound changes in the number of residents in the countryside and in cities (because the number of urban residents is growing rapidly), in the people’s mentality, and in how religious the Chinese are, as well as their traditional propensity for large families. In the end, with some caveats, we can even say that they have developed a habit of having one child per family. There are also a number of new factors that influence the conscious choice of how many children married couples have. For example, when planning a family, many take into account the high cost of their upbringing and education. Quite telling is the fact that the liberalization policy undertaken in 2013, allowing couples to have a second child if one of the parents was an only child, has not resulted in the expected population explosion. By the end of May 2015, only 1.45 million of the 11 million such couples had expressed their intention to have a second child.

In this regard, it can be surmised that the termination of the old demographic one-child policy will hardly lead to a major shift in the demographic situation in China in favor of increasing the birth rate in the medium and even the long run. It is also unlikely that it will become one of the several drivers of economic growth that the country’s leadership is actively seeking. Leaders will have to find different approaches: betting on improved demographics will not be the answer to China’s problems.

The article was prepared in cooperation
with the Gorchakov Fund.