Hold your fire on investing in China baby boom

Talk of one-child policy easing has stirred trend watchers, but it may not make much difference

PUBLISHED : Tuesday, 20 August, 2013, 12:00am
UPDATED : Tuesday, 20 August, 2013, 4:12am

Beijing's urbanisation plans may be about to compress the country's already worrisome birth rate further. That is not good for an economy that faces a dwindling labour force in the future.

But news that the central government could relax its one-child policy has led some analysts to predict a stock market rally on the back of a potential baby boom.

Then again, if we look at worldwide data, there is doubt whether many Chinese women will rush to have two children merely due to a government policy change. The country's rapid urbanisation - as has been shown in developed countries - is likely to result in a further decline in birth rates.

The mainland has fewer young people joining the workforce than the number of retiring workers. By 2050, the number of people aged over 65 would be triple today's figure. This is why Beijing wants to boost the birth rate by relaxing the one-child policy to prevent an economic slowdown and a reduced labour force.

The mainland is rapidly running towards the Lewis Turning Point that could see its labour supply dwindle and competitiveness evaporate. That would mark the point the mainland shifts from a vast supply of low-cost workers to a labour-shortage economy.

Hence, let's not bet money on baby-friendly stocks yet. And if Beijing wants to relax the one-child policy to solve problems related to the low birth rate, it is highly likely to fail.

Statistics show more advanced economies tend to have lower birth rates. Most OECD countries, over the past few decades, have experienced a sharp decline in their birth rates to an average of 1.6 children per woman, down from 2.1 in 1980, which is the rate needed to maintain current population levels.

If you look at the big cities such as Shanghai and Beijing, many female residents - like those in Hong Kong and Western societies - postpone marriage and child birth. Shanghai's birth rate is just 0.7 child per woman, which is even lower than in Singapore, while in Beijing it is about 0.8.

A Deutsche Bank report estimates that if a two-child policy is to be implemented in China, the number of births is likely to rise by 1.6 million per year, or 11 per cent annually.

But in terms of birth rate, it will only rise to 1.66 within a few years from the current 1.45. That is not enough to maintain the current population.