With the streets becoming ever more crowded and public concern at rising population levels, it seems difficult to believe that Hong Kong is facing an acute shortage of babies. But the facts are stark: government hopes for a post-handover baby boom have faded, and Hong Kong's birth rate, already one of the lowest in the world, is falling still further to below even the levels of Singapore and Japan. This is one of the factors behind the Government's move to create, for the first time, a population policy for Hong Kong and its 6.8 million inhabitants. It's a highly politically sensitive issue. Chief Executive Tung Chee-hwa ordered the Central Policy Unit to start work on the policy even before the Court of Final Appeal overturned immigration policy with its controversial ruling in January. Hints will emerge later this year and a full policy is likely to emerge next year. Professor Judith Banister, of the University of Science and Technology's Division of Social Science, says 'I don't know what Hong Kong's population should be - but I think it would be a good idea to look at the question.' The Hong Kong Government agrees. Linked to work being done by Mr Tung's Commission on Strategic Development, it will emphatically not be an extension of China's one-child policy into Hong Kong - because in contrast to mainland attempts to reduce fertility, one of the core issues is that Hong Kong people are simply not having children. The figures are simple. Without immigration or emigration, to keep a population steady, the average woman has to have 2.1 babies (the figure has to be higher than two because some children will not live to reproductive age and more boys are born than girls). In the 1950s and 1960s Hong Kong had a baby boom as the new immigrants sought stability through having a family of five or more children, but by the mid- 1970s fertility rates were already below replacement level. By around 1986 fertility rates were about 1.4 and this was assumed to be a steady level. But around 1993 it had started dipping again. The Sino-British row and the uncertainties of the handover were blamed, and official projections assumed it would jump back to 1.4 as the handover passed and a more stable outlook had emerged. Instead, it has continued to fall. In 1998, the average number of babies for each woman had dropped to 0.98. Today's Hong Kong woman born between 1966 and 1976, now at the age that most women have children, has a more than 30 per cent chance of having no children. Angela Pau Wai-sum, a spokeswoman for the Family Planning Association of Hong Kong, says: 'The reason is financial considerations.' In their 1997 survey of women asking them the most important factor in choosing family size, financial burden and the need to give them the best education possible were overwhelmingly the reasons. Political uncertainty, accommodation problems and the answer 'I don't like children' were insignificant. With birth rates in Hong Kong now half that of the rest of China, Dr Paul Yip Siu-fai, a senior lecturer in the Department of Statistics and Actuarial Science at the University of Hong Kong comments: 'We don't have to practise a one-child policy in Hong Kong. We have 'one child' here already.' The results affect almost every area of life. Instead of being a society driven by youth culture, advertisers in 20 years will chase the 'grey dollar'. More crucially for the Government, the impact on health-care costs can be dramatic. At a paper delivered at a conference last month, Professor Banister showed that without immigration or an increase in fertility, the population of Hong Kong would start falling around 2008 and in 50 years would be heading towards five million, instead of today's 6.8 million. Of that five million, around 40 per cent would be over 65, creating a truly old society. This is why last year the United Nations warned that the ageing population 'will severely test the ability of families and societies to provide the financial, medial and social support older people will need'. But it also noted that elderly people were becoming increasingly healthy and financially self-sufficient. However, the number of so-called 'eldest old' aged over 80, with high demands on care, will also increase. By 2038, even with migration at today's levels Professor Banister projects that proportion of people over 80 will be three times today's levels. Some people of working age may not only be looking after elderly parents but also grandparents and great-grandparents thanks to longer life expectancy. Dr Yip, himself a baby-boomer and one of six children, notes that today's economy is helped by having so much of its population in the 15-65 wage-earning age group. But as baby-boomers age, the situation will reverse - and this is a key reason behind official concern. Professor Banister, a former head of the US Bureau of the Census' International Programs Centre, says: 'Hong Kong does not have an explicit, comprehensive population policy, but in practice it does have a collection of population policies.' Birth control and abortions are subsidised and available on demand, to both the married and unmarried. Subsidised health-care is keeping the elderly alive longer and the Hong Kong tax system encourages smaller families by reducing the tax allowances for third and subsequent children. In contrast, Singapore has had advertising campaigns with the slogan 'Have three or more if you can afford it' and tax breaks of up to S$20,000 (HK$93,000) for third and subsequent children. However, fertility levels are still falling. Ben Luis Ping-keung of Polytechnic University's Department of Social Studies, and formerly a researcher with the Family Planning Association, says that government action to increase fertility rates doesn't seem to work. 'The decision to give birth is very complicated, and it's not entirely rational,' he says. Women marrying older and having better jobs and education are the key factors he says. So this is why immigration is moving to the centre stage of government policy. Hong Kong is unusual compared with other places that also have high immigration because of its extremely low natural birthrate, leaving immigration as the core element in population change. That makes it doubly vital in the administration's eyes that it regain full control over immigration by overturning January's Court of Final Appeal ruling. Perhaps surprisingly, even groups most concerned with the environment see no need for a formal cap on Hong Kong's population. 'You could get about 11 million people in Hong Kong,' says Eric Walker, a researcher for Friends of the Earth. But he says that this would require a major shift away from roads and a move towards sustainable technologies such as local water treatment. The cross-border element is underlined if Hong Kong's fertility figures are adjusted for children born of Hong Kong residents on the mainland. Last year, there were 53,356 babies born in Hong Kong, down 13 per cent on 1997. But if the controversial government survey of children born to Hong Kong residents in mainland China is correct, then around 5,000 babies are born within wedlock to Hong Kong residents in the mainland in a typical year - a figure that swells to 20,000 if those out of wedlock are included. These 'missing' babies amount to perhaps a third of all babies born to Hong Kong residents. Mr Luis says 'Hong Kong does not have a population problem' if people can easily be moved across the border. If Hong Kong has too few youngsters, he says 'We can just import them. If we go to China and invite applications to emigrate to Hong Kong, say of a certain age, then they will come.' And as for the rising numbers of old people, Mr Luis says they can be encouraged to live on the mainland, where costs are much lower if there is decent care for elderly-related diseases and the home-help service similar to that offered in Hong Kong by the Social Welfare Department. That a greater flow across the border might be an element in government thinking emerged during last week's battle in the Court of Final Appeal over the rights of permanent residents. Lawyers acting against the Government pointed to legal changes that for the first time would allow the creation of a new type of Hong Kong resident formerly from the mainland who would need continuing permission from the mainland to live in the SAR. One key element of any new policy is likely to be a greater say for Hong Kong in which mainlanders can enter. Currently 150 a day, or 54,500 a year, arrive under a quota system. At present the Hong Kong Government does not specify their age, but it also does not find out their age on arrival to allow population forecasting. Professor Liu Pak-wai of Chinese University's Department of Economics says that perhaps surprisingly, it would be better if an adult migrant had come earlier to Hong Kong because the Government would have been better off if it had invested in their education. The usual argument is that a flood of child migrants would drain educational budgets. But his figures show the Government can make a return - very roughly around 10 per cent - on every dollar spent giving a child an extra year at school because the adults that produces then boost the economy. His argument is that on economic grounds alone it is vital to let as many children come to Hong Kong as soon as possible and get them into the Hong Kong educational system. 'My suggestion is clear the backlog as soon as possible,' he says.