Why China doesn’t need a baby boom, just a skilled population

Another year, another bleak forecast of China’s greying population. As most demographers predicted, the recent reforms in population policy – namely the move to a nationwide two-child policy – have had little impact on the country’s fertility rate. Indeed, figures released last month indicate a drop in the number of births in 2017 compared to 2016, from almost 18 million per year down to 17.23 million.

Part of this decline is due to demographic technicalities. First, the number of women at childbearing age peaked in 2011. So even if the fertility rate stayed the same, the number of births would decline anyway. Second, Chinese couples tend to marry and have children earlier than their counterparts across Asia. Now, however, these decisions related to family formation are being postponed. This artificially deflates the fertility rate on a year-to-year basis. In other words, just because people are not having children today does not mean they will not in the future. If they do, then fertility rates will naturally increase.

This so-called “postponement effect” was, in fact, mainly to blame for the very low fertility rates seen in Europe in the 1990s. During that period, much ink was spilled about the European “demographic crisis”: low fertility posing an existential threat to the future of the continent through rapid ageing, population decline and emasculation on the world stage.

Of course, the “death of the West” has been somewhat exaggerated. However, the responses to China’s low fertility rates have been equally apocalyptic.

In China today, as in much of Europe in the 1990s, the talk is of encouraging people to have more children – or at least to have the number of children they say they would like to have, which is more than they currently do. Direct subsidies (or “baby bonuses”) and personal income tax reductions for parents are currently being discussed as “solutions” to the “birth dearth” in China.

However, we know from elsewhere that simple cash transfers are a very ineffective means of stimulating fertility. Rather, more holistic policies which support parents – and parents-to-be – tend to be more effective. Some of these policies are already under consideration: improving childcare and kindergarten reform, some support for getting on the housing ladder, possibly some further educational subsidies. Other policies, however, need to be considered. Whole aspects of work culture need to be reformed to lower the “career penalty” of having children – especially for women.

The frustration of being a single woman in China

As the graduate job market contracts and house prices become ever more astronomical, the challenges of “getting started” in life are growing annually. Policies which can support this transition into independence are likely to feed into changes in fertility. But this pronatalist motive should be an afterthought. These are simply good policies which will improve the lot of Chinese men and women.

Realistically, though, the chances that such comprehensive policies – more associated with Sweden than Shanghai – are going to be implemented are slim. So, does this mean China is doomed to a demographic oblivion?

Not necessarily. For starters, simply having more children is actually quite an ineffective means of offsetting total population ageing, especially in a country the size of China. For any meaningful impact to be made on the ratio of workers to pensioners, the increase in the number of births would need to be astronomical, leading to other problems such as pressure on hospitals and schools, as well as probably a negative environmental impact. Furthermore, not only do children not work themselves, but the care required from their parents negatively impacts on the labour force.

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China actually has other demographic levers to pull. There is still room to capitalise on internal migration through ongoing hukou reform. In addition, the potential to capitalise on the favourable demographic systems across “Belt and Road Initiative” countries means China could, potentially, be the first country to systematically reap the demographic benefits of a linked-up, globalised economic system.

Domestic institutions and systems that will be placed under pressure by an ageing population are still relatively young. As such, reform is likely to be easier than the struggles we have seen in Europe and America. Further automation is likely to relieve demographic pressure and wage inflation in certain sectors. Indeed, we are already seeing companies delivering innovative strategies to do more with less in terms of both efficiency savings to fixed capital and novel policies to increase retention and hold down wage inflation.

China may have 90 million fewer people than claimed (that’s twice of Spain’s population)

Finally, China should look to a second revolution, beyond demography: one of education and skills. By both harnessing the huge changes in educational attainment which have been delivered in recent decades, and further improving the curriculum to ensure the next generations are properly skilled for the 21st-century labour market. In short, rather than pushing for more children, a better and more realistic approach would be to allow its current population to realise its true potential.

Stuart Gietel-Basten is associate professor of social science and public policy at the Hong Kong University of Science and Technology