Population decline could end China’s civilisation as we know it. When will Beijing wake up to the crisis?

The seeds of the crisis were sown by a development strategy that relied on cheap, plentiful migrant workers to power manufacturing and construction
Now, their children don’t want to be like them – they would rather surf the internet than have children. The property bubble is only making things worse

Andy Xie

Published: 9:15am, 3 Mar 2021

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The Chinese government recently reported a sharp drop in registered newborns in 2020, 15 per cent down on the year before. This follows three consecutive yearly declines. Instead of a pandemic baby boom, China seems to be having a baby crisis, worse than in far richer countries such as Japan and South Korea. Does it matter?

The total number of births in China for 2020 is likely to be significantly below 14 million, compared to the annual average of 16.3 million over the past two decades. At the rate China is going, average annual births for the current decade may fall below 12 million, which would be roughly half the number for the 1980s and the 1990s.

While fast-greying Japan is widely known to face the greatest demographic challenges, it has suffered a less dramatic drop in average births over the past four decades than China.

China’s low birth rate last year had little to do with the coronavirus crisis, as lockdowns became nationwide only around February. Instead, it is more significant that marriages had declined in previous years, even falling below the 10 million mark for the first time in 2019. Given the trend, the baby crisis is unlikely to ease this year. Indeed, China’s marriage statistics look a lot like Japan’s, but with a decade’s delay.

And taking into account the decades-long one-child policy, China’s demographic problems will probably be worse than Japan’s. Abandoning that policy is clearly not enough to change the trend. When China revised its policy in 2016, to allow couples to have two children, there was a tiny baby boom for two years. A precipitous decline followed afterwards.

Birth numbers can be volatile due to changing economic and social circumstances, but the long-term trend tends to be smoother. While one can never be sure of a major shift in a trend until it works its way through, important evidence suggests that something new is afoot.

After the Soviet Union broke apart, declining births in Russia were an obvious response to the country’s diminished prospects. In Japan, the declining trend in marriages over the past two decades suggests that a similar trend in births won’t change in the foreseeable future.

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The most important factor in China’s birth decline, in my view, is the existence of second-generation migrant workers. Their parents worked in export factories and on construction sites. This first generation of migrant workers maintained their rural roots and tried to build and support their families; their children don’t have the same attachment to the countryside, as the parents are still working in the city.

However, nor do they have urban roots. Often their hukou, or household registration documents, are still tied to their parents’ birthplaces. In effect, they are a rootless generation. They tend to work in footloose service sectors, as deliverymen for online vendors, drivers for ride-hailing services, shopping mall staff and such.

As urban living expenses are very high, their income is not likely to be stable enough for them to start a family, especially in the big cities where the jobs are located. More than 80 per cent of China’s population was rural before the economic reforms began. The behaviour of the second-generation migrant workers will determine China’s demographic future.

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The original urban population strictly followed the one-child policy. Their birth rate has been around one for four decades, and they are becoming an overwhelmingly old demographic. Therefore, the changing behaviour of the second-generation migrant workers is decisive.

Around the region, rising living costs seem to be a major driver of demographic change. Japan’s fertility rate took a big dip in the 1980s as property prices surged. Similar trends have been observed in other East Asian economies, including Hong Kong, Singapore, South Korea and Taiwan. As housing is the most important cost in family formation, it shouldn’t be controversial to suggest that a property bubble weighs on the birth rate.

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In China, an incredible housing bubble has been building. China’s rising debt, which is more than 300 per cent of gross domestic product, has fed the bubble. As Chinese have a strong preference for owning a property upon marriage, Beijing’s credit policy will have played an important role in the baby crisis last year.

Economics can trigger demographic change. But the ensuing cultural shift might make it difficult to reverse the change, even when economic conditions improve. In Japan, the normalisation of the single lifestyle has become a major barrier to the reversal of the falling birth rate, even though living costs have become more reasonable in the past two decades.

The same thing could happen to China. By the time the population decline deflates the property bubble in the coming decade, cheaper housing may no longer be enough for people to marry and have children.

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China is probably heading for a demographic crisis, the seeds of which were sown by the nation’s development strategy. The country relied on cheap and plentiful migrant workers to power manufacturing and construction.

Now, their children don’t want to be like them – they would rather surf the internet than have children. The property bubble is only making things worse because it means most of these second-generation migrant workers will remain unrooted.

The government allowed the bubble to build so it could raise revenue. Even though the intentions of financing infrastructure are good, the long-term consequences for the population could be catastrophic.

A population decline per se isn’t necessarily a bad thing. China had 400 million people a century ago, less than 30 per cent of the current population; still, China felt like a crowded place. The speed of decline, however, is critical to the country’s well-being.

When half the people are old, the economy will struggle to take care of the whole population. And it may further dampen the desire to have children, as people realise that their children would be growing up to keep old people fed. The vicious circle could lead to a national calamity: it could spell the end of Chinese civilisation as we know it.

It might take five or even 10 years for the Chinese government to wake up to the seriousness of the demographic crisis. After all, there are always more immediate and urgent concerns at hand. By the time the government wants to do something about the crisis, it could be too late. No country in East Asia has been able to reverse the trend. Could the Chinese government beat the odds?

Andy Xie is an independent economist