Could China’s population crisis be reaching a point of no return?
- China’s rapidly declining fertility reflects the legacy of family planning policies, which had caused the birth rate to plummet well below replacement level by the 1990s
- If it is to sustain its economic dynamism, it must expand its labour force by raising the retirement age and encouraging families to have more children
As a planned economy, China was once obsessed with expanding its population. But, in 1957, the economist Ma Yinchu published The New Theory of Population and cautioned that this trend would soon begin to undermine China’s economic development. Though the government initially criticised his theory, unfairly, Chinese leaders eventually took his warnings to heart, encouraging family planning as a way to promote economic growth.
With that, China’s fertility rate bounced back somewhat, reaching 1.58 in 2017, according to the National Bureau of Statistics. But it is now again on a downward slide, falling from 1.49 in 2018 to 1.47 in 2019. According to the population economist James Liang, it may be set to return to 1990s levels.
As Liang noted, in 2017, the total fertility rate of 1.58 reflected a fertility rate of 0.67 for one-child families, 0.81 for two-child families, and 0.11 for three-child families. The fact that the fertility rate of two-child families is higher than that of one-child families reflects the two-child “accumulation effect” – that is, one-child families who had previously wanted to have a second child finally being able to have one.
This view is supported by pre-2016 birth trends. In 2010, the one-child birth rate stood at 0.73. While it rose slightly in 2012-13, it fell to 0.72 in 2014 and 0.56 in 2015. Given that one child was always allowed, the vast majority would have been registered, meaning that these fertility-rate figures for one-child families are unlikely to be underestimates.
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China’s rapidly declining fertility reflects the legacy of family planning policies. They are also increasingly driven by rapid, sustained urbanisation, universal education and economic development – factors that are known to contribute to significant declines in birth rates.
This was certainly the case in Japan, whose rise to advanced-economy status was followed by a sharp drop in fertility. In 1995, however, the birth rate dropped below 1.5. A decade later, it stood at 1.26. Policies to encourage childbirth subsequently helped to raise the fertility rate, but only to 1.4, where it remains today.
As is true in Japan, South Korea’s low fertility rates can be explained largely by economic factors. With rapid growth and large-scale urbanisation driving up housing, education and health care costs, couples’ willingness to have children has weakened.
This implies serious risks, beginning with a rapidly growing old-age dependency ratio. In China, the working-age population has shrunk by some 3.4 million per year over the past decade. Those who are joining the workforce today were largely born when the fertility rate was already below the replacement level.
These trends will significantly undermine the potential output growth of the Chinese economy, owing to decreased labour-force participation, and put tremendous pressure on public budgets, as outlays for pensions and social security far exceed income payroll-tax revenues. This is already happening in both Japan and South Korea.
China has always been cautious about loosening family planning rules. But, if it is to sustain its economic dynamism in the decades to come, it must work hard to expand its labour force, including by raising the retirement age and encouraging families to have more children. Otherwise, its population will become old in the same way Ernest Hemingway described how one goes bankrupt: gradually, then suddenly.
Zhang Jun is dean of the School of Economics at Fudan University and director of the China Centre for Economic Studies, a Shanghai-based think tank. Copyright: Project Syndicate