China census underlines the need to go all out on pro-birth policies

The shrinking working-age population and continuing fall in birth numbers should shake policymakers out of their belief that postponing retirement will be adequate in averting a crisis
Hukou reform will also help, but encouraging families to have children – with an array of carrots and sticks – remains China’s best bet

Winston Mok

Published: 5:30am, 13 May 2021

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A declining number of births is common in the developed world. With its births continuing to fall, the US hit a record low total fertility rate of 1.6 in 2020, while South Korea saw the beginning of its population decline last year as deaths exceeded births.

China has averted a population decline for now. But with the closing gap between annual births and annual deaths, the crossover may be fast approaching – unless it can quickly introduce pro-birth initiatives.

The drivers for declining fertility – industrialisation, urbanisation and better education for women – are common in economic development. In East Asia, high urban density and intense work pressures have aggravated low birth rates from Singapore to Seoul. In China, expensive housing (in major cities) and the high cost of raising a child also deter people from having a family.

China’s reversal of its one-child policy in 2015, implemented only after a decline in its working-age population, was too little, too late – perhaps by a decade. The new policy of allowing two children has resulted in far fewer additional births than hoped for. The number of births fell again last year, to 12 million.

However, Chinese are living longer, with urbanisation and better health care. In the past two decades, China’s life expectancy has increased by five years, from 71.7 in 2001 to 76.9 in 2019. As a result, China has yet to see its population decline despite its fertility rates being below the replacement level of 2.1. China’s life expectancy still has room to grow, in light of Hong Kong’s 85 years, the longest in the world.

Longer life expectancy is a good indicator of social development. But more seniors, relative to the workforce, can become a social burden. The implications can be dire not only for economic growth but for pension sustainability. China’s pensions are only partially funded, the rest is supported by future generations.

China’s census: what impact will national demographic data have?

An ageing population will also lead to a changing economic structure from production to consumption, from manufacturing to services. Health care, senior care and a range of products and services for seniors will become more important.

Importantly, China’s working-age population has been declining since 2014. In the past decade, the proportion of those aged 15 to 59 in its population fell by 6.8 per cent. Fortunately, most of the decline has been in rural areas. China’s urban workforce – comparatively much more productive – will keep growing.

To gauge China’s prospects for economic growth, its increasingly better-educated and urban-oriented workforce is a much more important indicator than the overall population. Hence, the recent relaxation of hukou eligibility in small and medium-sized cities, which will facilitate rural-urban migration, represents an important step in increasing the productivity of a declining working-age population.

China’s policymakers and advisers seem to have resigned themselves to the inevitable. And they think that a declining population may be offset by postponing retirement – which would alleviate the pension problem at the same time. It’s not so simple. There are various issues with delaying retirement.

First, retirees (particularly women) have been a key force in off-peak leisure travel. Postponing retirement would dampen consumer demand. Second, grandparents often assume the role of free nannies in China. Keeping them at work for longer may delay or reduce births.

Most importantly, the young tend to be much better educated than those near retirement age in China. Postponing retirement may also mean delaying the upgrade of China’s workforce.

Postponing retirement would blunt the impact of an ageing population, but perhaps less effectively and with more adverse side effects than anticipated. Continued hukou reforms and pro-birth initiatives would perhaps have more and longer-lasting impact.

China has more power than most other nations to boost birth rates. It could start with the Communist Party. For those of childbearing age, having a second or a third child could be a criterion for party entry or promotion.

Increasing birth rates should be made a key criterion for the evaluation of local cadres. In the old days of the one-child policy, strict compliance was a key measure of performance, so cadres were motivated to follow the rules.

The same incentives could be harnessed for the opposite end – with growth in births made a key measure for cadre performance. The competition among municipalities to grab the educated young – to join their local hukou – may extend to growing the next generation.

What is China’s census and why is it so important?

China could offer incentives for having children. Families with at least two children could be given tax breaks, housing subsidies or even access to better education. To start with, university admission quotas for local residents in Beijing, Shanghai and Tianjin could be phased out for those families who do not have more than one child.

To maintain such privileges, families would have to have a second child. Such a measure would be controversial. But it is only fair that birth rights in China’s largest cities come with conditions.

Finally, high-quality public or state-subsidised childcare centres and kindergartens should be built. China needs a plan for this “next generation” infrastructure.

In 2020, China’s total fertility rate dropped alarmingly, to 1.3, significantly lower than the 1.6 to 1.7 range reported in official statistics in previous years. Furthermore, when benchmarked against levels in Hong Kong and Singapore, fertility rates in major Chinese cities may gravitate towards 1.

In Shanghai, the fertility rate has long been below 1, among the lowest in the world. In Beijing, registered births in 2020 declined by 24 per cent compared with a year ago.

Arresting demographic decline – moderating rather than reversing it, realistically – requires anticipation rather than reaction. At this late time, the risks of half measures are much higher than overreaction.

Beyond immediately lifting restrictions on family size, there should be a big push for pro-birth policies, particularly in urban centres – which may entail whole-of-society changes from housing to education policies.

Winston Mok, a private investor, was previously a private equity investor