In the first major document published since Tuesday’s Plenum, China has announced its intention to relax the one-child policy. The reform will mean that families will be allowed two children if one parent is an only child. Although the reform is an important step, it will not solve China’s demographic challenges – challenges which have the very real potential of being a drag on economic growth.
Demographics are a particular challenge for the Chinese government as the country has one of the fastest-ageing populations in Asia. It also has the oldest population of the major emerging markets. An ageing population matters because it contributes to skills shortages, and skills shortages and increasing wages are a real challenge for the Chinese economy.
- For instance, in 2007 the average wage in manufacturing in Mexico was more than twice as high as the equivalent wage in China, but by 2012 differences in wage levels between the two countries were much smaller – Mexico’s manufacturing wages were around 50% higher. Between 2007 and 2012 Mexico’s wages in manufacturing were flat, whereas China’s increased by 52% in real terms.
In addition, the one-child policy has led to a massive gender imbalance. In 2013, the male population outnumbered the female by 34 million – with the largest imbalance seen for those aged 0-14. Left unchecked this imbalance has the potential to create social tension – with millions of Chinese men unable to marry.
China Age Pyramid: 2012 and 2030
Source: Euromonitor International from national statistics/UN
Too Little Too Late?
An end or relaxation of the policy will help China’s demographic problems, but it would be highly unlikely to lead to a reversal of China’s ageing problem, partly because the impact is already being felt on the population – in terms of the proportion of women of prime childbearing age.
- The percentage of women aged 15-39 in the overall female population fell from 40% in 1980 to 34% in 2013 and is expected to fall further to 30% in 2020. Put another way, the median age of the female population is estimated to be 41.1 years in 2013, compared to 22.3 in 1980.
This means that the pool of women able to benefit from the relaxation in the one-child policy is much smaller than it would have been in the past.
Economic Growth Goes Hand-in-Hand with Falling Fertility
Even if there were a large number of women of childbearing age in the population, urbanisation and economic growth tend to go hand-in-hand with declining fertility, so eliminating the one child policy would be unlikely to lead to birth rates increasing to their previous level. Incentives to increase the birth rate such as family benefits, one-off payments, improvements to maternity services and free or heavily subsidised childcare would be needed to accompany the policy change. This kind of government action has been partially successful in other countries – such as Russia.
Policy Change Acknowledges the Need for Social Reform
Perhaps the most important aspect of the change in policy is that it acknowledges the need for social change – it is only one of several reforms – including an important reform of land ownership laws in rural areas. The government is well aware that social tension is a real threat to its power and the economy’s performance.