China Ends One-Child Policy: Why Now?

China’s one-child policy since 1979 has resulted in a unique population profile that sets it apart from most other emerging countries, namely that it is facing a demographic time-bomb because of rapid ageing, before the country has reached developed economy status. The decision by the government in October to end the policy and allow all couples to have two children is significant and likely a response to the pressures that have been building. It also follows on from a relaxation of the policy in 2014. Euromonitor forecasts that the Chinese working-age population aged 15-64 is set to decline from 2016 and that by 2020, the Chinese working-age cohort will have shrunk by 11.0 million from five years earlier, equivalent to the population of Greece in 2014. In comparison, India will gain an additional 65 million workers in the same period.

Growth Index of the Working-Age Population in China and India: 2015-2020

Growth Index of the Working-Age Population in China and India 2015-2020

Source: Euromonitor International from national statistics/UN

Note: Data is forecast

The decision in 2015 coincides with a year where China’s economic slowdown and stock market contractions have been a focus of concern for the global economy. The country’s demographic challenges were set to exacerbate economic growth in the medium term. Prior to the policy change, Euromonitor International estimated that China will lose its position as the world’s largest population to India by 2025. Furthermore, the Chinese population aged 65+ will be the fastest growing age-group. The country already has one of the oldest median ages in Asia Pacific at 37.3 years in 2014 which we predict will hit 40 years old by 2025.

Although an ageing population does present many opportunities for consumer goods companies, China’s changing demographic profile has been a predicament as it is losing competitiveness as a source of labour within the region especially in the context of China’s rising wages. Other countries with younger populations and cheaper labour costs are proving to be more alluring than China who can’t compete with the demographic dividends that they offer (a demographic dividend is said to occur when a large proportion of the population is of working-age and when the proportion of children in the population is falling.) It will take time for the change in policy to become evident in terms of the positive impact on the Chinese labour market in the future – in the meantime, consumer goods companies can benefit from an expected baby boom in the coming years.