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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.
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.
Source: Euromonitor International from national statistics/UN
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.
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.
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.
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.