The Implications of China’s One-Child Policy

The latest census numbers released on April 28th show a total population for mainland China of 1.34 billion.  They reveal a steep decline in the average annual population growth rate, down to 0.57% in 2000-2010, half the rate of 1.07% in the previous decade. The total fertility rate in China is estimated around 1.4, far below the replacement rate of 2.1.

Slower growth is matched by a dramatic aging of the population. People above the age of 60 now represent 13.3% of the total, up from 10.3% in 2000, while those under the age of 14 declined from 23% to 17%. With life expectancy in China that have jumped to nearly 79 years old now, China is undergoing a “gray” revolution.

There is also a dire gender imbalance in China. The normal sex ratio at birth is estimated to be around 105 boys per 100 girls. However, in China many more baby boys are born than baby girls. The new census data show among newborns, there were more than 118 boys for every 100 girls in 2010, which implies that in 20 to 25 years, there will not be enough brides for almost a fifth of today’s baby boys.

These trends come as the results of economic development as well as China’s One Child Policy implemented in the last three decades. China’s One Child Policy (独生子女政策) was established in 1979 to limit China’s population growth. The policy limits couples to one child. Fines, pressures to abort a pregnancy, and even forced sterilization are used for the second or subsequent pregnancies. This policy is more strictly enforced in urban areas, while non-Han ethnic groups and rural areas are allowed to have two or more children per couple. It is estimated that China’s One Child Policy has reduced population growth in the country of 1.3 billion by as much as 300 million people over its first twenty years.

China began the experiment of Family Planning policy (计划生育政策) as early as in 1960. National Population and Family Planning Commission (NPFPC)(国家人口和计划生育委员会)was established in 1981, and has been in charge of the implementation of China’s One Child Policy. Over years this agency has accumulated massive institutional and political clout: it employs 6.5 million full-time and part-time staffs, and collects fines annually up to millions of dollars.

Although many experts increasingly argue that China’s current demographic trends show that China’s One Child Policy is no longer needed or suitable. However, resistance to any policy change remains in the government. It is unlikely that there will be any dramatic change in the near future, although there are some discussions about gradually loosing up the policy, such as allowing to have two children per couple.

So what are the implications of China’s current demographic trend?

1.      The aging population will place great burden on the working young who must supports their elderly kin, as well as on state-run pension and healthcare systems, as China has not well prepared for the demographic change.

2.      With fewer children to support parents and with few options of social safety net, Chinese will continue to save up. China already has one of the highest saving rate in the world, with the aggregate marginal propensity to save exceeding 50%. This trend will unlikely reverse, which make the government effort to transform the economic growth model from one which is export- and investment-led to one driven by services and consumption even more challenging.

3.      The demographic trend could have implication to China’s manufacturing sector because it reduces the number of available labors, and depletes China’s comparative advantage in abundant labor supply.

May 8, 2011

Read more about the subject:

China's High Saving Rate: myth and reality

Economy Threatened by Aging Demographic