Rumors had been doing the rounds for some time that China would be discarding its decades-long one-child policy.
Still, when the announcement came on Thursday after a top Communist Party meeting, it took many observers by surprise. People had assumed that the party would move more slowly.
Actually, considering the demographic situation in China, the country should have adopted the two-child policy long time ago.
Anyway, it’s better late than never. The new policy will bring a lot of benefit to the economy.
Besides the appreciation of renminbi in previous years, a reason why labor-intensive enterprises have been losing their competitiveness is a rise in labor costs brought about by a decline in the working population.
As I’ve said many times in the past, China’s economic slowdown is also a reflection of the demographic changes in the country.
The one-child policy, which lasted for more than 30 years, has led to both economic and social problems.
While the new rules are welcome, it is however doubtful if they will lead to a big baby boom.
The lukewarm response to a previous policy relaxation in 2013, which allowed two kids for couples where at least one parent was an only child, suggests that we shouldn’t expect too much from the latest easing move either.
Data shows that as the end of May, only 13 percent of the eligible families applied to have a second child.
Financial factors play a key role in influencing people’s decisions on the size of their families. With the rising costs of bringing up children, many urban couples are holding back.
In addition, after years of the single-child policy, a lot of people have also become generally wary about having more babies.
All this said, there will definitely be a positive impact from the new two-child policy, and some businesses will benefit.
Companies making infant formula, baby carriages and kids’ clothes will be among the first ones to gain, while the education and housing sectors could also see some boost later.
If China can turn around its demographic trend, it will significantly help the industrial sector. However, as authorities aim to move the economy to a higher level, they wouldn’t like to see a mere replenishment of low-end workers.
New human resource initiatives and related policy support will be aimed primarily at the mid- and high-end technology industries.
There has been criticism that the new family planning rules have came too late. But, at least, people now won’t need to pay fines to have more children.
The money saved on the fines can be used for consumption, benefiting the economy.
This article appeared in the Hong Kong Economic Journal on Oct. 30.
Translation by Myssie You
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