19 September 2019
China's one-child policy choked the birth rate, worsened the gender gap and led to an expansion in the aging population. Photo: Reuters
China's one-child policy choked the birth rate, worsened the gender gap and led to an expansion in the aging population. Photo: Reuters

Why second-child policy may not be enough to boost the economy

China is aiming to build a well-off society by 2020 but before it can get rich, it must confront the challenges of an aging population.

It’s the exact opposite of the growing pains experienced by the US in the 19th century and Japan in the 20th century.

But China can draw little from the experience of other countries. The only solution is to end the one-child policy which it just did.

Beijing launched the policy in the 1980s, about 10 years after it was enacted, to rein in runaway population growth and boost the economy.

The aim was to cap the population at 1.2 billion.

Beijing said then that it would review the policy after 30 years.

Last week’s decision to end the one-child policy is set to stimulate the birth rate.

However, it remains unclear whether the relaxation will be implemented simultaneously across the country.

An unofficial survey estimates that the one-child policy reduced the population by 400 million.

Without this policy, China’s population would have topped 1.7 billion.

In 2010, I wrote in a book that China’s labor force might fall by 10 million each year if the one-child policy stayed in place after 2025.

The population might shrink by nearly 100 million every 10 years.

And people above 80 would account for 9.1 percent of the population by 2050 from 1 percent in 2000.

The new rule will help ease the labor shortage after 2034 when the first “second child” will be 18.

Some estimate the size of the population increase at two to three million a year and as high as eight million.

However, the new policy may not help mitigate the labor shortage in the short term.

China’s economic growth relies on the young generation.

After 30 years, the working population has precipitously fallen and the gender ratio has gone out of whack. China has become worn and tired.

By 2020, a fifth of China’s population will be over 60. That will weigh on China’s future growth.

The lifting of the one-child policy will trigger a baby boom in the next decade, which will stimulate demand for related products and services from infant formula to healthcare and education.

The one-child policy led to an extremely high savings rate as parents saved for the future of their only child and their own retirement.

This money is sitting in China’s state-owned banks.

But the gender imbalance in a society that already prefers boys to girls, prompted parents to save more to help their boys become more competitive in the marriage market.

The higher the savings rate, the less consumption. That’s how the one-child policy curbed domestic consumption to some extent.

The recent fifth plenary session of the 18th CPC Central Committee stated that China intends to double gross domestic product per capita income by 2020 from 2010 levels.

Also, it aims to lift more than 70 million people out of poverty by that time.

The second-child policy shows that the population issue is critical to the nation’s economic growth.

It’s believed that 6.5 percent growth is the bottom line set by Beijing as the nation undergoes economic restructuring.

In order to double GDP by 2020, it must find new ways to stimulate growth.

This article appeared in the Hong Kong Economic Journal on Nov. 2.

Translation by Julie Zhu

[Chinese version中文版]

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Senior investment banker