The end of China’s draconian one-child policy has failed to bring an expected boom in births, adding yet another headwind to the country’s economy and compounding worries about its long-term growth potential.
Chinese leaders in 2016 scrapped the decades-old one-child policy after economists warned it was creating a demographic time bomb for China, contributing to a shrinking workforce and a rapidly aging population.
New data show the reversal isn’t having the anticipated impact. The number of newborns in China dropped to 15.23 million in 2018, according to the National Bureau of Statistics. That’s two million less than 2017 and 30% below the median official forecast of more than 21 million.
It was also the lowest level of births since 1961, when millions were struggling to survive during China’s Great Famine.
Newborns eventually become workers, making them essential to economic growth in the long run.
“The demographic outlook does appear to be deteriorating faster than officials had expected,” analysts at Capital Economics wrote in a recent research note.
That’s making it harder for officials to lower taxes much to stimulate growth, since doing so could make it tougher to shore up underfunded pension programs. It’s also making it harder to encourage consumers to boost spending, as more people worry over health and retirement costs.
The demographic outlook is fueling fears China could grow old before it gets rich, leaving it with too few workers to cover the cost of its aging population. That could stoke economic troubles that far outlast turbulence from trade battles this year.
China’s aging population and shrinking manpower pool “can only make for serious economic headwinds, presaging the end of China’s era of ‘heroic economic growth,’” the American Enterprise Institute’s Nicholas Eberstadt wrote in a report published in January.
China is graying earlier and faster than other countries. In 1970, China’s median age was nearly 10 years younger than that in the U.S. By 2015, it was older. By 2050, there will be 1.3 workers for each retiree, according to official estimates, compared with 2.8 now. U.S. government figures show about the same level in the U.S. now, and predict there will be 2.2 workers for every retiree in 2035.
Exacerbating the pressures, China has one of the world’s lowest average retirement ages—55 for most women, and 60 for men. Many people leave jobs while they’re still productive, with years of valuable experience, because they prefer to collect pensions and enjoy their older years while believing it is the government’s and society’s job to take care of them. That wastes human resources and creates even more retirees that must be supported by younger workers.
Some Chinese officials say the country’s two-child policy, which allows parents to have up to two children without penalty, is moving in the right direction. Ning Jizhe, head of the National Bureau of Statistics, noted in a recent press conference that China’s population kept growing last year and that the number of newborns was “still very substantial.”
China’s overall population is expected to start declining in 2030, after peaking at 1.44 billion, according to the Chinese Academy of Social Sciences, a government think tank.
President Xi Jinping recently cited rising pension and social-welfare costs as risks to China’s outlook. Many private economists say more aggressive measures—including raising the retirement age—are needed to prevent demographics from becoming a bigger drag.
Parents aren’t responding to looser family planning rules for many reasons, including higher costs for housing and education that have left people worried about caring for bigger families. Another reason is that most people of child-bearing age are single children, so a one-child family is the norm.
Li Anqi, a 31-year-old resident of Yancheng who runs a weight-loss business, said she has her hands full with one first-grader. “Who watches the baby if I have a second one?”
Ren Zeping, an economist at China Evergrande Group, published a report in January saying China should abandon all birth-control policies—which include restrictions on having a third child—because the population situation is “urgent.” He suggested officials provide subsidies to help families from pregnancy to education.
China’s pension system is supposed to cover more than 90% of the aging population. Each province or municipality runs its own pension pool, with funds coming through contributions from employers.
But many programs are underfunded and localities are struggling to pay retirees. By 2020, China’s pension shortfalls are expected to reach 1.1 trillion yuan, or about $163 billion, before rising to 3.8 trillion yuan in 2025, according to Hua Changchun, an economist at Guotai Junan Securities.
As a result, Beijing is trying to centralize the pension system while squeezing employers to make sure they pay into it. The crackdown may be exacerbating China’s economic slowdown, though.
Huang Weibin, the general manager of a property-management firm in Guangdong province, said higher pension costs mean his business will suffer a loss this year, likely forcing him to lay off some of his 80 employees.
“If the government doesn’t help us out with subsidies or tax breaks, we will go broke for sure,” he said.
His firm used to only hire young men and women no older than 30, he said. Now, most of them are in their 40s.
Source: Liyan Qi and Fanfan Wang, Wall Street Journal 2-11-19