BEIJING—China is careening toward a demographic time bomb. In another decade, it will have more people over 60 than the entire population of the U.S. Its workforce is shrinking, and not enough babies are being born.

Yet when Li Yuanyuan, a professor, was expecting her third child last year, her employer in the eastern city of Qingdao pressured her to end the pregnancy or resign. She refused, but the stress gave her nightmares. “How can I not worry about it?” she said during her pregnancy. “We could end up raising three children without any income.”

In the nation with one of the lowest fertility rates in the world, couples are still discouraged from having multiple offspring—children who could help rejuvenate the fast-aging population.

Some experts have argued over the years that slower population growth could help ease the pressure for China to create new jobs as technology increases productivity. Others contend that the aging problem looms over China’s long-term economic health, presenting a vulnerability in its global ambitions over resources, technology and industry amid a deepening trade conflict with the U.S.

Chinese officials have been softening birth restrictions, and say they are reluctant to make sudden, drastic changes to longstanding policy. Some demographers say the moves are too slow to reverse the trend.

While all couples have been able to have two children without penalty since China abandoned its one-child policy in 2016, family-planning law stipulates penalties for those who have more. Local-government agents enforce the law with fines and state employers often pressure women to abide by the birth limits.

China can’t afford such strong-arming, lawmakers, researchers and parents warn. These opponents of birth restrictions hoped 2018 would be the year China dropped limits altogether.

Yet Beijing can’t let go, continuing the reproductive meddling some demographers say was always based on guesswork and unnecessary even four decades ago.

Beijing did signal a notable change in March at the National People’s Congress, declaring it would replace the National Health and Family Planning Commission—the bureaucracy that enforces birth rules—with a new health ministry. But there was no pledge to lift birth restrictions.

That left some parents in limbo, including a 34-year-old businesswoman in southern China who asked to be identified by her surname, Cai. She was excited yet confused by the news from the congress, wondering if she would no longer have to pay a fine of about $12,000 for the birth of her third child last year: “Does that mean third children are legal now?”

Ms. Cai and her husband took a loan to pay the $7,000 fine for having a second child several years ago when the one-child policy was in effect. Faced with the steeper fine from the local family-planning branch for their third child, she sold her clothing shop in Fujian province.

“It is hard enough to raise the kids,” she said. “We don’t know what to do.”

Asked what will happen to the family-planning commission now and whether China has any plans to lift all birth restrictions, the information office of the State Council, China’s cabinet, responded: “We will continue communications and connections with the Health and Family Planning Commission.”

State family planners have cautioned against drastic change in birth policies. “The fundamental reality of the state is that it has a large population,” Wang Peian, who has been deputy director of the family-planning commission, told The Wall Street Journal last year. “The Chinese government has been adjusting and improving family-planning policy in a steady, cautious and realistic manner.”

Mr. Wang said at a press conference last year that technological innovation and health advances will leave China with enough workers.

“China doesn’t have a population shortage,” he said. “Not now, not in 100 years.”

It isn’t clear what Mr. Wang’s position will be after the reorganization. The family-planning commission didn’t respond to a request for comment on its scope in the future or on Mr. Wang’s role.

China’s clinging to birth restrictions defies a clear demographic trend: Its workforce is shrinking and the population is rapidly aging. By 2050, there will be 1.3 workers for each retiree, according to official estimates, compared with 2.8 now.

No matter what the government does now, it is too late to significantly change the overall trend because of social attitudes, say demographers such as Gu Baochang, a professor of demography at Renmin University in Beijing. “They should have lifted all birth restrictions before 2010,” he said. “Whatever steps they take now, China’s low-fertility trend is no longer reversible.”

Aging populations can hurt economies because a shrinking labor pool tends to drive up wages, while a growing elderly population requires more spending on pensions and health care. In a worse-case scenario, slowing growth and a labor shortage could leave China unable to care for hundreds of millions of retirees.

A rapidly aging population was a major factor in Moody’s Investors Service’s downgrade of China’s sovereign rating in May 2017. Elderly care is expected to erode household savings and government coffers, straining the government’s ability to repay already high debt, Moody’s said. It predicted China’s potential economic growth rate would slow to about 5% over the next five years. China’s 2017 growth was 6.9%.

“China is really interesting and unique,” said Marie Diron, a Moody’s analyst of sovereign risk, “because it is aging so much earlier than anyone else.”

Countries facing shrinking workforces have tried to ease the impact by raising the retirement age or relying on immigration. Singapore, which has liberal immigration policies and which offers a “baby bonus” of up to 10,000 Singapore dollars ($7,500) in cash as well as grants for parents toward health and education, has a growing population despite a low fertility rate of 1.16. Japan has steered healthy retirees back to work, sometimes with the help of technology making up for age-related deficiencies.

Despite one of the lowest retirement ages in the world, at 55 on average, Beijing has been slow to implement a plan to gradually raise the retirement age amid severe opposition. Officials had originally indicated they would present the plan last year. It was left out of measures unveiled at the congress in March, in which Beijing said the new ministry “will actively deal with the aging of the population,” with measures to develop the elderly-care sector and health-care reform.

Past policy changes haven’t fixed the trend—not even ending the one-child policy did. Newborns rose by 1.3 million in 2016, the first year without the policy—less than half the official projection—to 17.86 million, from 2015, according to the National Bureau of Statistics.

In 2017, births slowed to 17.23 million, well below the official forecast of more than 20 million.

In a generation that grew up without siblings, a one-child mind-set is deeply entrenched. Maternity-leave policies have been expanded but some women say taking leave twice is a career impediment. An All-China Women’s Federation survey found 53% of respondents with one child didn’t want a second.

Even without birth limits, China’s economic development would have reduced fertility rates, says Martin Whyte, a Harvard University Chinese-studies expert. That has been the pattern elsewhere in the world: When incomes rise, the sizes of families tend to go down.

If the nation drops birth policies now, Mr. Whyte said, “China will learn what many other countries have learned—that it is much more difficult to get people to have more babies” than the other way around.

Population math

For China’s leaders, population math has never been simple. In Communist rule’s early days, Mao Zedong said: “With many people, strength is great.”

As the Communist Party struggled to build the economy, some officials began calling for population control to help China catch up with the West. In 1980, Deng Xiaoping launched the one-child policy saying “We must do this…Otherwise, our economy cannot be developed well and people’s lives won’t be improved.”

Fertility rates dropped below replacement levels in the early 1990s and have continued falling. Yet Beijing codified the one-child policy in 2001, passing the Population and Family Planning Law that provided a legal framework. It amended the law in December 2015 to allow for two children but kept provisions for birth-limit-violation penalties including fines known as “social-maintenance fees.”

Provinces and townships have local enforcers of the law. A bureaucracy of half a million workers has over the years collected billions of dollars in birth fines, calculates Wu Youshui, a lawyer who obtained disclosures from local governments via open-records requests.

While the government has realized the need to ease controls, it is fearful of drastic moves, said a senior official who has been in charge of implementing family-planning policy. “Any policy change in China has been incremental. The key is to ensure policy continuity.”

Even for “legal” births, there is paperwork required to give birth in many public hospitals. Because a birth registration, which is needed at some public hospitals, requires a marriage certificate, unwed mothers can’t give birth at those hospitals, according to nurses and administrators at public hospitals. Family-planning officials have been able to ask courts to seize savings of birth offenders, court records show. Compliance weighs heavily in officials’ performance reviews, language in government regulations shows.

Local enforcement

When Ms. Li, the Qingdao professor, refused to abort her third child, she said, her university employer accused her of selfishly putting at risk her supervisors’ careers, the school’s future and co-workers’ bonuses. A university spokeswoman didn’t respond to faxed inquiries.

With the help of local church friends, her family moved to the Philippines, where she gave birth in November.

Hu Zhenggao, 42, ran afoul of the limits last year visiting his Yunnan province hometown. A father of four, he was taken away one night by local county officials who forcibly sterilized him, saying he had broken family-planning rules, he said in an account he posted on social media.

His ordeal prompted an outcry online. Yunnan province authorities later put out a statement saying that forced surgeries aren’t allowed and that the officials had been wrong.

Mr. Hu confirmed his social-media post, saying he didn’t want to talk about his treatment and wasn’t seeking compensation. An official at the family planning bureau of Zhaotong, which was responsible for investigating the incident, said there had been an apology to Mr. Hu; she offered no further comment.

Wealthier Chinese have other options. Zou Yue, a blogger based in Guangzhou province, gave birth to her third child at an Irvine, Calif., clinic in 2016. Having a child overseas usually means the fine can be avoided. “I’d rather spend that money in the U.S. than paying a fine,” she said.

President Xi Jinping has signaled the demographic dilemma is on his mind. In 2015, he said China needs more births. In October, he omitted a traditional reference to “family planning” in his party-congress report.

Last month’s sidelining of the family-planning commission is the strongest sign yet of his concern. Lifting birth restrictions would likely require a constitutional change.

“I think Xi’s views about demography are clear: He considers population more as a resource than a burden,” said Huang Wenzheng, a researcher at the Center for China and Globalization, a Beijing-based independent think tank, and a co-founder of a hedge-fund firm that invests globally. “But of course he cannot easily abandon the family-planning policy because that would be a sharp turn away from his predecessors’ policies.”

U.S.-based Chinese researcher Yi Fuxian believes China overstates its population numbers and fertility rate—the number of children a woman has over her lifetime, which official data puts at around 1.5. He said a different reading of available data suggests the fertility rate is as low as 1.05.

In China, as elsewhere in the world, the hesitation to have more than one child is strongest in big cities, partly because of higher child-raising costs. Shanghai is especially lopsided, with low fertility rates and about a third of the population over 60, according to the municipal government. In New York City, adults over 65 make up about 13% of the total population, according to the city government.

The fertility rate in Liaoning, a province in China’s northern rust belt, is at 0.74, official data show. Even so, Liaoning punishes those who have a third child, with some couples fined more than 145,000 yuan ($23,000), according to public court records. The Liaoning family-planning commission didn’t respond to faxed questions.

The March congress move hasn’t persuaded people such as a mother in Dalian, a Liaoning port city, who said she has been hiding since her third child’s birth to avoid a fine she fears would be five times her family’s annual income.

Even after the congress, she said, she didn’t dare approach local authorities and is putting her hope in birth restrictions being lifted soon. “Then I can take my son out to enjoy the sunshine.”

A high-school teacher in Tangshan in northern China who asked to be identified by her surname, Sun, said she discovered mid-March she was several weeks pregnant. She has two children, 16 and 1½. She called the local family-planning agency to ask if the congress move meant a third child was allowed.

It told her nothing had changed, she said. Aside from triggering a fine, having a third child would probably cost her job, Ms. Sun said, as she is a government worker.

A few days later, she said, she swallowed a pill to terminate the pregnancy. “They are really going to scrap the family-planning controls this year?” she asked. “Who can tell me for sure?”

A spokesman of the Tangshan family-planning agency told the Journal in March, after the congress, that “we are still waiting for any new policies from the central government” and that “third children are still not allowed. The rules are the rules.”

Source: WSJ, Liyan Qi and Fanfan Wang | April 29, 2018