Foreign Policy Blogs

Baby Boom or Baby Bust?

The once-in-a-decade leadership transition in China that starts November 8 will see a new slate of top leaders installed by next spring, all eager to influence a new vision of a changing China. But the most prominent leaders to be replaced, President Hu Jintao and Premier Wen Jiabao, are no lame ducks. Both are still busy building up their legacies by influencing policies on their way out.

One such policy they are concerned with is the one-child policy. This sacred policy, which was implemented 30 years ago, has been credited with preventing around 400 million births. By artificially suppressing fertility, coupled with improving life expectancy, the policy has now led to an unprecedented aging of China’s population. The median age in China has risen from 22 years in 1980 to 36 years in 2010, and by 2020 China is projected to be older than America, and older than Europe in 2040. Feng Wang, a Director at the Brookings-Tsinghua Center, believes the population aged 60 or above will grow from 200 million in 2015 to over 300 million by 2030.

The debate over the one-child policy isn’t just taking place at the top leadership levels, but has now gone public. The China Development Research Foundation, a think tank connected to China’s State Council, recently recommended the phasing out of the one-child policy. The think tank initially calls for allowing two children per family by 2015, and then doing away with the controversial policy altogether by 2020. A recent online poll on Sina Weibo, a popular micro blogging platform in China, showed overwhelming support for ending the one-child policy. Out of 30,006 votes cast, 72 percent support abrogating the one-child policy, with only 28 percent choosing to retain the policy. While China’s Weibo users are a small minority and not representative of the entire nation, they do tend to be younger, more educated, and better off than the population at large, and closely match the demographic of those faced with the choice of having children.

What is remarkable and notable about this debate is that state-backed demographers were allowed to publicly propose such a detailed schedule, and that Sina Weibo was permitted to post the results of its poll – a clear indication the Party is willing to consider public opinion when reviewing this once-sacred policy. What is less remarkable has been the delay in addressing these demographic changes, as academics have long warned of the negative consequences of China’s plummeting birth rate, widening gender imbalance, and rapidly aging population, all of which have wide economic implications. Falling birth rates mean fewer younger workers with which to fuel China’s dominance of cheap labor manufacturing, though manufacturing has been falling recently. The traditional preference for sons, coupled with illegal sex-selective abortions, has created frustration among young men in search of a marriage partner. There are now 120 men for every 100 women, and The Economist predicts by 2025 there will still be 97 million men in their 20s but only 80 million women. Fully aware of this dynamic, these young women are increasingly demanding (and getting) their potential husband to come-a-courting with an apartment in hand. Which is bad news for bachelors, as the average property in a top-tier Chinese city now costs between 15 and 20 times the average annual salary. And with an aging population, the only child faces an almost unbearable filial burden of caring for parents and grandparents in their old age, especially given government strains on pension spending.

One way out of this dilemma may be through permitting increases in migration, as younger workers from other countries could be employed in manufacturing jobs and their taxed income could help support pensioners. Migrants also tend to have higher fertility rates, although eventually the fertility rates of migrants tend to converge with those of the host country. The downside, as we have seen in numerous countries, is that any government which fails to manage immigration properly will face popular resistance from their citizens. China’s largest cities are already coping with a backlash against immigrants, even those Chinese migrating from neighboring provinces, who are blamed for increases in violence and for straining public resources. Migration may help somewhat, but changing the one-child policy could result have greater consequences in reversing the aging trends.

Are Chinese couples willing to follow the Party’s advice and have more children? Even if they do, will this strategy work to reverse aging trends? The Economist magazine recently stated “Even large and sustained increases in fertility would fail to reverse the aging trends for at least two decades”. The current national fertility level is around 1.5, which is below the replacement rate. In the larger cities and more developed regions, fertility has been barely above one child per couple for over a decade. China has one of the lowest fertility rates in a world where more than half of the population has fertility rates below the replacement rate. Anecdotal evidence from Beijing and Shanghai suggests that couples in today’s modern, fast-changing, and increasingly expensive cities are unwilling to take on the increased economic burdens of raising an additional child. Squeezed by exorbitant home prices, paying more for costly imported or organically-grown food, and the desire for their child to attend the best schools at home or abroad has left the pragmatic Chinese feeling economically insecure.

So while the evidence weighs in favor of abolishing the one-child policy, and the Party seems willing to publicly debate modifications, changing it may yet prove ineffectual given growing social support for small families. China’s problem of replacing an aging population is very real and immediate – without replacement workers to drive the economic engine, growth will sputter, spending by young consumers will fall, and spending on elderly health care will displace spending on investment and productivity. As we’ve seen in other countries facing these very same issues, China’s leadership could face a potential loss of political legitimacy and/or be consumed by domestic concerns taking precedent over building its presence on the global stage.

 

Author

Gary Sands
Gary Sands

Gary Sands is a Director at Highway West Capital Advisors, a venture capital, project finance and political risk advisory, and contributed a number of op-eds for the South China Morning Post, U.S. News and World Report, Washington Times, The Diplomat, International Policy Digest, Eurasia Review, Indo-Pacific Review, Global Times, Caijing and Shanghai Star Business Journal. He was previously employed in lending and advisory roles at Shell Capital, ABB Structured Finance, and the U.S. Overseas Private Investment Corporation. He earned his Masters of Business Administration in International Business from the George Washington University in Washington, D.C. and a Bachelor of Science in Finance at the University of Connecticut in Storrs, Connecticut. He spent six years in Shanghai from 2006-2012, and has also lived in Zurich, London, and Rio de Janeiro. He is based now in Ho Chi Minh City, Vietnam.

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