BEIJING â China’s decades-old one-child policy gained renewed attention in the last few weeks, after authorities gave mixed signals on whether they were closer to abolishing limits on how many children people can have.
Authorities have rolled back the controversial one-child policy in recent years to allow people to have two children. But economists say other changes are needed for boosting growth as births fall and China’s population rapidly ages.
“There are two ways to address this. One way is to relax the birth control, something (that) will help on the margin, but even if they fully relax the control (it’s) probably difficult to reverse the trend,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The other way to deal with it, from an economic policy perspective, is to make industry more dependent on other sectors,” he said.
China’s economy has relied heavily on industries such as manufacturing that require large amounts of cheap labor. But rising wages are making Chinese factories less attractive, while workers will need higher skills to help the country become more innovative.
The bigger problem for China is that an aging population feeds into an existing issue: slower growth in labor productivity, said Alicia Garcia-Herrero, Natixis’ chief economist for Asia-Pacific. She’s watching to see whether China will see more growth in capital-intensive sectors, which is driven more by investment in automation.
Births fall 15% in 2020
China introduced its one-child policy in the late 1970s in an effort to slow a surge in its population. The country had doubled in size from more than 500 million people in the 1940s to over 1 billion by the 1980s, according to official figures.
Over the next 40 years, the population grew by only 40% â to 1.4 billion, more than four times that of the U.S. today.
Similar to other major economies, high housing and educational costs in China have deterred people from having children in recent years.
Despite a change in 2016 allowing families to have two children, births dropped for a fourth-straight year in 2020, and fell by 15% to 10 million, according to analysis of a public security report.
“In general, I don’t think the relaxing of the birth policy could have much of an economic impact because the slow growth in population hasn’t been because of policy restriction, not for the last 20 years,” said Dan Wang, Shanghai-based chief economist at Hang Seng China.
She said based on the experience of other countries, the most effective policy for a country of China’s size would be to welcome more migrants, but that would be an unlikely change in the near term.
Other options policymakers are already pursuing include raising the retirement age, increasing the skills of the existing labor force with more education and using more machines and artificial intelligence to replace human workers, Wang said.
Policy change just a matter of time
The one-child policy gained renewed attention last month when the National Health Commission made public a statement authorizing research into the economic benefits of removing birth restrictions in a northeastern region. The three-province area, known as Dongbei, has struggled economically and has the lowest birth rates in the country.
Two days later, the commission issued another statement saying the news was not a test for full repeal of the family planning policy, despite much online speculation that it was.
But a removal of limits is likely only a matter of time, according to economists interviewed by CNBC.
Yi Fuxian, a critic of the one-child policy and author of the book “Big Country With an Empty Nest,” said he expects a decision at the end of the year, after China releases once-in-a-decade census results in April.
Challenges from China’s aging population
The Chinese government has also said that implementing a strategy for responding to an aging population will be a priority for its next five-year plan, to be officially approved at a parliamentary session that kicks off this week.
Meanwhile, the generations born before the one-child policy was implemented in the 1980s are becoming a significant segment. In the next 10 years, 123.9 million more people will enter the age category of 55 and above, the largest demographic increase among all age ranges, according to Morgan Stanley.
This demographic shift will create its own economic demands, said Liu Xiangdong, deputy director of the economic research department at the China Center for International Economic Exchanges based in Beijing.
Liu said more workers will be needed to care for the elderly, while retirement communities and other infrastructure tailored to an older population will see greater demand.