China’s One-Child Policy

Last year’s decision to relax the one-child policy was an important political step by the Chinese government but it will have little impact on the country’s demographic and economic trends. Chinese leaders have effectively ended “one of the most draconian examples of government social engineering ever seen.”

Historical Background

Rapid population growth after World War II led to a global focus on birth control. One extreme response was India’s forced sterilization campaign between 1975 and 1976 when more than 8 million sterilizations were performed. In 1980, China began enforcing its “one-child policy,” which three prominent Chinese demographers, writing recently in a U.S. academic journal, called “the most extreme example of state intervention in human reproduction in the modern era. . .that has forcefully altered family and kinship for many Chinese.”

Last Year’s Policy Change

Last November, China’s Communist Party announced that the one-child policy would be relaxed by implementation of a policy in which families are permitted to have two children if either a husband or a wife is an only child. This marks a change from the previous rules which required both the husband and wife to be only children in order to qualify to have a second child.

Because this relaxation was accompanied by a decision to dismantle the one-child enforcement bureaucracy, in my view it spells the rapid end of the one-child policy.

The most significant aspect of this move is political, as it represents the Party’s decision to withdraw from its citizens’ bedrooms. Restoring this element of personal freedom should help rebuild people’s trust in the Party.

But, contrary to conventional wisdom, ending the one-child policy is unlikely to change the longer-term trend toward a lower fertility rate. China’s current fertility rate of about 1.5 could drop even lower in the future, closer to South Korea’s 1.3, as the pressures of modern life lead Chinese couples to have smaller families. 

Smaller Families Before One-Child

It is important to recognize that the steepest fall in China’s total fertility rate (the average number of live births per woman) actually came before enforcement of the one-child policy began in 1980. The fertility rate dropped by more than half, from 5.5 to 2.7, between 1970 and 1980, influenced by rising urbanization and falling infant mortality rates. Today, China’s fertility rate is about 1.5.

Steepest fall in total fertility rate before the one-child policy

Although 11 million couples are now eligible to apply for permission to have a second child under the new policy, only 700,000 couples (6% of total) applied through August of this year.

Long-Term Impact

Last year, before the policy change was announced, I spoke with one of China’s leading demographers, Wang Feng, about the prospects for change. Wang is a professor of sociology at the University of California, Irvine, and is on the faculty of Fudan University in Shanghai. He is also a nonresident senior fellow at the Brookings-Tsinghua Center in Beijing, and he recently wrote that the one-child policy “will go down in history as a textbook example of bad science combined with bad politics.”

Following are excerpts from my interview with him. I began by asking him about the long-term impact of ending the one-child policy. Professor Wang said expectations for a rebound in the fertility rate have been exaggerated:

Professor Wang: The reason I say it’s exaggerated is because in most of China’s rural areas, couples who want to have two children have already had two. There are certainly some couples who would want to have two children, which would be good for them, but we have all indications showing that many urban couples are happy to stay with one. And then there are couples who are actually choosing not to have any children, given the larger financial ramifications—the cost of having them.

For instance, in Shanghai, fertility is even below the one-child-per-couple level. This is despite the fact that, because of the early implementation of the one-child policy, many Shanghai couples are in the only-child cohort and are thus eligible, under the current rules to have a second; but they are often choosing not to have a second and many are not even having one.

Q: What will be the longer-term impact on demographic trends of ending the one-child policy?

A: In terms of individual families, we will have more stable, and I would say happier, families because couples would have the option of having a second child, or even more. More children will have siblings and there will be more children to care for older parents. So there will be happier, safer families.

Even at the aggregate level, if there’s a rebound in births, it would be short-lived and of moderate magnitude. There’s no indication whatsoever that the fertility level in China could return to what we call a replacement level, even after the one-child policy ends.

This means that China will continue to have a very low fertility rate: from today’s 1.5, it could go as high as 1.6, so the aging scenario we’ve been talking about will not be affected by this policy.

Q: So right now the fertility rate is about 1.5?

A: Right.

Q: And 10 years from now, which will be a decade after the one-child policy is lifted, do you think it will only rise to 1.6?

A: That is possible; but I would not be surprised if the fertility rate was to drop even lower, to 1.3 for instance, to what we see in Japan and South Korea. This is because the larger context of the financial pressure on a parent is unlikely to change in the short term and could actually become more stressful.

Q: What conclusions can we draw by looking at other countries in the region that have gone through China’s development cycle? Is China’s fertility rate following a similar trajectory and, based on this comparison, is it likely to go lower?

A: Absolutely. If you look at the whole world, the region that has the lowest fertility levels is East Asia. Regardless of political system or policy, they all share the same feature of very low fertility. Even when governments in this region have adopted pro-birth policies, those have had little effect.

Q: Do you think that ending the one-child policy will have an impact on the imbalance in China’s male-to-female ratio?

A: I think it will. There are two things that are happening right now that are resulting in the abnormal sex ratio. One is the effect of policy, because policy suppresses people’s behavior or choices. The other is something that is actually not talked about much: it’s not because of the policy; it is because when fertility is going down to a very low level, and when people still have a preference for boys, the sex ratio becomes abnormal. This was what happened in South Korea in the mid-1990s. Eventually, the preference for boys will decline and, as the policy is changed, both factors will lead to an improvement in the sex ratio.

Q: How large is the sex ratio imbalance today?

A: We estimate there are between 20 to 40 million excess males in China. Such a number, though spread over time, could have a number of social consequences. Primarily, poor rural men will struggle to find a spouse in the coming years. Further down the road, these will be lonely elderly men who will need the society’s support during their old age. The threat they pose to society is highly exaggerated, as these are most likely immobile poor men at the bottom of society, without the resources to organize or harm others.

Q: Let us now talk about some of the longer-term demographic trends in China. People often say that China is going to get old before it gets rich and that the dependency ratio of the elderly in particular is going to rise to a high level in the not-too-distant future. Can you talk about that?

A: China has become a lot richer in the past couple of decades, especially the last one, but China is already getting older and the question is how much richer it will get down the road. In China, about 9% of the population was aged 65 and over in 2010. When Japan reached that age level, its per-capita income was almost twice the level of China’s in 2010. When South Korea reached that point, its income was almost three times higher than China’s. So in that sense, China has already grown old and yet is not as rich as the other societies.

 Population Structure in China

Source: CEIC

What is important is not just individual wealth, but that China’s social infrastructure is inadequate, in terms of an equitable and sustainable health care system and a national social security system. This social infrastructure is not yet in place, so China does face a very, very serious situation.

Q: China’s growing population has meant that its economy has benefited greatly over the past few decades from a demographic dividend. Now that the working age population has begun to shrink, is that dividend exhausted? Will that be changed as a result of the termination of the one-child policy?

A: Using sophisticated methods to calculate the demographic dividend, which would include not only population age structure, but also productivity and consumption by age, China reached the end of its demographic dividend period last year. Economists have estimated anywhere between 15% to 25% of China’s economic growth in the past couple of decades was due to a favorable demographic profile - the demographic dividend - but that dividend has now become zero. In the coming years, China will experience a so-called negative demographic dividend, which will take its toll on China’s economic growth rate, assuming everything else stays the same.

Q: Will ending the one-child policy have any impact on this process?

A: No.  As we discussed earlier, the magnitude and duration of the birth rebound is not going to be very big, and in any event, over the next couple of decades most new births will increase the size of the younger dependent population rather than increase the size of the workforce.

Q: When you look at other countries that have gone through this demographic shift, what conclusions do you draw about the impact of this shift on China’s economic growth?

A: China’s economic growth faces many constraints. One of them is the change in population age structure and, in China’s case, the change is much more rapid than other countries that have gone through this. There are two broad areas we could look at in terms of economic impact. One is better understood, which is the changing support ratio, or the dependency ratio. China now has a five-to-one ratio of working- (or taxpaying-age) to pensioner-age population (60 and over). But within 20 years, that ratio will be two-to-one.

Support Ratio, Ratio of Population Aged 20-59 to Those 60 and Over, BRIC Countries

Source: United Nations (Support ratio: ratio of population aged 20-59 to those aged 60 and over)

People point to Japan as an example, with the malaise in its economy in the past two decades; many people increasingly argue that Japan’s aging population is dragging down its economic growth. China of course is different from Japan in terms of where its economy is, and how the economy is organized. Demographically, however, China does share similar features with Japan, though change is coming even faster. So I would say that Japan does serve as a cautionary example.

Andy Rothman
Investment Strategist
Matthews Asia