What China's falling population means for the country's future

Please have more babies. That's China's message for couples after decades of limiting most families to just one child. Why the turnabout? The reason is that births have now fallen for six years in a row, leading to a population drop last year for the first time since the 1960s. Even before the historic overall decline, the working-age population had been shrinking for years, and projections show that one quarter of the population will be 60 or older by 2030. This threatens economic growth, which has been predicated on a vast labor supply — not to mention there may not be enough able-bodied people to take care of all those seniors. The upshot is that China's economy may struggle to overtake the US in size and the country could lose its status as the world's most populous to India this year.

1. What's being done?

The Politburo decided in 2021 to allow all couples to have a third child, five years after changing its one-child policy to allow women to have two. (Family-planning policies were totally stricken from a new Civil Code, leaving room for the government to scrap birth limits altogether.) The change to allow two kids worked at first: The number of newborns in 2016 was 17.9 million, a jump of more than 1 million from the year before. However, births dropped each year after that, to 9.56 million in 2022, the lowest since at least 1950. Some regions have started offering incentives for couples to have kids, from extending parental leave to offering subsidies and providing baby loans. Shenzhen, which neighbors Hong Kong, is working on plans to subsidize parents until their children turn three. 

2. How much did the population shrink

The fall in births and tick-up in deaths resulted in 850,000 fewer Chinese people living in mainland China in 2022 compared with 2021, according to official data released in January. The head of the statistics bureau predicted the trend would continue, pointing to a "drop in people's willingness to have babies, the delay in marriage and pregnancy, as well as a fall in number of women of child-bearing age." The Covid-19 outbreak that began sweeping across the country late last year will likely boost deaths in the short-term, which will come on top of the increase in deaths expected as the nation ages. In addition: 

The share of the working-age population — those ages 15 to 59 — slumped to 62% from more than 70% a decade ago. Bloomberg Economics predicts the group will slump to about 650 million people in 2050, a drop of about 260 million from 2020.

The fertility rate, or average number of lifetime births per woman, fell to 1.3 in 2020, far below the 2.1 needed for a steady population, excluding migration.

As recently as 2019, the United Nations was forecasting that China's population would peak in 2031; by last year it had revised that estimate to 2022. It now expects China to lose 110 million people by 2050 and fall to about half its current size by the end of the century.

The UN projects that India will surpass China as the world's most populous country this year, four years ahead of an earlier estimate.

3. What's the impact? 

If the decline in the number of people of working age leads to a drop in how many people are actually working, that may raise the cost of labor in China, adding to the price of manufactured goods. With fewer people starting families, there would also likely be hit to long-term demand for houses, which would have an impact on demand for commodities such as iron ore. The government may also struggle to pay for its underfunded national pension system. All that could cut into the long-term growth potential of the economy unless government policies to promote having children become effective. There could be ripple effects outside the country. For example, fewer children may reduce the number of Chinese students seeking education in the US, Australia and elsewhere. The decline will be hard to reverse, even after the government ended its one-child policy. A traditional preference for sons caused many Chinese parents to abort female fetuses; the male-to-female ratio reached 120-to-100 in some provinces. The sex ratio for births has stabilized at around 105 in recent years, but in some regions such as Guangdong and the tropical island of Hainan, the ratio remains elevated at above 110. One result is fewer women of child-bearing age. 

4. Where did the one-child policy come from?

After the creation of the People's Republic of China in 1949 and the end of the civil war, the government trained tens of thousands of "barefoot doctors" to bring health care to poor and rural areas. The mortality rate plummeted and the population growth rate rose from 16 per thousand in 1949 to 25 per thousand just five years later. This prompted the first attempts to encourage family planning in 1953. Still, total population expanded to over 800 million in the late 1960s. By the 1970s, China was facing food and housing shortages. In 1979, its leader, Deng Xiaoping, decided to limit most couples to just one child. (There were exceptions for rural farmers, ethnic minorities and certain situations, like when a first child was handicapped.) To enforce it, according to Human Rights Watch, women were pushed to have abortions. Children born outside the state plan weren't allowed to have their hukou — a government registration needed to access some benefits.

5. What's the solution?

A change to the retirement age may address some of the issues. The country has kept it at 60 for men and 55 for women white-collar workers for more than four decades, even as life-expectancy has risen. There's discussion again about raising the age, but as in other countries, such a move is very unpopular policy and there was a backlash when it was considered a decade ago. On top of ending restrictions on the number of children, officials will need to build up support for families, including pre-schools and schools, as well as financial incentives or tax breaks. Time and financial concerns mean that many couples feel they can only afford to have one child — if any. The central government has tried to relieve that burden, such as by wiping out the for-profit, after-school tutoring industry to lower education costs. It also issued a guideline to reduce abortions while providing more support to women to raise children. However, if the experience of Japan, South Korea and other developed nations is any guide, it's incredibly difficult if not impossible to radically raise birth rates, even with measures such as subsidies, free childcare and generous parental leave allowances. There's no reason to think the situation in China will be different.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.