China’s surprise decision to allow all couples to have a third child may be too little too late to reverse the nation’s declining birthrate and shrinking workforce.

 

Economists and demographers say authorities will need a range of supportive policies on childcare and measures to curb high education and housing costs to make it viable for couples to expand their families.

China has been gradually reforming its stringent birth policy that for decades limited most families to having only a single child. In 2016, couples were allowed to have a second baby, although that did little to boost the birthrate. In a meeting presided over by President Xi Jinping on Monday, the Communist Party’s Politburo agreed to ease the current two-child restriction and also raise the retirement age in a bid to boost the labour force.​

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“It is an important policy move, but the three-children policy alone will not lead to a sustained rebound in the fertility rate,” said Yuan Xin, a professor at Nankai University in Tianjin. “A whole package of services and polices, such as childcare, tax-rebates for parents, housing subsidies and even gender equality, are needed to create a social environment that encourages parents to have more babies.”

Some government officials, including researchers at China’s central bank, have called for birth limits to be abolished entirely. The debate was intensified after the results of China’s latest national census earlier this month showing a decline in the country’s working-age population over the last decade.

The declining birthrate means China’s population, currently at 1.41 billion, may begin to shrink before 2025, according to Bloomberg Economics estimates. There were 12 million new babies born last year amid the uncertainties of the coronavirus pandemic, the lowest number since 1961. Yuan of Nankai University said a fertility rate of 1.8 is ideal for healthy population growth. The rate is currently at 1.3.

China’s fertility rate began a steady decline from the 1970s, as education levels increased and the government encouraged rural women to have fewer children, culminating in the national “one child” policy which applied to most women from the end of that decade. The rules were often harshly enforced, especially in countryside areas where officials sometimes ordered women to have abortions.

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“China’s new three-child policy is a step in the right direction but it’s not enough to head off an inevitable demographic drag on the economy. Other steps, including birth- and parenting-friendly policies and an increase in the pension age, are needed as quickly as possible if China stands a chance of slowing a looming decline in its workforce and crunch from an aging population,” says Eric Zhu, China economist.

A lower birthrate and bigger elderly population is putting pressure on the economy and government resources. To maintain economic growth, Beijing will need to rapidly increase spending on pensions and health care while maintaining a high level of corporate and state investment in order to upgrade its vast industrial sector and increase education levels, according to economists.

“A comprehensive policy package ranging from tax incentives, education and housing subsidies, more generous maternity leave, universal provision of child care” is needed for the three-child policy to be effective, said Liu Li-Gang, managing director and chief China economist at Citigroup Inc. The government will need to rebuild the social safety net, as well as contain housing prices and reduce education costs, he said.

China has maintained rapid economic growth in recent decades despite its slow population growth, with migration to cities propelling a shift from agriculture to factory and service work, which increased economic output per worker. The current proportion of people living in urban areas of about 64 per cent is roughly on par with the US in 1950, suggesting potential for further catch-up.

Policy Mix

To help sustain growth, China is looking to raising the retirement age, one of the lowest in the world, and increase urbanisation. The government is aiming to gradually lift the retirement age from the current level of 60 years for men and as low as 50 for women, and plans for 50 million people to move permanently from rural to urban areas in the next five years to take up service and manufacturing jobs with higher wages.

The right mix of policies could mean China becomes the world’s largest economy, continuing to propel global demand for commodities in the coming decades, while its gray consumers become a vast market for multinationals, with a huge pool of pension savings targeted by global finance companies. A less effective response could mean China never overtakes the US in terms of economic size, or does so only fleetingly.

The trend toward fewer births is likely to continue even with a looser birth policy. As in East Asia and Europe, preferences have shifted toward smaller families. A spike in births following the previous relaxation to allow most families to have two children was short-lived, with many parents citing the high costs of housing and education as a limiting factor.

“These days, few women or families opt to have three children,” said Herald van der Linde, head of equity strategy for Asia Pacific at HSBC Holdings Plc. “The issue is high childcare costs, employment discrimination against women in childbearing age, lack of childcare in the workplace etc. And all sorts of policies have been thrown at families to have more babies in other countries – even cash handouts – but often with little effect.”

Shares in Chinese companies related to infant care continued to rally Tuesday. Milk formula maker Beingmate Co. rose by as much as its daily limit of 10 per cent for a second day in Shenzhen, while Jinfa Labi Maternity & Baby Articles Co. also climbed by 10 per cent. Japan and Australia stocks also moved.

The policy change was quickly mocked on Chinese social media, with many people lamenting the fact that couples from single-child households would now have to raise three children while supporting four elderly parents and repay heavy mortgage debt. It also triggered concern over women’s employment, with some saying that it will become even harder for females to get a job as companies are unlikely to be willing to shoulder the costs.

“For those people who are rich, relaxing the policy will encourage them to have more children but for the common citizens, like the middle class or even the lower class, they don’t have enough incentive to make use of this new policy,” said Vivian Zhan, an associate professor of Chinese politics at the Chinese University of Hong Kong.

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