(ATF) A research paper published by China’s central bank on Wednesday said China should not only liberalise but “vigorously encourage” childbearing, otherwise the country’s working age population will drop by 15% by 2050.
The paper, written in Chinese, proposed that policymakers should also curb property price surges to retain young talent, encourage Chinese companies to expand business in emerging Asian, African and Latin American markets, and explore more open immigration policies.
“We should not only liberalise childbearing, but also encourage it. We should create a conductive environment for childbearing, and effectively solve the difficulties women encounter in pregnancy, childbirth, kindergarten and school enrolment, so that women can dare to have, be able to have and want to have children,” Chen Hao, deputy director of the Research Bureau of the People’s Bank of China, and several other authors said in the paper.
Faced with a rapidly ageing population, the government began easing its infamous decades-old ‘one-child’ policy in 2013, eventually changing its rules in 2016 to allow families to have as many as two children. But births continued to fall, dropping 15% in 2020 in a fourth straight year of decline.
The government has also been trialling a ‘three-child policy’ for the past five years in northeastern Heilongjiang province, which is known as China’s ‘rust belt’, to seek solutions for the problem of low birth rates because the country has a massive 300 billion people entering retirement. The trial, however, has been a dismal failure, as the high cost of raising a child has deterred locals from having three children.
“Compared with the developed countries, China’s shift in the population age structure is happening faster. We’re facing more serious ageing and low birth-rate issues… We must come to realise that the demographic dividend that is a boon at one time will become a high price to pay for,” they said.
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Comments in the PBOC paper promoting fertility fuelled a rally in baby and mother-care related stocks on Thursday. The paper said the authors’ views do not represent those of the central bank. However, the call to scrap restrictions on births marks the latest high-level discussion on how to address China’s ageing population problems. Analysts such as Jefferies said the views expressed in the paper might be reflected in the Chinese government’s policies.
China has benefited from a demographic dividend when people get married and have children at a later age for fear of losing job opportunities, and many women choose not to have children because of high child-raising costs, which has led to a bigger workforce. However, that dividend is shrinking as the population ages while birth rate declines.
The proportion of population above 65 years old in China has increased from 7% in 2000 to 12.6% in 2019, the research paper said. The dependency ratio, or the number of dependents in a population divided by the number of working-age people, is projected to rise to 43.6% by 2050 from 17.8% in 2019.
An ageing population could lead to economic stagnation, price weakness and deflation when the consuming population surpasses the producing population, it said.
Over the seven decades between 1950 to 2019, China’s overall birth rate decreased from 6.7% to 1.7%, a much steeper decrease compared to Western nations such as the US, Japan, and the UK, for example, although those countries are also seeing couples preferring to have less children.
The faster ageing and lower birth-rate issues have caused China’s working-age population to decline since 2010. The authors expect that China’s working-age population to decline at an annual rate of 0.5% over the next three decades. By 2050, the ratio of workers could decrease by over 15% compared with 2019, they said.
In comparison, they forecast that the US’s working-age population will increase by 7.7% over the same period thanks to its open immigration policies. During 2010-2020, the US had a net inflow of over 200,000 immigrants from 36 countries. Germany and Italy were also able to record population growth over the last decade when the inflow of immigrants offset the decline in births by the local population, the paper said.
Competing with the US and India
One of China‘s main concerns is the impact these demographic changes could have on economic development.
In two dedicated sections of the paper, researchers from the People‘s Bank of China laid out how these demographic issues put China’s economic outlook at an disadvantage to the US and India.
“If our country has narrowed the gap with the US over the past 40 years by relying on cheap labor and huge demographic dividend, what can it rely on in the next 30 years? This is worth thinking over,” the authors wrote.
They noted how the US benefits from immigration. Meanwhile, India’s population and workforce will soon surpass that of China, they said.
From 2019 to 2050, China’s population will decline by 2.2% while that of the US will increase by 15%, the paper said, citing United Nations estimates.
The research paper added that the advancement of education, science and technologies cannot offset the impact from population reduction, citing lessons learned from Japan, whose economy has been stagnant for nearly 20 years.
What has worked for Japan though, is that they “built another Japan overseas” by expanding businesses to developing countries and taking advantage of abundant labour resources, and the overseas income has become an important source for pension funds, they said.
‘With growth declining, firms should be encouraged to go abroad’
Given that China’s baby boomers born in the 1960s and the 1970s will retire in 10 year’s time, China can still enjoy 10 years of “demographic dividend”, but the nation must act fast to liberalise childbirth because it takes generations to change the population inertia, the paper said.
“On the one hand, we should fully liberalise childbirth (three children and above)… On the other hand, we should vigorously encourage childbirth… It is not only a matter of the parents or families, but also a responsibility of the nation and society.”
In addition to scrapping restrictions on births, the paper called for the prevention of an excessively rapid decline in the savings rate, noting that consumption is “not the source of growth”.
The country’s gross domestic savings rate declined to 44% of GDP in 2019 from 51% in 2010, World Bank data shows.
It proposed that China should expand investment in the central and western regions domestically, as well as in Asian, African and Latin American regions where “demographic dividends” still remain.
“We should encourage Chinese firms to go abroad and make use of the abundant workforce in other developing countries, and even explore immigration like the developed countries do.”
China’s economic growth rate was 10.6% in 2010 but dropped to 6.1% in 2018 and is about to enter an era of about 5% growth.
Ren Zeping, chief economist of Soochow Securities, also proposed full liberalisation to encourage more people to have children in December when he was the chief economist of Evergrande Research Institute, and warned that the end of of the ‘demographic dividend’ has slowed China’s economic growth.
Ageing increases consumption and reduces savings and investment, which leads to a decline in the potential economic growth rate and triggers changes in the consumer structure. For example, the proportion of medical care people require gradually increases, he said.
NOTE: This report was updated with further details and clarification on April 16.
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