CHINA’S ROAD TO RECOVERY FROM ITS SELF-CREATED DEMOGRAPHIC DISASTER

April 20, 2016
Editor(s): Mayumi Edirisinghe
Writer(s): Claire Shinkfield, Kayley Loo, Alistair de Steiger, Elise Coorey

After years of implementation, in October 2015 China announced its decision to lift the one-child policy and adopt a more lenient two-child policy, in an attempt to diversify the country’s population. With 40 years of restrictions having created an ageing population predominantly comprising of males, China is hopeful that this policy reform will eliminate the detrimental effects of an unbalanced population distribution in the future, especially at such an integral time of the nation’s economic development.

China has experienced a long and convoluted policy journey over the past 50 years. Following the death of revolutionary leader Mao Zedong in 1976, the country had much to remedy both economically and socially, with the aftermath of the Cultural Revolution. One of the major issues that new leader Deng Xiaoping faced upon his succession in 1978 was China’s rapid population growth that could not be supported at that time, despite its significant landmass. Thus, the infamous one-child policy was introduced in an attempt to curb the population expansion.

After years of Chinese children growing up without siblings, the newly introduced two-child policy now allows married couples to have two children. The policy has received mixed reactions. Many families are exuberant about their newfound freedom with regards to such personal decisions. However, many still believe that this new policy will not be expansive enough to sufficiently alter China’s population demographics at a fast enough pace to resolve the burden of the ageing population.

THE ONE-CHILD POLICY AND ITS FUNDAMENTAL EFFECTS

China’s one-child policy was first discussed in the late 1970s and became official on September 25, 1980 with the intention of suppressing the unsustainable growth rate of China’s already large population. The 1970s had seen the population approaching the one billion mark, rates peaking at 2.8% in 1970 and decreasing to 1.3% by the latter part of the decade. Considering that a population could double over 24 years at a rate of 3%, these growth rates were alarmingly high.

The policy has proven effective in consistently reducing the growth rate with latest UN data reporting an average growth of 0.5% p/a from 2010-2015. Some believe this reform was responsible for propelling China’s economic growth as it prevented up to 400 million births and the strain associated with overpopulation. Estimates suggest that this was a pivotal factor which accounted for up to one-quarter of China’s GDP growth in the last thirty years. This GDP growth can be further credited for the subsequent improvement in the education system, nutrition, standard of living and the longer life expectancy of the Chinese population.

However, the policy has also had some fundamental demographic impacts. Of these impacts, one notable abnormality is the gender imbalance. China’s deep-rooted male preference, stemming from family name inheritance and the responsibility to financially support the elderly, has severely skewed the sex ratio towards males. While most countries maintain a balance of around 106 males per 100 females, official Chinese data from January 2015 cited 115.9 males per 100 females at birth. The financial pressure of hefty fines, and in some extreme cases, involuntary sterilisation or late-term abortions has brutally enforced the policy. It had also spurred on some inhumane practices of abandonment and infanticide of female babies for preference of a male child.

Another fundamental issue that China now faces is the rapidly ageing population. China’s median age is on the rise as those aged 65 and over account for a larger proportion of the population. According to a UN study performed before the policy change, by 2030 there will be up to 219 million seniors over 65, which will surge to a quarter of the entire population by 2050. This means a large number of people are expected to exit the workforce without a sufficient number of young people entering the workforce to balance today’s levels. In 2012, China’s National Bureau of Statistics noted the first decrease in the number of working-age Chinese with no sign of recovery. Concerns for future economic growth stem from this rapidly shrinking labour force. Consequently, there exists a future financial burden on the youth who will need to sustain a retired population on a macroeconomic level. Without the relevant reforms, this would amplify the already existing weight on a sole child to support pairs of parents and grandparents.

The Ageing Population Syndrome (2030)

 

Figure 1: https://populationpyramid.net/china/2030/

Figure 2: https://populationpyramid.net/australia/2030/

When the population pyramids of China and Australia are compared for the projected 2030 respective populations, radical dissimilarities are observable. The large spikes in 40-44 and 55-59 age demographics significantly outnumber the 15-24 demographics, which are not substantial enough to replace the impending retiring age populations. In comparison to Australia’s even distribution of the different age populations resulting in a much smoother pyramid, the influence of the one-child policy confirms the urgency to remedy China’s future labour force complications through the introduction of the two-child policy.

INTRODUCTION OF THE TWO-CHILD POLICY AND ITS IMPLICATIONS

Taken to effect on the 1st of January 2016, Chinese congressional proceedings enacted changes to their birth policy allowing all couples to have two children, replacing the country’s controversial one-child policy. Through this reform, China is striving to conquer the impending burden of ageing and the severe gender imbalance issue within its male-centric population. Certainly a positive outcome of the policy change is that it relieves pressure from families having to go to extreme measures to have a male child. This will ease this prevalent disparity between the genders which has become a long term issue, both in the society and the workplace. Another reasoning behind this reform revolves around the opportunity for economic stimulus. In order to support a second child, Chinese couples will have to withdraw from their savings and increase spending. Thus the increased domestic consumer spending as well as infrastructure investments will bolster the economy.

However, the implementation of the policy is predicted to have an insufficient impact on the issue at hand. Even though the new policy will allow 100 million couples to have additional children, a baby boom is not expected. Considering the fact that Chinese couples find the cost of having children to be prohibitive, many are opting to have only one child. Credit Suisse economist Dong Tao states that “The high cost of raising a child is probably China’s new birth control”. The average income in China is $10,220 (US dollars) and some estimates have suggested that the current costs of raising an additional child in China would be around $4273.90 (US dollars) a year, a massive 40% of the average income!

This increased cost burden of having more children will be felt as they grow up and it will take roughly 20 years before those children will be able to enter the workforce. This implies that during this time, the Chinese economy will be supporting two extremes; both an ageing population and a young population unable to work. Thus the increased cost of having an additional child whilst supporting elderly relatives could act as an incentive for many Chinese couples to refrain from having an additional child, ensuing no short term relief to the demographic issue looming on China.

China has an opportunity to create a better economic future reaping the many economic benefits resulting from the newly enforced two-child policy. Despite not having immediate effects, it will eventually be effective in minimizing the country’s demographic disparity, gender divide while increasing the stability of the future workforce and stimulating economic growth.

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The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.