Commentary: China’s fertility crisis could kill its economic dynamism
China’s fertility rate is on a downward slide, falling from 1.49 in 2018 to 1.47 in 2019 and may soon return to the low levels of the 1990s, says economist Zhang Jun.
SHANGHAI: Historically, demographics has been a slow-moving variable. But the East Asian economies – especially China, Japan, and South Korea – have flipped so fast from rapid population growth to decline that they practically have whiplash.
As a planned economy, China was once obsessed with expanding its population. But, in 1957, the economist Ma Yinchu published The New Theory of Population and cautioned that this trend would soon begin to undermine China’s economic development.
Though the government initially criticised his theory unfairly, Chinese leaders eventually took his warnings to heart, encouraging family planning as a way to promote economic growth.
In 1973, China went a step further, with the national wan, xi, shao (late marriage, longer spacing, and fewer children) campaign, which encouraged couples to have no more than two children.
Six years later, this escalated into the infamous one-child policy. To ensure its long-term impact, family planning was finally written into the Chinese constitution in 1982.
The fertility rate plummeted. By the mid-1980s, it hovered above the so-called substitution level of 2.1, compared to 6.0 in the 1960s and 1970s.
In the 1990s, the fertility rate fell to just 1.2 to 1.3 – a level that promised to hasten the country’s demographic ageing significantly.
The government nonetheless continued to enforce the one-child policy until 2016, when, finally, it shifted to a two-child policy.
With that, China’s fertility rate bounced back somewhat, reaching 1.58 in 2017, according to the National Bureau of Statistics. But it is now again on a downward slide, falling from 1.49 in 2018 to 1.47 in 2019.
According to the population economist James Liang, it may be set to return to 1990s levels.
THE ONE-CHILD EFFECT
As Liang noted, in 2017, the total fertility rate of 1.58 reflected a fertility rate of 0.67 for one-child families, 0.81 for two-child families, and 0.11 for three-child families.
The fact that the fertility rate of two-child families is higher than that of one-child families reflects the two-child “accumulation effect” – that is, one-child families who had previously wanted to have a second child finally being able to have one.
Before long, that effect will certainly dissipate, and the total fertility rate will quickly drop to 1.2, putting China in the same position as Korea and Singapore, and possibly behind the United States.
This view is supported by pre-2016 birth trends. In 2010, the one-child birth rate stood at 0.73. While it rose slightly in 2011 to 2013, it fell to 0.72 in 2014 and 0.56 in 2015.
Given that one child was always allowed, the vast majority would have been registered, meaning that these fertility-rate figures for one-child families are unlikely to be underestimates.
Overall, there have been fewer than 18 million births annually over the last decade, compared to 25 million to 30 million during the peak years. In 2019, China registered only 14.65 million newborns.
Last year, that figure dropped to 10.03 million – nearly a 15 per cent decline, year on year. Although the sharp decline in births in 2020 may well have reflected the impact of the coronavirus pandemic, the downward trend is clear.
China’s rapidly declining fertility reflects the legacy of family-planning policies. They are also increasingly driven by rapid, sustained urbanisation, universal education, and economic development – factors that are known to contribute to significant declines in birth rates.
CHINA IS NOT ALONE
This was certainly the case in Japan, whose rise to advanced-economy status was followed by a sharp drop in fertility. In 1995, however, the birth rate dropped below 1.5. A decade later, it stood at 1.26.
Policies to encourage childbirth subsequently helped to raise the fertility rate, but only to 1.4, where it remains today.
South Korea is doing even worse. Although the authorities have also attempted to encourage its citizens to have more children, its fertility rate hovered around 1.0 in 2017 to 2018, before dropping to 0.84 last year – the world’s lowest.
As is true in Japan, South Korea’s low fertility rates can be explained largely by economic factors. With rapid growth and large-scale urbanisation driving up housing, education, and health-care costs, couples’ willingness to have children has weakened.
This implies serious risks, beginning with a rapidly growing old-age dependency ratio.
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In China, the working-age population has shrunk by some 3.4 million per year over the last decade. Those who are joining the workforce today were largely born when the fertility rate was already below the replacement level.
AN OLDER POPULATION
Meanwhile, life expectancy is increasing. As a result, the share of China’s elderly population (aged 60 and above) rose from 10.45 per cent in 2005 to 14.7 per cent in 2013, and to 18.1 per cent in 2019.
Today, there are more elderly people in China than there are children (aged 15 and under). By the year 2050, the number of elderly in China is expected nearly to double, from 254 million today to almost 500 million.
These trends will significantly undermine the potential output growth of the Chinese economy, owing to decreased labour-force participation, and put tremendous pressure on public budgets, as outlays for pensions and social security far exceed income payroll-tax revenues.
This is already happening in both Japan and South Korea.
China has always been cautious about loosening family-planning rules. But, if it is to sustain its economic dynamism in the decades to come, it must work hard to expand its labour force, including by raising the retirement age and encouraging families to have more children.
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Otherwise, its population will become old in the same way Ernest Hemingway described how one goes bankrupt: Gradually, then suddenly.
Zhang Jun is Dean of the School of Economics at Fudan University and Director of the China Center for Economic Studies, a Shanghai-based think tank.