Chinese Families Can Now Have Two Children, But Can They Afford Them?

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Demographic Dilemma: China Pulls Plug on One-Child Policy
  • Fertility levels already extraordinarily low in urban China
  • Most urban Chinese don't want two children due to 'huge costs'

For all the historic significance of China’s decision to abandon its one-child policy, the move risks falling well short of reversing a trend that threatens to throttle economic growth.

It’s “too little, too late,” said Shanghai-based Andy Xie, a former Morgan Stanley chief Asia economist, about the Communist Party’s approval of plans to allow all couples to have two children. “The population will begin to decline in 10 years. Why keep population planning?”

The official Xinhua New Agency reported the new policy on Thursday at the end of a four-day party gathering in Beijing. The relaxation is part of President Xi Jinping’s five-year blueprint for transition to a “moderately prosperous society.” As the days of cheap and abundant labor fade, old growth drivers such as manufacturing and construction are stalling. While China’s aging population may boost consumption’s contribution to the economy, the challenge is ensuring economic dynamism doesn’t fade as the share of young people shrinks, as it has in Japan.

“It is an important step in the right direction, but its impact may not be as great as it first appears," said Steve Tsang, a senior fellow at the China Policy Institute at the University of Nottingham in England. “Most urban Chinese families do not want to have two children because of the huge costs involved in raising children.”

Heated Debate

The announcement spurred heated debate on Weibo, a Chinese-language social-media platform. Some users complained they can’t afford a second child. Others said they want two because a single one is too lonely.

A user nicknamed “AVIC-Yang” calculated it will cost 1.35 million yuan ($212,000) to raise a child until he or she gets married. With a monthly salary of 5,000 yuan, it will take 45 years to earn enough money for two kids. “I just cannot afford it,” the user wrote.

Bloomberg Intelligence economists Tom Orlik and Fielding Chen cited three other reasons why the relaxation will have limited impact on the birth rate and economy: the lag before any new children enter the workforce, social pressures that push young people to work harder and start families later, and multiple exceptions to the existing rule. A previous relaxation fell well short of the goal of boosting births by two million a year. It allowed families to have a second baby if one parent was a single child.

GDP Impact

“The baby boom will probably not show up,” said Zhu Qibing, a Beijing-based analyst at China Minzu Securities Co. “We need to be careful not to overestimate the short-term boost to GDP.”

More than three decades of social engineering -- when people were taught that large families were decadent -- and the soaring costs of child rearing have produced a demographic skewing that contributes to China’s economic challenges.

When the Communists took power in 1949, Chairman Mao Zedong encouraged families to have as many children as possible, arguing that the country needed workers for its fields and factories, and soldiers for its army. China added some 260 million people in the following two decades, and the policy began to shift as factions in the leadership became concerned that overpopulation would exhaust resources and stunt growth.

1970s Policy

The one-child policy, tested first in areas such as Rudong, was adopted nationwide in the late 1970s, with various exemptions for minorities. Since then, the policy has accelerated the aging of China’s populace, removing hundreds of millions of potential babies from the demographic pool. The country’s old-age dependency ratio -- a measure of those 65 or over per 100 people of working age -- is set to triple to 39 by 2050.

The United Nations has estimated China’s crude birth rate will fall to 12.2 births per 1,000 population between 2015 and 2020 from 13.4 in the previous five years. Meanwhile, the number of people aged 60 and above will increase by almost 36 million, to 245 million by 2020, according to UN projections. By 2030, the number will have surged by almost 149 million -- more than the combined populations of Germany and France -- to 358 million.

Demographic Pain

Demographic aging isn’t confined to China. By 2050, the ratio of workers to retirees in many developed countries -- including Japan, the European Union, South Korea and Singapore -- will be lower than China’s. Even emerging economies such as Thailand and Brazil are beginning to feel the pain.

In 2050, there will be at least 2 billion people in the world who are over 60, more than double the number now, according to a 2013 UN report. They will outnumber children, and almost 400 million of them, more than the current population of the U.S., will be over 80.

Japanese Prime Minister Shinzo Abe announced last month that one of his economic priorities is reversing his country’s declining population. He then appointed a minister for demographic issues and urged him to come up with “bold proposals” for raising Japan’s birthrate to stem declines in the labor force that for years has hampered growth.

Peak Population

China’s population is expected to peak at 1.41 billion in 2025, and the total in 2050 will be much lower than it is today, according to Zhang Juwei, director of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences.

The policy shift may help redress an imbalance between males and females, discouraging parents from aborting females fetuses because they now have two chances for a boy. China’s sex ratio stands at more than 106 males per 100 female births, one of the highest in the world, according to the United Nations.

The shift will be felt differently across urban and rural sectors, with a bigger impact in the countryside: Most rural parents didn’t qualify for the previous relaxation because they’re typically from families with two or more children. Urban households will continue to take “a look-and-see attitude on this policy change,” said Liu Li-gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong.

China Ending One-Child Policy 'Long Overdue': Ulrich

“China’s working-age population has already begun to shrink, and long-term population decline is in the cards in the not-too-distant future,” said Nicholas Eberstadt, a demographer at the American Enterprise Institute in Washington. “This latest bit of tinkering with population control will almost certainly fail to put China on a path to population stability.”

— With assistance by Kevin Hamlin

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