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Economics

China's One-Child Policy Is Crippling Industry

A shrinking labor pool spells trouble for low-margin industries

Lin Chang Jie is battling to save his family’s business, which makes towels, cushions, and robes in the eastern Chinese city of Ningbo. The main threat he faces is a dwindling supply of workers, which forces him to pay higher wages. “I have to find a new way,” says Lin, 29, who is attempting to transform his Dejin Textile into an online fashion retailer in order to shrink headcount and keep the business from closing. “Wages are going up, up, up,” he says. “If we don’t like somebody’s work we can’t say anything, in case they leave.”

Manufacturers such as Lin are caught in a demographic trap. China instituted a one-child policy in 1979 to constrain population growth and foster prosperity for the next generation. The byproduct of that policy is an accelerating decline in the pool of young and largely unskilled labor that is the mainstay of mainland factories churning out low-margin goods such as clothes, toys, and furniture. United Nations projections show that the country is at a tipping point: The number of 15- to 24-year-olds is set to fall by 62 million people—or more than 27 percent—to 164 million people, in the 15 years through 2025.