China’s Changing Demographics

Posted on Posted in Monthly Article

By Jerry Pacheco

On October 29, the Chinese government announced plans to end its one-child policy in March 2016. The program was put into place in 1979 by then Chinese ruler Deng Xiaoping, who made it his mission to set China on an ambitious course of economic development, coming on the heels of the death of Chairman Mao Tse Tung.  As the country’s population passed one billion in the 1970s, Deng saw the high population growth as being detrimental to his party’s plans. Therefore, the one-child-per-couple policy was instituted in order to curtail the extra burden of a massive population on an ambitious central government that was intent on modernizing China. With its latest announcement, the Chinese government is now allowing two children per couple.

The one-child policy penalized couples in terms of fines and employment options if they had more than one child. Exceptions were made in rural areas in cases where the first-born child was a girl, if either of the parents themselves were only children, and in some cases for ethnic minorities. The Chinese government was especially strict in enforcing the policy in China’s urban areas. By the end of the last decade it claimed that 36 percent of all Chinese couples had complied with the policy. The central government also claimed, although it is very difficult to prove, that up to 400 million births were avoided since inception of the program.

Needless to say, the policy was extremely controversial on multiple levels. Some activists claimed that it interfered with the inalienable human right of reproduction, especially in the belief of families consisting of more than one offspring. Others claimed that it institutionalized gender bias, with the majority of couples subject to the law preferring a male child. This led to abortions when a female child was conceived and in other cases to mass sterilizations to avoid the wrath of the law.

So why has the one-child policy been suddenly rescinded? To use a harsh idiom, it appears that the “pigeons have come home to roost.” Centralized and socialized governments, such as that in China, are notoriously bad about successfully allocating scarce resources in the economy. This is why communist countries such as the USSR had shortages with commodities such as automobiles and housing. Planning and predicting demand, based on supply and available resources, has proved to be best left to the market itself, not a group of government bureaucrats. China appears to be learning this lesson as pertains to managing its population growth.

Lower population rates correlate with the education levels of the female portion of society. The more educated a woman is, the longer she tends to postpone having children because the opportunity cost of sacrificing the earning potential of a career is too great. This is the case in more developed countries where it is not unusual for women to have their first child in their late twenties through mid-thirties. The market plays a major role in raising a woman’s earning potential based on her higher level of education. Therefore, embarking upon a career while postponing procreation becomes a preferred choice. Having fewer children also ensues.

Thus, in more developed countries the market helps control population growth rates, sometimes to the point where countries in Europe, Japan, and the U.S. are experiencing rapidly aging populations, with a near zero or negative growth rate. This has become a concern because of the question of economic growth, the related jobs created that need to be filled, and the young, entrepreneurial class that tends to transform economies into the next phase.

Because of its one-child policy, China now has one of the world’s lowest fertility rates, not because of the market, but because of the belief by the central government that it had to legislatively control population growth. Now, China has risen to become the world’s second largest economy, but as a developing country, it finds itself in the ironic position of having a population rapidly aging before the majority of its citizens enter the ranks of being economically well-off, and the country being fully developed. One estimate states that by 2050, more than one quarter of the population will be older than 65. Much like in the U.S., a smaller pool of younger workers will be called upon to support the pensions of the older citizens.

With 1.3 billion people, China has the world’s largest population. Many assume that there should be plenty of labor to fuel increased economic growth. However, the challenge lies with the volume of skilled workers and their location versus the brute masses that make up the fringes of the labor base in poorer urban and rural areas.

With the change in its one-child policy, China is hoping to shore up its aging population in order to continue its impressive economic growth that has recently started to cool off. Ironically, China’s policy change only perpetuates the government’s intervention in the determination of population growth, albeit by one more child per couple. In subsequent years, the country may find that education and economic opportunities were better tools to manage population growth – better than the bureaucracy.