Posted on October 7, 2013

China to Ditch Its One-Child Policy as Ageing Crisis Looms

Ambrose Evans-Pritchard, Telegraph (London), August 4, 2013

China’s new leaders are close to abandoning the country’s one-child policy, belatedly moving to avert an ageing crunch as the work force goes into sharp decline.

The official news agency Xinhua reported that the Family Planning Commission is studying proposals to lift the ban on a second child, if either parent is an only child. The body’s spokesman said aim is to “improve” family policy, confirming leaks to Chinese newspapers that a major shift is in the works. The new rules are expected to come into force early next year, and may be extended to cover all families by 2015.

Jun Ma from Deutsche Bank said the new policies should shore up the pension system and inject stimulus as China’s growth sputters. “As tens of millions of sibling-less people in China are now entering their child-bearing age, we expect this policy shift would induce a baby boom,” he said.

The one-child policy dates back to 1971 in its original form and has led to 336m abortions and 222m sterilisations, often badly executed in poor regions. Recent abuses have caused uproar, with photos circulating on the internet of a young mother lying beside a fully formed baby after she had been seized by police for failing to pay the “social compensation fee” for an illegal child. She was forced to undergo an abortion just before her natural birth.

Premier Li Keqiang clearly views the policy an anachronism at a time when China is running out of workers, and faces a demographic time-bomb. There are currently five workers for every pensioner. This ratio will fall to two by 2035.

The policy has always been a patchwork of measures. Ethnic minorities are exempted. Farmers are allowed a second child if the first is a girl. The urban middle class can usually pay the fine, barely enforced in Shanghai where fertility rates are collapsing for other reasons. The shift in policy may come too late to avert an ageing shock. The workforce shrank by 3m last year, an inflection point that has come sooner than expected.

The International Monetary Fund said the working age population will soon go into “precipitous decline”. The “reserve army” of rural poor looking for work peaked in 2010 at around 150m. This surplus will disappear soon after 2020. The IMF said there will be a labour shortage of almost 140m workers by the early 2030s with “far-reaching implications”.

Demographers say it is unclear whether a two-child policy will set off a baby boom. Fertility rates plunged in Japan, Korea, Taiwan, Singapore and Hong Kong as they became richer, due to a complex interplay of culture and economics.

China is unique in growing old before it is rich, but this may not be a bad thing. Lauren Johnston from Peking University said it was better to get a demographic crisis out the way early. Baby boomers in the West and Japan have swept through like a “plague of locusts”, leaving the next generation to cover a colossal debt burden and gilded pensions. “It is much worse to get rich first. What gets left behind is crumbs,” she said.