Posted on December 7, 2015

It Is Already Too Late to Scrap China’s One-Child Policy

Ambrose Evans-Pritchard, Telegraph, October 29, 2015

China’s Communist Party has scrapped its hated one-child policy in a bid to shore up political support, but the move comes far too late to avert a collapse of the workforce and a demographic crisis by the late 2020s.

All couples will be allowed to have a second child under new rules agreed at the party’s closely-watched 5th Plenum in Beijing. The ban on larger families in cities will remain despite pleas from Chinese academics for total freedom.

The policy shift will make no difference to the workforce for almost 20 years and by then China will already be in the full grip of a demographic crunch.

“They have merely moved to a two-child policy. The family planning authorities are still there, and there is still an apparatus of state power intruding into people’s intimate lives,” said Jonathan Fenby, a China veteran at Trusted Sources.

The coercive anti-natalist policies begun by Mao Zedong in the early 1970s–and pushed further by ideologues in thrall to the Club of Rome’s Malthusian doomsday theories, the “Limits of Growth”–have had powerful and perverse effects. They freed workers from family duties and created a “demographic dividend” of sorts that until recently flattered China’s growth rate. Now the process is kicking violently into reverse.

The workforce began to decline in absolute terms in 2012 and has since been shrinking by 3m people a year.

The International Monetary Fund says the reserve army of labour peaked five years ago and is going into “precipitous decline”, threatening a labour shortage of 140m by the early 2030s.

This is happening just as life expectancy soars to 75.2–with a target of 77 in 2020–causing a drastic deterioration in the ratio of workers to pensioners, and unlike the demographic decline in Japan it will start to bite before the country is rich. The ratio was 6.6 in 2000. It is expected to be 2.37 in 2030 and 1.25 in 2060.

The Chinese Academy of Social Sciences says the fertility rate has collapsed to 1.4 and is nearing the danger line of 1.3, the so-called “low fertility trap” where it becomes culturally self-perpetuating. This has already happened in Japan, Korea and Taiwan, and in some of China’s richest cities.

The rate in Shanghai has fallen to 0.8 for complex social reasons that no longer have anything to do with one-child policy. A relaxation of the rules in 2013 has not led to a pick-up in the city.

“Having children is simply too expensive. Working couples can’t afford private hospital costs, childcare and kindergartens,” said Mr Fenby.

China may already have left it too late to ditch the one-child policy. Critics say the damage has been evident for years, leaving aside the traumatic suffering of poor women seized by police after tip-offs and forced into late-term abortions, the indignity of “menstrual monitors” and the status of “illegal” children denied ration coupons and schooling.

Chinese demographers say the distorted family structure undermines support for the elderly and has led to a 20pc surplus of boys over girls, leaving a volatile army of frustrated single males. The Politburo refused to listen. Harvard professor Martin King Whyte said the policy had become “sacrosanct”, frozen by bureaucratic inertia.

The long-awaited reform eclipsed the launch of the Communist Party’s latest five-year plan, intended to close the chapter on a series of errors and policy pirouettes over the past 12 months that have shattered global confidence in Chinese economic management.

The sketchy communique, rich in praise for comrade Xi Jinping, speaks of achieving a “moderately well-off society” (xiaokang shehui) by 2020, doubling per capita income from 2010 levels.

The plan is to lift China up the technology ladder towards “high-end” industries, moving to a “lean, clean and green” economy driven by consumer growth and services.

But first China must break the stranglehold of the state-owned industrial behemoths, the patronage machine of the regional party bosses and a bottomless pit of wasted credit. A cull of these beasts was announced with much fanfare at the 3rd Plenum two years ago, when the party vowed to give market forces the “decisive role” in the economy.

It was never, in fact, executed. Vested interests have put up a heroic resistance. Plans to let farmers trade land scarcely got off the ground either. The feudal Hukou system trapping peasants in their villages lives on.

Premier Li Keqiang, a realist, has warned that this five-year plan is the last chance for China to grasp the nettle of market reform and avert a slide into the “middle income trap”. He allegedly told party leaders that the new growth target is 6.53pc, a strangely precise figure that raises as many questions as it answers. Few economists believe the data, in any case.

This is lower than the 7pc number floated by President Xi Jinping on the eve of his visit to London, and suggests that there is still a serious dispute at the top of the party over strategy: whether to bite the bullet now and purge the excesses from the country’s $28 trillion debt spree, or keep the game going with yet more stimulus.

Capital Economics says China has reached a juncture where it can no longer reconcile the conflicting objectives of deep reform and steroid-level growth rates. It has to choose.

For now stimulus is winning. Fiscal spending is rising at double-digit rates again after the crunch earlier this year, when local government reform went off the rails and tipped the economy into recession. A fresh credit cycle has been under way for the past three months.

Caixin Magazine warned in a bold editorial that neither fiscal nor monetary stimulus can lift China out of the doldrums, and time is “running out”. The only option is to tackle massive over-capacity head-on, allow Schumpeterian creative destruction to run its course and stop trying to inflate artificial growth.

“Japan lost two decades largely because it failed to deal with zombie enterprises after its real estate bubble popped in the 1990s. China must avoid repeating the same mistakes. The government must act–before it’s too late.”