China population: birth control policies should be scrapped to retain economic edge over US, says central bank

China should immediately liberalise its birth policies or face a scenario in which it has a lower share of workers and higher burden of elderly care than the United States by 2050, China’s central bank has said.

In an unusually direct and frank tone, four researchers from the People’s Bank of China (PBOC) said the country should not interfere with people’s ability to have children or it will be too late to reverse the economic impact of a declining population. Since 2016, Chinese couples have been allowed to have two children.

“We should not hesitate and wait for the effects of existing birth policies,” the researchers said in a working paper dated late March and published on the bank’s website on Wednesday.

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“The birth liberalisation should happen now when there are some residents who still want to have children but can’t. It’s useless to liberalise it when no one wants to have children.

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“On the other hand, we need to create a birth friendly environment and solve the problems that women encounter during pregnancy, childbirth, nursery and school enrolment.”

The report comes just days before the preliminary results of the seventh national population census are expected to be released.

The National Bureau of Statistics was set to publish the census data in early April, but delayed release until later this month because of the huge amount of data to process.

China’s rapid economic growth over the past four decades has been largely because of its demographic dividend, a situation in which the working age population, aged between 15 and 64, is larger than the share of non-working citizens, the researchers said. They estimated that China had only about a decade left to enjoy the economic benefits.

If China has narrowed the gap with the United States in the past 40 years, relying on cheap labour and a huge demographic dividend, what will it rely on in the next 30 years?
People’s Bank of China

That China has so little time to enjoy the fruits of the dividend underlines how quickly it must prepare for a fast-ageing population and declining fertility rates.

According to the paper, 14 per cent of the population will be above 65 next year. While it took China 22 years to reach that level, it took the US 72 years by comparison.

“If China has narrowed the gap with the United States in the past 40 years, relying on cheap labour and a huge demographic dividend, what will it rely on in the next 30 years?” the authors said.

China’s population could lose 32 million between 2019 and 2050, whereas the US will add 50 million over the same period, according to the paper based on data from the United Nations.

In 2019, China’s share of the working age population was still 5.4 percentage points higher than the US, but it could reverse to 1.3 percentage points lower in 2050.

Similarly, China’s burden of elderly care, measured by the number of the elderly over its working age population, was 7 percentage points lower than the US in 2019, but it could be 7 percentage points higher in 2050.

The paper argued developed countries that had been through demographic transitions underestimated the severity of low births and ageing, and overestimated the role of technology and pension systems.

But by taking advantage of abundant labour in developing countries via multinationals and bringing in hi-tech immigrants, developed countries such as Japan and the US are able to partially offset the impact from declining populations, while boosting income levels.

“If we hesitate a little bit [in liberalising birth], we will miss the precious window of using the birth policy to respond to the demographic transition, and repeat the mistakes of the developed countries,” the PBOC researchers said.

The paper said the cause of China’s decline in fertility rates was not family planning, although it accelerated the decline.

“Increased incomes boost the opportunity cost for women to have children. In practise, the effect of our two child policy is not as good as expected,” the paper said.

“Some are worried that liberalising birth will lead low-income families to have more children. In fact, ordinary workers are in the shortest supply in China.”

Additional reporting by Orange Wang

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