China’s demographic downturn will constrict its economy

China’s brewing demographic problem is rapidly coming of age, with the country reporting its first decrease in population since 1961 in early 2023. This news comes as no surprise, with fertility rates having dropped below the replacement level of 2.1 in 1991 and failing to recover since. An intersection of economic, social, and political factors has created a perfect demographic storm, causing the world’s largest population to officially start shrinking.

Why demographics will restrict the Chinese economy

Falling births raise questions as to whether the country will become old before it becomes rich. The relationship between population and the health of the economy is undeniable. China’s previously high birth rates created a demographic dividend within its working population that has helped to propel the country’s growth so far. However, falling birth rates will see the size of the working population contract as China’s largest cohorts continue to age. The imbalance between its generations will put increasing strain on the world’s second-largest economy.

As a result, China’s economy will need to learn to adapt to a larger number of dependents within its population. While China is joining a growing list of countries suffering from aging populations, this could interfere with its economic aspirations. President Xi Jinping has renewed his pledge to double the Chinese economy by 2035, compared to the size of the economy in 2020. However, if China plans to overtake the US and keep its lead, it will need to rapidly address the demographic downturn that will stifle its economy.

Although China is rolling out a wave of measures to boost birth rates, many of these will be too little, too late. In 2016, the Chinese government amended its one-child policy, allowing married couples to have two children, and then in 2020 this policy was extended to three children. However, these prescriptive measures are unlikely to boost birth rates.

Current fertility policies are out of touch with China’s youth

The policy change fails to recognize the high costs of raising a child, especially for young people living in China’s cities. Combined with China’s 9-9-6 culture of long working hours, it is easy to see how arbitrary changes to the fertility policy will fail to gain traction with China’s youth. In addition, the financial barrier to larger families will also be exacerbated by demographic shifts, as more young people take on care responsibilities for their elderly family members. The combination of these factors has created an economically restricted generation who are less interested in starting a family.

This is evidenced by the increasing traction of the tang ping or lying flat movement in China. The movement is seeing many citizens opting to either quit their jobs or do the bare minimum in the workplace as a protest against the culture of long working hours. However, in addition to climbing the corporate ladder, the movement is seeing a growing number of young people diverge from other expectations such as starting a family. As a result, this form of resistance will limit the effectiveness of fertility policies going forward.

In response to this, several municipal authorities are rolling out further fertility incentives to relieve the financial pressure on young people in the hope this will boost births. For example, Shenzhen is developing a subsidy for families who give birth to their first child and register the birth in the city. The subsidy pays the equivalent of $450 to parents who have their first child and subsequent payments of $750 and $1,500 for the second and third child, respectively.

Gender inequality will stifle the success of fertility incentives

The Chinese government has also pledged to increase access to in-vitro fertilization (IVF) treatments. While these measures will help reduce the financial burden of some aspects of family planning, the prescriptive nature of these policies alienates many Chinese women. In Beijing, unmarried women are currently not eligible for IVF treatment subsidies and unmarried women are not legally protected from being fired for being pregnant by their employer.

Couples also need to register their marriage to a hospital in order to receive prenatal care. Furthermore, when children are born to single mothers, there is reduced access to healthcare and education. It is clear that current policies to boost births in China are a blunt instrument for responding to the myriad economic and social issues that are depressing the country’s fertility rates.

Draconian fertility policies will fail to speak to young people in China who are both economically constrained and increasingly willing to go against the grain of expectation. As a result, fertility rates will fall to new lows before these policies can take effect, deepening financial ramifications for the country in the future.