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Three-Child Policy is not enough

By Nancy Qian

To counteract the rapid aging of the population, China has just announced the three-child policy: all families will be allowed to have up to three children. The decision follows widely publicized new data showing that China’s birth rate in 2020 was just 1.3 children per woman, similar to Japan(1.36 in 2019) and significantly lower than the United States (1.7).

But a birth rate that is below replacement level is only part of China’s demographic problem. (China.Table reported). A second problem is the sheer number of elderly people (China.Table reported). Prior to 1971, China’s family planning policy was pro-birth and limited access to contraception and family planning. As a result, the country’s current or prospective elderly population is particularly large, with only about 72 percent of the population aged 15 to 24 years old, compared with 79 percent in Japan and 100 percent in the United States. This aging in the demographic structure makes the problem of the declining birth rate even more acute, as new, younger workers are needed to replace those who retire and need support.

Hukou widens Education Gap

A third problem is the inequality between urban and rural areas. China’s rural population is generally prohibited from moving to urban areas by the hukou system of official residence control. As a result, rural residents have had fewer opportunities to access education and health care. From 2010 to 2012, urban enrollment rates were 100 percent for middle school, 63 percent for high school, and 54 percent for university; in rural areas, the rates were 70 percent, three percent, and two percent, respectively.

Also, in 2008, there were 2.68 doctors per 1,000 inhabitants in urban areas, compared to only 1.26 per 1,000 inhabitants in rural areas. Not surprisingly, rural areas are worse off in terms of health, with lower life expectancy and higher morbidity rates than urban areas.

Chinese politicians tend to discuss each of these issues separately. But this is a mistake. The low birth rate, the legacy of pro-birth policies, and the urban-rural divide all affect the age structure of the population, which has a direct bearing on China’s long-term economic development.

No jobs despite University Degree?

Economic growth depends heavily on the conditions of the workforce. If workers do not have access to health care or cannot acquire skills at school or in the workplace, the economy will suffer. Globally, about half of all cross-country differences in income and growth can be explained by differences in the conditions that workers bring with them.

Telling Chinese couples that they can have three children will not automatically increase the birth rate, nor will it necessarily help address the larger economic challenges. Fertility is determined by socioeconomic factors, such as the cost of raising children and the economic opportunities parents see for their offspring in the future. These costs are exceptionally high in urban China, where residential real estate is more expensive than in any other country with similar income levels.

In addition, there is intense competition for university places. Children and their parents feel the pressure of the nationwide gaokao examination for university admission as early as primary school. A 1999 reform that increased the number of university places could have eased some of this pressure, but employment growth has not kept pace: The unemployment rate for university graduates has risen accordingly.

Burden on Only Children grows

Parents who live in the city also have to care for their own aging parents. This is no easy task in a country where pensions are limited and where few people move into senior housing later in life. Most older Chinese expect their adult children to care for them. And because the one-child policy, which was in place from 1979 to 2016, was more strictly enforced in urban areas, most young parents in cities grew up as only children. With no siblings to share the burden, couples can expect to spend the next decade or two caring for four aging parents in addition to raising their own child. Adding two more children would increase the number of dependents to be cared for by the average couple from five to seven.

In contrast, the birth rate is higher in rural areas and the cost of having children is lower. Housing is cheaper, and the fact that educational choices are limited means that parents have less to worry about in terms of the cost of education. Chinese women of childbearing age who live in rural areas are much more likely to have siblings with whom they can share the care of their own parents.

Against this background, allowing families to have three children without making any further changes would probably not achieve the intended economic result and could even make the situation worse. Since the urban population is unlikely to have significantly more children unless the financial burdens of raising children and caring for one’s parents are reduced, only the rural birth rate will increase. And without improvements in rural health and education, the size and proportion of the unskilled labor force will increase.

Will it succeed in becoming one of the richest Countries?

A labor force with a growing share of unskilled workers is the last thing China needs if it is to push the limits of technological innovation and move beyond middle-income status. While improving schools and health care in rural areas is easy (if expensive), creating jobs for college graduates will be much harder. And without jobs, young people will not be able to support an aging population.

Policy makers in China have shown that they are aware of some of these problems. In addition to the new three-child policy, they have recognized the need to reduce housing costs and provide education subsidies. But these proposals remain vague because there are no easy solutions. Chinese policymakers must keep an eye on the economic impact of the country’s demographics as they relate to the urban-rural divide – and be careful not to exacerbate a difficult problem.

Nancy Qian is Professor of Managerial Economics and Decision Sciences at Northwestern University’s Kellogg School of Management and Director of the China Lab. Translated from English by Sandra Pontow.

Copyright: Project Syndicate, 2021.


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