Last updated: 10:47 / Monday, 2 November 2015
Analysis by Schroders

Will the End of China's One Child Policy Spark a Demographic Boom?

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Will the End of China's One Child Policy Spark a Demographic Boom?
  • The end of the one child policy is an announcement with great political significance but little immediate effect.
  • Chinese working population will decline in 3%
  • For policy to work the cost of raising children needs to be reduced

According to Craig Botham, Emerging Markets Economist at Schroders, “The end of the one child policy is an announcement with great political significance but little immediate effect.” Given the high cost of raising children in China, his team does not see a demographic boom resulting from the end of the government's one child policy.

By the year 2030, the UN expects to see a 3% decline in China's working age and a very small impact on growth, detracting between 0.1 and 0.3 percentage points per annum from growth over that period. With that, there will be a very important fiscal cost for China, “as its dependency ratio worsens to developed market levels even as incomes remain in emerging market territory. This will result in a painful fiscal burden for China, and it is not clear how it will be tackled,” says Botham.

He believes that boosting the fertility rate would help, but it is not certain that ending the one child policy will be effective.  For example in 2014, 11 million couples were eligible for a second child, but only 1 million applied to do so. Adding that, “it may be that after so long, the one child norm will take time to reverse. In addition, anecdotally, many young Chinese cite the cost of children, particularly education, as a major barrier to considering large families.”

And thus, “the cost of raising children needs to be reduced. Task that will require the provision of high quality and affordable - preferably free - education and childcare, and likely also an overhaul of the welfare system altogether.” Nowadays the "hukou" registration system limits people's ability to claim social welfare outside of their registered area. This means many migrants to the cities have to go home to access education, healthcare, and so on. “Which adds immensely to the cost of raising children and settling down, and will be a contributing factor in delaying household formation. Until these issues are addressed, we do not see a demographic boom resulting from this policy change,” Botham concludes.

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