By ZHAO Meng

 

In October 2015, China announced that every couple could have two children, putting an end to 35 years of the one-child policy. As a response to an aging population and dangerously declining fertility rate, the two-child policy has had little effect. In 2014, the National Health Commission predicted that the number of births would increase from 17.6 million to around 20 million in 2019. In reality, the number peaked in 2016 at 17.9 million and has declined since.

The country has evolved in the last five years and many now believe that more measures are needed, but there is little agreement on what should be done.

Jiemian News recently talked with economists ZUOXuejin and WANG Guangzhou, and data scientist and demographer HUANG Wenzheng. All actively engaged with the public debate on China’s demographics and their social impact. All three agree that China is heading into a low-fertility trap and more friendly population policies are required.

So, what went wrong with the two-child policy? Why hasn’t it done what we expected?

Wang: The most important metric is the number of births, which is much lower than we expected.  Before 2015, many research institutions, including my own, tried to project population growth assuming some version of the two-child policy and the results were all over the place. In its own report, NHC relied on the more optimistic projections.

For me, the significance of the two-child policy was the end of the one-child policy. It signaled the beginning of more open, more friendly policies. The immediate impact is secondary.

Zuo: China changed the policy twice, in 2013 and 2015. The 2013 policy allowed a couple to have two children if either parent was an only child, but the changes didn’t work out quite as expected. Second childbirths increased, but at the same time, first childbirths have not picked up, and the fertility rate is still declining. So at least in the short run, certain couples have decided to have another child, but the childless are no more eager to start having kids.

Huang: I am not surprised. If one looks at the population growth in other East Asian countries at similar stages of economic development, combined with national surveys on family planning, the conclusion should have been obvious. I argued in many articles and papers that births would not be as high as the official projection. However, I do think there’s a mindset problem with current policies. Given the low and quickly declining fertility rate, I don’t think there should be any restrictions at all on how many kids people can have, period.

Why do you think the number of births didn’t reach the expected level? What’s behind the declining fertility rate?

Zuo: I believe the impact of policy on people’s decisions was overestimated. Yes, policies can affect the fertility rate to some extent, but the impact is secondary compared to that of wider socio-economic change.

The fertility rate has been declining around the world for decades, regardless of the country’s income level. Behind this phenomenon is the vast movement of industrialization and urbanization. More women are entering the workforce and earning higher incomes; young people are financially strained by rising prices and poor employment prospects. Better social welfare means that old people don’t have to rely on their children after retirement and family values are changing rapidly. All these have contributed to lower fertility rates and will continue to do so in the foreseeable future.

What was your projection of population growth under the two-child policy? With the benefit of hindsight, what could have been done differently in your research?

Wang: I thought the annual number of births would be around 18 million in the best-case scenario, and no lower than 15 million in the worst case.

The actual number is at the lower end of the range, and may soon drop even lower. People of childbearing age are better educated, more likely to live in cities, and have different family values. I was aware that for the millennials and Generation Z, the willingness to give birth would be different from ten or even five years before. The projection was based on what past surveys told us.

There is some disagreement about China’s actual fertility rate. What is it really?

Wang: People have questioned the official fertility rate since the early 90s. At first, some suspected that local authorities concealed “illegal” births' under the one-child policy and kept the fertility rate artificially low. But there have been questions recently on whether the fertility rate is under-reported.

The fertility rate since 2010 is estimated to be 1.6. I thought after the passing of the two-child policy, there would be an immediate outpouring of pent-up demand from people who had always wanted a second child but couldn’t have one. But in reality, it was only in 2016 that the fertility rate ticked up to 1.77 before it quickly dropped again to around 1.5. I believe the decline will continue, to as low as 1.3 in the near future.

Zuo: Most researchers believe that China’s fertility rate hovers around 1.5. The number in 2019 can be even lower than that. We will have a better idea after the result of the 2020 census comes out. For a long time, the official number had remained around 1.8, which is simply implausible. It has been adjusted down since then.

Huang: If we take the 14.6 million births published by the National Bureau of Statistics, in 2019 the fertility rate was only 1.47. It is worth pointing out that half of the births are second children, meaning that a big percentage of the total births came from pent-up demand, because surveys show that only half of the families with children would choose to have another. Having only one child has become the default option for most families, in both cities and rural areas, so after pent-up demand wears off, the fertility rate probably will drop to 1.1, much lower than that of America, Europe, and Japan.

Is 1.5 an important threshold? Is China in a “low-fertility trap”?

Zuo: In demography, 1.5 births per woman is considered low, and 1.3 “extremely low.” The thresholds are somewhat subjective, but years of research have shown that few countries have managed to recover their fertility rate once it slipped under 1.5, even with population policies that aggressively encourage having children. This is the case in Japan, Korea, Singapore, and Hong Kong. It’s no coincidence. There are fundamental socio-economic reasons behind it.

For the population in a country to remain stable, a total fertility rate of 2.1 is needed. If the fertility rate is 1.4, in three generations the population will half, which can be a problem. Japan and Korea are already threatened by an upcoming population crisis. China will, too. It’s a remote, albeit real, existential threat for humanity.

Wang: It is an important threshold. It means the population halves every fifty years or so, which is not sustainable. Now it’s doubtful how much friendly population policies can help. China is certainly heading into the low fertility trap.

Huang: At first, the impact of the low fertility rate is only moderate. The overall population shrinks at a slower pace than the decline in total number of births, as long as older people are still alive. As the older generation dies off, the population would start to shrink at an accelerated pace. By the time the children born today are old, the total population shrinks as fast as the number of births.

Aging has is an urgent issue around the world. Some people think encouraging births will do very little to alleviate the problem. What do you think?

Zuo: Ageing cannot be solved simply with friendly policies. It is a global issue, and decades of population control have to some degree accelerated and exacerbated the aging problem in China. Back then in the 80s, the one-child policy was put in place as a brute-force fix to the economic and environmental pressures of an exploding population. But things have changed. China’s total population will start to decrease in the next five years, and the prime-age labor force (aged 16-59) has been declining by millions every year since 2012. In regions with stagnating economies, the central governments have handed out heavy subsidies to pension funds that are quickly draining. In richer areas, pensions will soon not be able to replenish fast enough either.

So, what do we do? First, we need to revoke any existing measures of population control as soon as possible. They are unnecessary and counterproductive given the current demographic situation. Second, we still need to encourage births by providing effective childcare support. And we need to invest more in education, including pre-primary education.

China now spends about 4 percent of its GDP on education, relatively low given our $10,000 a year GDP per capita, so we can definitely spend more. For pre-primary education, we need to make the decision whether the public or private sector should take the lead. If the government wants to take charge, then they need to step up spending. If we let the market figure it out, then we’ll have to make sure it’s affordable for everyone, not just the wealthy.

We have also adopted other country’s policies that give income tax credits to couples with children. Granted these can only encourage birth to a certain degree, but it helps improve the quality of the future labor force, which I believe is meaningful and worthwhile.

Wang: A friendly population policy will not fix population aging, but we can’t do nothing just because it’s not easy to fix the population structure. It’s like taking hypertension drugs — the drug will not cure the disease, but only manage it. Does that mean you should not take it?

Huang: Two factors contribute to the problem of population aging. The first is increasing longevity. The second is the decline in the working-age population. It’s a good thing that people are living longer. It’s an affirmation of our past social and economic progress. So, the real problem is low fertility, which threatens our future.

Decades of population control have kept the fertility rate suppressed. A shrinking working-age population will tip the balance of the social security system, and deprive the future economy of a young and plentiful labor force. That’s why we need to remove population controls. It won’t immediately fix population aging, but it’s about the long-term future of the country.

What’s the relationship between population size and innovation?

Zuo: No one really knows. Studies have shown that for an average person, creativity peaks around the age of 40. Ageist as it may sound, a population with a huge percentage of old people probably is not as innovative as it would be with a younger population. On the other hand, population aging can stimulate innovation in unexpected ways. A society grappling with the burgeoning burdens of elderly care will be more incentivized to find solutions. We’ll soon see how things unfold in different parts of the world.

Huang: Innovation comes from demand. A large, diverse, and dynamic market boosts competition, incubates talent and creates new demand in more new areas. Also, in areas that require intensive early-stage capital investment, such as artificial intelligence or new energy, populous countries with a large and vibrant economy are more likely to come up with the massive financial, technological, and social resources needed.

Not everyone agrees with this. Switzerland and Scandinavian countries are very small, but they are rich and technologically advanced. This, however, does not run counter to my argument. Their achievements are, in fact, the due result of their close connection to the EU, in which commercial, academic, and cultural exchanges take place in a pretty much borderless fashion.

This shows the importance of connectivity. The easier it is for people to connect with each other, the wider their interpersonal networks, the more knowledge sharing and idea exchange. I have believed in this since when I was studying in the US, and I’ve seen this happening now in China too.

What’s next for population policy?

Zuo: I think we should strive for “reproductive autonomy.” Each couple should decide for themselves when to have children and how many to have. And as soon as possible. The two-child policy emerged very quickly, and I believe we can do it again. We should focus on encouraging births and improving the quality of the labor force.

Huang: I believe all restrictions should and will be removed. Low fertility is a time bomb. Next year’s census data will give policymakers a better idea of specific steps. But the urgency of encouraging births is plain to see.