FROM ONE TO THREE

China is facing an uphill battle to alter the demographic composition of its society. The country's declining fertility rate, coupled with an aging population and a shrinking labor force, has prompted the Chinese government to implement new policies to address these concerns. One of them is the three-child policy, which aims to encourage couples to have more children and mitigate the negative effects of a declining population. This policy change is possibly a reaction to the findings of the 2020 census, which revealed a notable decrease in population growth. In this context, it becomes crucial to examine the reasons behind China's demographic challenges and the potential impact of the three-child policy on the country's population dynamics and future development.

China's Population Dynamics

The implementation of the one-child policy in 1979 significantly influenced China's population trends, leading to various consequences such as fines, employment loss, forced abortions, and a severe gender imbalance. The preference for male children resulted in cases of abandonment, sex-selective abortions, and female infanticide, creating difficulties in the marriage market. Although the Chinese government relaxed its one-child policy in 2016, allowing couples to have two children, this change did not reverse the declining birth rate, except for a temporary increase in the following years.

Over the past 10 years, the average annual growth rate declined from 0.57% between 2000 and 2010 to 0.53%. As a result, China's total population now stands at 1.41 billion. The census findings have put pressure on the government to introduce measures aimed at encouraging couples to have more children and avoid a population decline. The 2020 census, conducted by approximately seven million census takers, provides crucial information for understanding China's population dynamics and planning for the future. Despite a decline in the number of newborns, with 12 million babies born in China last year compared to 18 million in 2016, this figure is still significant.

While birth control policies have been criticized for the decline in birth rates, it is important to recognize that lifestyle choices and economic considerations also influence people's decisions. The prospect of a shrinking population raises concerns about an inverted age structure, where the elderly outnumber the young. This situation poses challenges in terms of future labor availability and increased demand for healthcare and social services.

According to the census data, there has been a decline of 40 million people in China's working-age population (individuals aged between 16 and 59) compared to the previous census in 2010. Despite this decline, the total size of the working-age population remains substantial, with 880 million individuals. Economists emphasize that continued decreases in the labor force will limit China's potential economic growth, as the demographic dividend that fueled the country's economic rise is expected to diminish rapidly. These population trends have significant implications for China, considering its status as the world's most populous country and its efforts to stimulate domestic consumption for economic growth. Recognizing the challenges posed by an aging population, China's leaders have contemplated raising the retirement age to address associated demands and costs, potentially extending the working life of the country's workforce.

China's Approach to Boosting Birth Rates and Supporting Families

Various financial incentives have been introduced across regions in China to encourage couples to have more children. These incentives aim to alleviate the financial burden associated with raising children and provide support for families with multiple children. By providing financial assistance, improving maternity and parental leave policies, and enhancing child care services, the government seeks to encourage higher birth rates and ensure a sustainable and balanced population growth in the face of demographic challenges.

For example, in Linze County, Gansu province, couples with two or three children are eligible for a real estate subsidy of $6,200. Cash subsidies of up to $1,500 per year per baby are also offered to families with two or three children. In Beijing, mothers giving birth to a third child receive an additional 30 days of parental leave, with the possibility of further extension with employer agreement. Beijing is also planning to introduce additional incentives aligned with central government regulations. In Yueyang, the city statistics bureau proposes free compulsory education from preschool to high school for all children in three-child households, aiming to reduce education expenses. Subsidies for prenatal testing and childbirth are also suggested in Hunan Province. The central government is working on improving child care services and considering measures such as tax cuts, housing subsidies, and abolishing fines for exceeding the child limit. Couples in Huangzhugen village, Guangdong, can receive monthly subsidies of up to 3,300 yuan for their newborns until they reach 2.5 years old, as part of a local family planning policy. However, the subsidy is limited to permanent village residents who breastfeed and work within the village. In Gansu, a county has become the first in China to offer a real estate subsidy of up to 40,000 yuan to couples who have two or three children under the third-child policy.

Other regions have implemented their own incentives as well. Hangzhou offers a one-time subsidy of 20,000 yuan for couples having a third child, while Shenzhen provides a cash allowance of 19,000 yuan for couples with a third child or more. In Jinan, a child care subsidy of 600 yuan per month is offered to women who give birth to a second or third child. Additionally, mothers are granted a maternity leave period of 158 days for each child, while fathers are guaranteed at least 15 days of leave. Moreover, parents with children under the age of three have the opportunity to take annual parental leave for a duration of 10 days or more. The local government of Jinan has further introduced favorable policies regarding housing, healthcare, and education, specifically tailored to support families with more than one child. And Panzhihua in Sichuan province offers monthly subsidies of 500 yuan for second or third children until the age of three. Yichang in Hubei province provides a childcare subsidy of at least 500 yuan per month for eligible families with two or more children.

The central government has stepped in as well, offering financial incentives for families who have three children. The State Council of China has established a special additional deduction for personal income tax to support the care of infants and young children under the age of 3. Starting from January 1, 2022, taxpayers can deduct 1,000 yuan per month for each child, providing financial assistance to parents in their child care responsibilities. Parents can choose to deduct 100% of the standard or split it equally at 50% between both parties. This initiative aims to promote balanced population development and optimize childbirth policies in line with the government's objectives.

To develop an inclusive child care service system, various support policies and standard normative systems will be established and improved. This includes incorporating infant care services into development planning, supporting social forces' participation, and developing new formats such as smart childcare. Inclusive childcare services will be vigorously developed, utilizing the central budget and encouraging participation from state-owned enterprises and other entities. Community childcare service facilities will be improved, and care models such as intergenerational care and family mutual assistance will be supported.

The Chinese government recognizes the need for substantial investment to counteract the projected decline in the labor force and mitigate the economic consequences. Estimates suggest that an investment of over $5,000 per birth annually would be required. This investment not only aims to address the demographic challenges but also reflects the government’s social responsibility towards working Chinese women.

But, the effectiveness of the new three-child policy in China has been called into question, given the limited impact observed from the previous two-child policy. Despite the relaxation of birth restrictions, there has not been a substantial increase in the number of births. This lack of response can be attributed to various factors, including financial constraints and the absence of comprehensive support systems that discourage couples from having more children.

Societal and Economic Challenges

Firstly, the high cost of living, including expenses related to housing, education, healthcare, and other necessities, places a significant financial burden on families. The need to provide quality education for each child can stretch family budgets to their limits and potentially hinder couples from considering having additional children. Financial constraints, combined with career aspirations and work-life balance challenges, may contribute to the failure of policies aimed at encouraging childbirth to achieve their intended objectives. These financial pressures make it challenging for couples, especially in urban areas, to afford the costs associated with raising children. For instance, a recent survey conducted in 2022 revealed that a substantial portion of parents in China reported spending between 1,000 and 3,000 yuan per month on their children's education. The rising cost of living, particularly in terms of education and healthcare expenses, has made it increasingly challenging for families to provide for their children's needs. This financial strain acts as a deterrent, leading many couples to have fewer children or delay starting a family. 

Furthermore, the pressures of modern life contribute to the reluctance to have more children. Young individuals and couples face intense competition in the job market as they strive to establish successful careers while maintaining work-life balance. The pursuit of higher education and career advancement often takes precedence over starting a family. The demanding nature of work, coupled with long working hours, further diminishes the desire to have children. The challenging work culture and the associated struggle to maintain a healthy work-life balance create additional barriers to starting a family. Balancing the demands of a career with the responsibilities of raising a child becomes increasingly challenging, leading some individuals to delay or forgo having children altogether.

The 2020 census revealed a troubling trend in the number of births, reaching the lowest recorded level since the 1960s. This comprehensive census data serves as a crucial resource for future planning and sheds light on the urgent need for policy adjustments. The decline in birth rates in China can be attributed, in part, to the long-term effects of the One Child Policy implemented from 1980 to 2016. While the Chinese government has shifted its policy in recent years to encourage childbirth, the effects of decades of strict birth control measures are still being felt. The policy was a response to China's history of food shortages and devastating famines that claimed millions of lives in the late 1950s and early 1960s. This policy was implemented due to concerns about population growth and aimed to limit couples, particularly those of the ethnic Han majority, to having only one child. Data from the United Nations Population Division reveals a consistent decline in China's labor force growth rate. Between 1970 and 1995, the growth rate reached its peak at 3.1% during two periods, with an overall rate of 2.8%. However, from 1995 to 2015, the growth rate slowed to 1.2%, and projections suggest a negative growth rate of 0.1% by 2020. This decline in population growth is reflected in China's fertility rate, which dropped to 1.3 births per woman in 2020. The consequences of the One Child Policy are still evident, particularly in rural areas of China where limited access to education contributes to lower birth rates. Improving educational opportunities, especially in rural regions, is vital for addressing labor challenges and avoiding potential economic pitfalls.

Additionally, societal factors influence the decision to have children. Young Chinese individuals are marrying later, having fewer children, or choosing not to have children at all. The declining marriage rate and the trend of delaying parenthood contribute to the overall decline in birth rates. This shift in attitudes towards marriage and parenthood is influenced by generations of living without siblings and enjoying the benefits of affluence. Furthermore, societal expectations and aspirations have changed, with an emphasis on personal growth and individual success in urban areas. The severe gender imbalance resulting from the previous one-child policy further complicates the issue, making it challenging for men to find partners and form families.

Moreover, the intense competition for jobs and the demanding work culture in China affect decisions regarding starting a family. Many young couples, especially in urban areas, face intense work pressures, long working hours, and a competitive environment. Balancing the demands of a career with the responsibilities of raising a child becomes increasingly challenging, leading some individuals to delay or forgo having children altogether. Women's economic empowerment also plays a crucial role, as increasing educational opportunities and career prospects prompt women to prioritize their professional goals and financial independence. However, societal expectations often place the burden of childcare and domestic responsibilities primarily on women, creating a dilemma for ambitious women who fear that having children may hinder their career progression or limit their opportunities for growth.

Furthermore, the hukou system, which ties access to social services to an individual's registered residency, can impact decisions regarding childbearing. Migrants from rural areas face challenges in obtaining hukou status in urban centers, limiting their access to services for themselves and their children. This creates financial and logistical barriers to raising a family and may discourage couples from having children.

To address the declining birth rate, the Chinese government has implemented various measures and incentives to encourage couples to have more children, such as extended maternity leave, childcare subsidies, and financial support. However, addressing the challenges posed by the declining birth rate requires comprehensive and ongoing efforts. The high cost of living, pressures of modern life, long-term effects of the One Child Policy, changing attitudes towards marriage and parenthood, financial constraints, career aspirations, and societal expectations collectively contribute to the complexity of the issue.

Demographic Transition for an Economic Outcome

China is currently undergoing a demographic transition that poses a significant challenge as it endeavors to transition its economy from an export-led growth model to a consumption-led growth model. This transition is primarily driven by the evolving demographic structure of the country, characterized by a declining birth rate, an aging population, and the consequential dynamics affecting the labor force.

For several decades, China's economic growth has heavily relied on its export-oriented manufacturing industries, which have thrived due to the availability of a substantial and cost-effective working-age population. This demographic advantage has attracted foreign investments and fueled the production of goods for export. However, with the decline in the birth rate and the progression of population aging, the sustainability of this export-led growth paradigm is becoming increasingly uncertain. The declining birth rate contributes directly to the contraction of the labor force as fewer young individuals enter the labor market to replace retiring workers. This demographic shift results in a diminished supply of available labor, which poses considerable challenges for industries reliant on a sizable and productive workforce. Moreover, factors such as the hukou system and work-life balance considerations, previously discussed, further exacerbate labor shortages by discouraging individuals from participating in the labor force or seeking full-time employment.

In response to these challenges and in pursuit of sustained economic growth, China is pursuing consumption-led economic growth. Recognizing the significance of stimulating domestic demand, encouraging consumer spending, and reducing dependence on exports, the Chinese government aims to foster a more balanced and sustainable economy that is less susceptible to global market fluctuations. This shift towards consumption-led growth necessitates efforts to incentivize Chinese consumers to increase their expenditures on goods and services, thereby stimulating domestic industries and fostering innovation and entrepreneurship. Particularly noteworthy is the burgeoning middle class in China, which presents substantial opportunities for heightened consumer spending. Rising incomes and aspirations for higher-quality products and services among this demographic segment are key drivers of demand. Nevertheless, the transition to a consumption-led growth model is not without challenges. Addressing income disparities, enhancing social welfare systems, and transforming deeply ingrained cultural and behavioral patterns that traditionally emphasize saving over spending are vital considerations for successful implementation. Additionally, the declining working-age population and the escalating number of retirees impose significant pressures on healthcare systems, pension funds, and social welfare programs, necessitating meticulous planning and comprehensive reforms to ensure sustainable support for an aging population.

In recent years, China has experienced a persistent decline in its birth rate, resulting in a noteworthy reduction in the total fertility rate. The rate dropped from a level of 2.6 in the late 1980s, which was well above the replacement level of 2.1 required to sustain population levels, to a mere 1.15 in 2021. This declining trend in birth rates, coupled with a progressively aging population, presents significant challenges for labor force dynamics and the overall economic framework. Projections provided by the World Bank indicate that China's working-age population reached its peak in 2014 and is anticipated to decrease to less than one-third of that peak by 2100. This implies that the current ratio of approximately 100 working-age individuals supporting 20 elderly individuals will shift significantly, requiring approximately 100 working-age individuals to support as many as 120 elderly individuals by the end of the century. The annual average decline of 1.73% in China's working-age population sets the stage for considerably lower economic growth, unless accompanied by substantial advancements in productivity. Consequently, the rapidly diminishing labor force is expected to lead to higher labor costs, thereby compelling labor-intensive industries with narrow profit margins to relocate their operations from China to countries such as Vietnam, Bangladesh, and India, where low-cost labor remains abundant.

China's transition towards a consumption-led growth model presents an urgent imperative for the country. The declining birth rate, coupled with an aging population, poses challenges to the labor force and overall economic structure. Projections indicate a substantial decrease in China's working-age population, emphasizing the need for transitioning to a consumption-led growth model to mitigate the labor force deficit and ensure sustainable economic development. To address these challenges, China must focus on stimulating domestic demand and fostering consumer spending. By encouraging individuals to spend more on goods and services, the country can navigate the effects of a shrinking labor force and mitigate potential economic repercussions. This transition requires paying attention to socio-economic and cultural factors influencing consumption patterns. This shift will enable China to counterbalance the labor force deficit, secure long-term growth prospects, and ensure sustainable economic development.

The Way Forward

China's response to its demographic concerns has resulted in the implementation of numerous family planning strategies, ranging from the one-child policy to the more recent three-child policy, all aimed at addressing population-related issues and supporting sustainable development. Family planning policy dynamics and individual decisions are intricately intertwined and impacted by a wide range of factors. Recognising the complexities, the Chinese government works to develop comprehensive measures that take into account economic, sociological, and cultural facets in order to encourage higher birth rates and mitigate the long-term effects of demographic decline. Although what lies ahead is multifaceted, these numerous initiatives raise the likelihood of success in reviving the country's demographic landscape, enhancing the chances for a stable population in the future.