30th October 2015
Simply removing the one child policy may not be enough and China may need to develop better welfare and education policies argues fund firm Schroders.
Craig Botham, Emerging Markets Economist, Schroders says: “The end of the one-child policy is an announcement with great political significance but little immediate effect. The deleterious impact of one of history’s most successful social engineering attempts is already assured, with a 3% decline in China’s working age population projected between 2015 and 2030 by the UN. However, our analysis suggests that this decline will have a very small impact on growth, detracting between 0.1 and 0.3 percentage points per annum from growth over that period.”
He says the bigger cost for China will be fiscal, as its dependency ratio worsens to developed market levels even as incomes remain in emerging market territory. Botham says this will result in a painful fiscal burden for China, and it is not clear how it will be tackled.
He adds: “Boosting the fertility rate would definitely help, but it is not certain that ending the one-child policy will be effective. Previous relaxations have seen relatively limited uptake – the last, in 2014, made 11 million couples eligible for a second child, but only 1 million applied to do so. 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.
“Ultimately, the cost of raising children needs to be reduced. This will require the provision of high quality and affordable – preferably free – education and childcare, and likely also an overhaul of the welfare system altogether. In particular, at present 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. This adds immensely to the cost of 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.”