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13 Feb. 2018 | Comments (0)

Despite the end of the one-child policy in 2016 and hopes of a new “baby boom,” the reality is that China’s attempt to politically re-engineer its demographic outlook will require decades, not years. Even if the new two-child policy results in moderately increasing China’s fertility rate over the long-term, it won’t alter the medium-term workforce trends irreversibly set in motion by past birth patterns, chief among them a quickly decreasing labor supply, a large bulge of low-skilled, elderly workers, and two big “baby boom” retirement waves.

Please click here to read our full brief summarizing our thinking on China’s population and workforce trends, and outlines the potential impacts on MNC business in China. The abandonment of the one-child policy will have little material effect on the Chinese economy, either in the consumption or labor market spheres, for at least another decade. However, we do see several near- to medium-term business impacts that warrant planning consideration, if birth rates surprise to the upside, including tighter labor markets and pressures for improved healthcare and education benefits.

Our Key Takeaways are as follows:

The latest NBS data indicate that the 2016 baby boom was short-lived. In 2017, the number of newborns decreased by 624 thousand, a decline of 3.5 percent over 2016. This does not bode well for China’s plan to politically re-engineer its demographic outlook. We predicted this outcome in our research note of September 2014, “No baby boom, but a baby bump”.

Even if the new two-child policy, fully implemented as of January 1, 2016, results in moderately increasing China’s fertility rate over the long-term, it won’t alter the medium-term workforce trends irreversibly set in motion by past birth patterns, chief among them:

1. A quickly decreasing labor supply, particularly in the younger age groups. It will take at least two decades before any positive effects from the two-child policy will manifest in tertiary enrollment or in the labor market— provided that Chinese couples choose to have more children – a scenario which isn’t likely.

2. A large bulge of low-skilled, elderly workers, many of whom will likely be displaced in future job markets. This will add pressure on China’s lowly and acutely underfunded social welfare programs.

3. Two big “baby boom” retirement waves are forthcoming. Worker dependency burdens to support aging parents and grandparents will only intensify, especially for one-child families. This will cause significant workforce anxiety and increasing demands on employer for improved benefits.

The two-child policy change is not enough to spur fertility rates. Incentive structures, not policies, are what compel couples to have more children. The experience in other countries with rapidly aging populations shows that policy interventions rarely work to reverse low fertility levels. “Easy-fix” policies, like better maternity benefits and basic financial incentives for child bearing, are unlikely to suffice in China (in fact, China already has relatively generous paid maternity policies in place, ranging from 128 days to up to one year depending on the province). Strategies need to focus on reducing the key barriers to child bearing in urban areas, in particular excessive costs for education and healthcare, and skyrocketing home and rental prices.

We assert that the abandonment of the one-child policy will have little material effect on the Chinese economy, either in the consumption or labor market spheres, for at least another decade.

However, we do see several near- to medium-term business impacts that warrant planning consideration, if birth rates do indeed surprise to the upside. This outcome would –

1. Exacerbate tightening labor market conditions, assuming that a significant number of working parents, predominantly women, would move out of the workforce to accommodate child raising responsibilities;

2. Drive demand for better healthcare, education, and other employer benefits due to an even larger dependency burden for Chinese workers; and

3. Generate growth opportunities for child rearing-related commercial sectors

  • Posted by Anke Schrader

    Anke Schrader

    Anke Schrader leads the research of The Conference Board China Center for Economics and Business on corporate citizenship, sustainability, and human capital. Her current research interests include cor…

    Full Bio

  • Posted by Melinda Zhang

    Melinda Zhang

    Melinda Zhang is a research analyst for The Conference Board China Center for Economics and Business, based in Beijing. Her research focuses on the The Conference Board Leading Economic Index® (LE…

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