China Runs Out of Children

Much has been written about China's future demographic crisis, summed up by the words "China will get old before it gets rich." But it is seldom realized just how close China is to a tipping point – it is this year.

The workforce participation rate (percentage of the population aged 15-64 inclusive) peaks in 2010 at the astonishing level of 71.9 percent. The total working age population will peak five years later at 998 million, an increase of only about 25 million or about 0.5 percent annually. Those are not forecasts. They are already baked into the age statistics.

Workforce participation is set to decline only very slowly until well after 2020. But the impact of demographic change on economic growth is now. It is often forgotten how much growth during the reform period of the past 20 years been contributed by workforce expansion traced to the bulge in births in the years immediately before the introduction in 1980 of the draconian one-child policy. The workforce grew by no less than 33 percent to 973 million over that period and the participation rate went from 66.1 percent to 71.9 percent of the population.

Of course China is still relatively young with a median age of 31.3 compared with 36.7 in the US, 39.0 in Singapore 39.4 in France, 43.8 in Germany and 44.3 in Japan. The problem of a large population over 60 will not seriously impact China for another 25 years so change may not seem very dramatic. But its median age will now be rising rapidly, hitting 37.5 by 2020 and 42 by 2030.

Of course China still has huge scope for raising the productivity of its workforce, particularly those underemployed on farms. But much of the driving force in urbanization has come from the mobile young. The middle-aged rural poor do not move. Yet there are now only 106 million in the 15-19 age group – those joining the workforce – compared with 122 million in the previous cohort. This, as well as better job prospects in central and western China, is a major reason why manufacturers are finding it increasingly difficult to attract migrant labor to the Pearl River delta without offering wage increases that endanger their export competitiveness.

The underlying cause of declining fertility in China now is not the one child policy but the combined impact of market forces and urbanization. The end of socialism brought the end of much welfare, making the direct cost of raising children much higher due to school fees and medical costs. It also spurred families into saving for house-buying old age. Thus children became relatively more of a burden on household finances. Drastically increased opportunities for wage employment, especially for women, also raised the opportunity cost of children and added to the lure of a consumer society wanting the latest gadgets.

While some Chinese officials acknowledge how serious the fertility problem has become there is also resistance on the part of officialdom to anything which detracts from investment or suggests welfarism – though actually a replacement level of births should be regarded as the most important investment in the future, not as current consumption.

Even if China now reverses its one child policy it seems unlikely to have much impact. Shanghai has being easing the policy's application for several years but to no effect. Its current fertility rate is just 0.7, or one third the 2.1 needed for human replacement. China indeed looks headed to follow the examples of Hong Kong, Taiwan, Japan, Korea and Singapore which have seen fertility rates keep falling to the 1.1-1.3 range compared with China where the overall rate is still about 1.7.

East Asia's record is even worse than Europe despite official efforts to raise fertility through tax breaks, ethics lectures and nationalist slogans. The only developed countries with rates close to replacement levels are the US, where a high migrant intake also helps sustain fertility rates, and New Zealand, as well as some countries in northern Europe, including France and Sweden, with very generous levels of maternal support -- and high proportions of children born out of wedlock as women's economic independence gives them an ability to decide when and by whom to have children.

China, with few social security structures but a tradition of male dominance, is in no place to do likewise. It lacks genuinely equal job opportunities for women, extended maternity leave, big cash child allowances, government provisions or subsidy for crèche and nursery facilities, job security for pregnant women and nursing mothers. These may come but will take time which China may not have.

In Taiwan and to a lesser degree Korea, the reluctance of women to marry has led many men to seek wives from elsewhere – particularly Vietnam but including the Philippines. Hong Kong men have acquired them from the mainland. Imported wives tend to have more children. Singapore, worried about the burgeoning population of the surrounding Malay states and the effect on its predominantly Chinese population, has probably tried hardest, largely to no avail. It has instead resorted to bringing in ethnic Chinese immigrants from the mainland and Malaysia. But the sheer size of China's population means, plus its sense of ethnic homogeneity, this could not have more than a very marginal impact, particularly as due to demographic change elsewhere only the Indian subcontinent would be a major new potential source.

Despite the low fertility rate according to the UN's medium variant of population prospects, China's population will continue to rise slowly until peaking in 2030 at 1.462 billion (compared with 1.354 billion today). However, this seems more likely to be an over- rather than underestimate as it assumes some recovery in fertility. At present fertility rates (2005-10 average) the peak will be 1.449 billion. The UN's low variant has the peak at 1398 billion as soon as 2020.

At least as important as the age distribution, however, is the level of workforce participation overall and the percentage of young workers within that. As of now, the largest single age cohort is in the 20-24 group – 122 million, which should be reaching maximum productivity over the next decade. However, close behind in terms of numbers is the 40 to 44 age group who will be exiting the productivity range over that same period.

Only 8.2 percent of Chinese are now 65 years old or more. But the numbers in percentage terms are set to grow steadily year by year, reaching 11.7 percent by 2020 and 16.1 percent by 2030 at current fertility levels. Of course demography forecasts are hazardous and the projection at 23.9 percent will be 65 by 2050 may prove exaggerated. However, there is little now to stop the projections for 2020 being reached. Even if there is some recovery in the birth rate it would likely be at the expense of the active workforce as more women tend to their offspring.

Continuing urbanization will continue to reinforce these factors at least for the next decade. Meanwhile rural areas where higher fertility is the norm are seeing a steep decline in the numbers of people of child-bearing age.

China's experience is thus no different from elsewhere in east Asia except that the demographic transition has come much faster due first to the one child policy then to very rapid urbanization. But China also has another huge negative factor not present in most countries: the extreme sex imbalance which has developed over the past 15 years and is continuing despite official efforts to stop it.

An excess of men in the latest age cohorts – 81 women for every 100 men in the 0-9 age bracket -- does not just mean that there will be fewer women around to have babies. It will also likely raise the economic value of women, particularly combined with improved education, thereby making them more likely to stay in the workforce than marry, and to be much choosier about when and to whom they marry.

According to one survey, 45 percent of women do not want to give up careers in order to marry and have children. While there has been some discussion of the potential social ills of gender imbalance, the fertility impact is important too.

China will also need to ditch its official attachment to "Confucian values" which are supposed to be uplifting but are not entirely suited to a non-feudal society. Confucian-derived male supremacy is a key factor in the gender imbalance and the low representation of women in the Communist party hierarchy.