The one-child policy had limited impact on growth
While the Chinese experiment looks appealing from a social planner’s perspective, its follies are now becoming apparent
After four decades of population control, the concerns of an ageing population have caught up with the Chinese. This week, there have been reports suggesting that it will likely phase out population controls in 2019. The change is unlikely to reverse the rising age-dependency among the Chinese, whose working-age population peaked in 2014. But the Chinese experience holds valuable lessons for other developing countries that are experiencing declining fertility due to economic growth.
The one-child policy was implemented by Deng Xiaoping in 1979, at a time when China was home to a quarter of the world’s population, and two-thirds of it was under 30 years. The children born during the high fertility years—six births per woman—of the early 1960s were entering their reproductive years. Xiaoping saw it as a complement to the economic reforms he was introducing to push China out of mass poverty.
A large, young population together with economic liberalization became the foundation for three decades of economic growth in China. In 2011, China surpassed Japan to become the second-largest economy at market exchange rates, and 2016 World Bank data shows it’s already ahead of the US in purchasing-power-parity dollars.
But the allowance for two children in late 2015, and the probable removal of population control measures, is a silent admission that the policy that ostensibly contributed to this growth is coming back to bite China. Its fertility rate was around 2.7 at the end of the 1970s, and dropped to 1.57 in 2015. That is far less than the rate of replacement—the fertility rate needed to hold the population size constant—which is 2.1. That means even if the fertility rate increases by 0.7 percentage point (which is an optimistic number), China’s total population would peak in 2030, at approximately 1.46 billion.
The composition of the population is, however, changing unfavourably.The working-age population, which peaked in 2014, is at present below 2010 levels and is expected to shrink by 23% by 2050. On the other hand, increasing life expectancy means that the aged will go on to live longer lives, further stress-testing the nascent Chinese social security system.Thus, while the Chinese experiment looks appealing from a social planner’s perspective, its follies are now becoming apparent.
Would China’s decline in fertility have happened if there was no government ceiling? Between 1970 and 1978, economic growth was slow, but the overall fertility rate declined from 5.8 to 2.7, largely due to a family planning campaign. Between 1978 and 1995, after the one-child policy, it dropped further to 1.8. But China grew fast in this period, and countries which did not adopt the one-child policy also saw their fertility rates fall, albeit more slowly. By 2010, the fertility rates in South Korea and Thailand were as low as China’s. But the delay in their fertility decline allowed a staggered fall in youth population which will create a more sustainable decline in working-age population. The sudden fall in Chinese fertility, on the other hand, will hasten the increase in the proportion of the elderly.
Sooner or later, the problem of population ageing is going to affect every developed country. Europe is well and truly in population decline, and government debt is already at unsustainable levels due to unfunded liabilities, primarily due to social security. The US, with a fertility rate of 1.76, has been an outlier in the developed world because it has historically been open to immigrants, whose fertility rate is also higher. Australia has not had a recession in the last three decades, despite stagnant per-capita output, because of its rapidly increasing population, which has grown 50% in that period. This success, however, is difficult to emulate for homogenous, and inert, societies like China. Japan, another ageing and inert nation, has struggled to build political support for immigration.
The immensity of the ageing problem should make it obvious that India has a massive demographic advantage. It has a growing share of working-age population, at the same time as China’s is declining; and the country’s median age is only 27, against China’s 38.
But while China managed its demographic dividend by transitioning to stable jobs in manufacturing, the share of manufacturing jobs in India has remained stagnant in the last three decades, at 10%. Moreover, the share of labour-intensive jobs within manufacturing, such as textiles and leather, has actually shrunk. As the economy struggles to create formal sector jobs, India is creating an army of peons, guards and delivery boys.
What the Chinese economic success has shown is that a burgeoning population can be the source of economic prosperity, if accompanied by economic liberalization. India, on the other hand, will squander its demographic advantage if it doesn’t act on key policy challenges in its labour, land acquisition and trade policy.
Will China be able to reverse the decline in population? Tell us at email@example.com
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