The People’s Republic of China’s recent change in population policy aligns with its worry about future national demography. The announcement came on May 31, 2021, following a Chinese Communist Party Politburo meeting which was chaired by President Xi Jinping. According to China’s latest census, there were 12 million births in 2020 which is to date the lowest since a famine in the 1960s. The decision to break the shackles of the One-Child Policy comes at a point where China’s fertility rate has dropped to 1.3 per woman against the global fertility rate which is averaging at 2.5 children per woman. Additionally, the party has also announced supportive measures to address educational and housing costs along with strengthening maternity leave policies, in order to ease the financial burden of raising children.

The Three Child Policy has been welcomed with scepticism, apprehension and intense debate among Chinese netizens. The following article delves deeper into understanding the rationale behind implementing the policy and its long term implications on China’s demographics and macroeconomic profile. 

Major Throwback: Pitfalls of One-Child Policy

The One-Child Policy, introduced under the regime of Deng Xiaoping in the 1970s was instituted when the population was impoverished and growing rapidly, while the society underwent massive economic and political transformations. China’s One-Child Policy, which claimed to be one of the most instrumental policies for demographic engineering, has turned out to be one of the worst demographic disasters of the world. The policy compelled Chinese families to raise only one child which coerced women into having abortions and sterlizations through social and psychological pressures and encroached on the human right to reproduce. It led to heavy displacement and migration of people with families attempting to shift to Hong Kong to escape from the heavy penalties that were imposed on producing a second child. Many Chinese women were paying whopping amounts close to 50,000 US dollars to have another child in the United States to avoid the harsh repercussions of the policy.

The policy created severe gender disparities which paved the way for socio-economic problems in the country. China’s sex ratio was 106:100 at the onset of the policy in the 70s, which rose to 111 in 1990 and 121 by the end of 2005. In some rural areas, the sex ratio was as high as 130, implying that there were 30 million more men than women by the end of 2010. The main reason behind this disparity was the desire to have boys so that the family lineage continues. Preference for sons led to unprecedented abortion of baby girls and infanticides which also accounts for the unnatural sex ratio China has. Given that tens of millions of boys would never find a bride, this led to higher levels of social unrest, sex trafficking, kidnapping and other forms of misconduct undertaken by men who wanted to experience intimacy in some way. Women from neighbouring countries such as Myanmar, Laos, Singapore and Vietnam were trafficked into China for commercial sex exploitation in growing numbers. 

While China’s population policy averted the increase in population of some hundreds of millions of people, it eliminated hundreds of millions of potential labourers from the workforce at the same time. In 2003, the shortage of migrant workers began to affect China’s southeastern coastal areas; in 2004, this was felt mainly in the Pearl River Delta in Guangdong Province and Fuzhou and Xiamen in Fujian Province. In 2005, the shortage started becoming prominent in the Yangtze River Delta and the northern coast. Hunan and Jiangxi, big provinces that export a lot of labor, suffered from massive recruitment difficulties.

The policy created a financial burden for both the government and the citizens. The government was spending close to 4 percent of its GDP annually on the enforcement policies and procedures of the grave policy. By being the sole breadwinner of the family, it became practically impossible for Chinese citizens to manage the household, take care of ageing parents and improve the overall standards of living. Many families were forced to live with both sets of grandparents which ultimately resulted in 3-4 generation households living under the same roof. The financial burden increased exponentially for parents who had lost their child in any tragic event leaving behind no source of livelihood for them. 

The policy increased economic differences between the rich and the poor leading to class inequalities in the society. The policy did not affect the wealthy families as they would pay the fine for having more than one child but people hailing from the middle class and the lower strata of the society found it difficult to pay the fine and hence would find their property getting seized if caught having another child. Other grave consequences even included excruciatingly long jail times which were imposed in extreme circumstances. Having a second child was almost considered a luxury that can only be borne by the rich. Therefore, poor families had no option but to abandon their second child. 

The road ahead: Will the Three Child Policy resolve the issue?

This is not the first time that the Chinese government has repealed its existing policies to bring greater demographic transitions in the economy. In 2016, China replaced the decades-old One Child Policy with a two-child restriction to mitigate the economic risks proposed by an ageing population. After increasing the limit to 2 children per couple, China saw a short term increase in the number of births only for two years, before continuing to decline.

According to Moody’s Investor Service, the decision of allowing couples to have three children shall only encourage fertility but will have no bearing on the national birth rate. This means that the problem of ageing shall persistently continue. The two main reasons which explain the discrepancies between fertility rates and family planning measures are education and real estate. The competitiveness of China’s education system requires an exorbitant spending on extracurricular education such as after school tutoring. Similarly, real estate has become increasingly unaffordable in recent years in China. For example, the average cost of an apartment in Shenzhen is 43.5 times the average disposable income of its residents. Additionally, the country’s pervasive culture of long working hours and the strains inflicted on working women while raising children will force families to devote all their resources to raising one child rather than three children. 

The three child policy can also create gender imbalances at the workplace with companies assuming that women need more children and would hence opt for more male candidates to dodge the maternity costs. Nationwide imposition of this policy shall still lead to violation of human rights as the state shall continue to hold a grasp over reproductive rights. Lastly, having three children will also have generational consequences as the paucity of good quality care homes for elderly people will increase the burden of care on all generations. 

If the aim of the new policy is to increase birth rates to augment the future labour supply, it would take many years for its effects to be seen. China’s initial growth was driven by low-skilled manufacturing labour; given that the future lies in skills and technological innovation, it would take a minimum of twenty years or so for the increased births of today – assuming that they shall be entering the workforce as skilled labour. 

The fact that fertility rates had dropped despite the introduction of the two child policy hints that this might not be the way for the government to resolve the perceived problem of an ageing population. It is anticipated that the government might increase the retirement age, from 60 to 64 years for men and 55 to 63 years for women, to keep people in the labour force for a longer time. However, such a move will only lead to unforeseen consequences such as reducing the childcare provided by grandparents which will, in turn, cause downward pressure on fertility rates. Instead, to deal with the current labour shortage problem in some industries, China can opt for global outsourcing by expanding supply chains to different countries with better demographic profiles. This will ensure that Chinese companies reap the advantages of cheap labour and maintain their competitive edge. 

China’s experience is a reminder of the unintended social and economic consequences that state- lead demographic interventions can have on society. Given that demographic changes take time to develop, the looming demographic crisis and China’s inaction towards the same has already proved costly and shall continue to grow if it persists longer. 

Om Agarwal is a third-year student at Ashoka University majoring in Economics and Finance.