Economics

Schroders Quickview: Will the end of China's one child policy spark a demographic boom?

Given the high cost of raising children in China, we do not see a demographic boom resulting from the end of the government's one child policy.

29/10/2015

Craig Botham

Craig Botham

Emerging Markets Economist

Fiscal costs of social engineering

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.

The bigger cost for China is fiscal, as its dependency ratio worsens to developed market levels even as incomes remain in emerging market territory.

This will result in a painful fiscal burden for China, and it is not clear how it will be tackled.

Boosting the fertility rate would 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.

Demographic boom unlikely

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 raising 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 change.

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