Tackling the demographic headwind

Reducing the financial burden on families could boost China’s fertility rate and so help offset the challenge of the country’s rapidly aging population

China’s total fertility rate fell below the replacement level of 2.1 in the mid-1990s. In 2020, it was merely 1.3. The low fertility rate, together with rising life expectancy, is making China undergo what is probably the world’s most rapid demographic transition.

China used to have one of the highest fertility rates in the 1960s. The total fertility rate was around 6 then. Most of these baby boomers joined the labor force in the 1980s and 1990s, increasing the proportion of the working-age population in the total population from 61.5 percent in 1982 to 70.1 percent in 2000. This was the country’s socalled demographic dividend.

However, as this generation is reaching the mandatory retirement age of 60, the world’s largest population of retirees is on the horizon. In 2020, the people aged 65 or above accounted for 13.5 percent of China’s population, nearly 5 percentage points higher than it was a decade ago.

The population aging is expected to accelerate in the coming decades, with the proportion of the elderly in the total population increasing by more than 5 percentage points every decade to 25 percent before 2050. The number of newborns declined in the 1990s and 2000s, and they are only 80.4 percent of the total number of baby boomers.

Those born in the 1990s and 2000s entered the labor market just as the size of the working-age population began to shrink. The labor supply, which is now close to its peak, is expected to decline by about 150 million over the next 30 years. Moreover, as women of childbearing age now and in the near future were born in the 1990s and 2000s, and their population is shrinking, along with the lower marriage and higher divorce rates, there is little room for fertility to recover. Not surprisingly, the number of newborns dropped to 12 million in 2020, the second lowest level since 1949, and may see a record low level this year.

Traditional wisdom in economics attributes the demographic transition to the families’ focus on education and the rise in women’s socioeconomic status, both of which increase the cost of raising children, resulting in the substitution of quantity with quality. A series of studies in the past decade showed that in China, these mechanisms are reinforced by the shock of structural transformation on traditional Chinese culture.

Traditional Chinese culture has a long history of appreciating education. With the rapid structural transformation in China, however, the cost of education and healthcare have risen faster than household incomes, making bringing up kids a heavy burden for families. As a result, households have to put more resources into raising a single child rather than having more children.

Moreover, the widening income gaps and the uneven distribution of public education have also contributed to this demographic transition, as families look to education to lift their children up the social ladder. Lowincome families have to spend a larger portion of their incomes to ensure high-quality education for their children.

Besides, Chinese families traditionally gave priority to the family line. The supporting arrangements between generations within families are formed. Specifically, parents tended to have more children for old-age support in the future, and the grandparents helped young parents raise grandchildren. This culture enhanced the preference of children and lowered the cost of raising children for young adults. However, public supporting arrangements such as the social security system and the retirement policy are replacing the traditional arrangements within families. Facing the rising time cost, young adults would find it almost impossible to raise more children without the help from their parents.

Meanwhile, the traditional gender preference intensified because of the rural land system reform. However, women’s socioeconomic status has since improved rapidly, thanks to the campaign that borrowed from a Chinese proverb that says “women hold up half the sky” and the increasing realization that men and women contribute equally to productivity in the modern era. This has simultaneously weakened the gender preference in families and the gender discrimination in companies, also narrowing the income gap between genders. But despite the relative rise in women’s incomes, fertility dipped as the cost of raising children has increased faster than household incomes.

Despite the possibility that the demographic transition may also bring with it market opportunities, thus mitigating any negative impact through growth in labor quality and the application of new technology, the rapid demographic transition in China has put a lot of pressure on steady growth, and the country must adopt policies designed to support and care for families.

First, it is necessary to substantially reduce the cost of living, particularly education and health, strengthen the infrastructure that relates to public well-being, and direct more public services toward families with multiple children.

Second, income distribution reform must be hastened to achieve common prosperity. The income tax on families or women with multiple children could be cut or even exempted.

Third, we should support the career development of women by providing training subsidies. Also, more can be done to reduce gender discrimination, for example, by increasing men’s maternity leave time.

Traditional Chinese culture has a long history of appreciating education. With the rapid structural transformation in China, however, the cost of education and healthcare have risen faster than household incomes, making bringing up kids a heavy burden for families.

LI MIN / CHINA DAILY