China isn’t having enough babies

Fewer babies were born in China last year than in 2017, and already fewer had been born in 2017 than in 2016. There were 15.23 million new births in 2018, down by more than 11 per cent from the year before. The authorities had predicted that easing and then abolishing the one-child policy in the mid-2010s would trigger a baby boom; it’s been more like a baby bust. No, these figures don’t mean that China’s population itself has started to decline. But they do mean that the population overall is ageing, and fast. And they mean that the Chinese government can no longer manipulate fertility with blunt pro-natal policies; the reasons for the drop run too deep. Instead of futile, retrograde statist intervention in people’s reproductive choices, the authorities should undertake broad economic and social reforms to address the deep causes of the decline while mitigating the burdens of its worst effects. Fertility in China started dropping, and rapidly, in the late 1960s — long before 1980, the year the government officially put the one-child policy in place. As with other countries, the reasons included improved survival for infants and children, and women’s increased participation in the labour force. And the factors that are driving down fertility today, such as mass urbanisation, greater wealth and more choices for women, are here to stay. Several decades of internal migration have brought half a billion people into the cities. Six out of 10 Chinese now live in urban areas, compared with 2 in 10 four decades ago. In 1990, only 3pc of college-age Chinese attended college; in 2015, the number was more than 40pc for men and 45pc for women. Today, Chinese women — armed with new knowledge, living independently in vibrant cities and determined to pursue their own goals — are less likely than previous generations to let their personal and reproductive decisions be influenced by pressure from the state or their families. In 1990, virtually every woman in China was married by the age of 30, according to official census data. In 2015, 1 in 10 women had not married by 30; in Shanghai, it was 1 in 5. Low fertility has its benefits. Fewer children probably means that more attention is paid to them, including in the form of more investment in education. China’s population may be older overall, but it also is wealthier, a fact that has brought new economic opportunities, such as more health care related products and services, and greater spending on leisure. The declining size of the work force and rising labour costs together drive up demand for labor-saving technologies, from automation to artificial intelligence. But fertility in China has dropped even as life expectancy has increased, and that combination has translated into the population’s ageing overall — which, in turn, has meant an increasing economic burden on working-age people. Since 2010, the number of Chinese people between the ages of 20 and 24, for example, dropped by about 30pc (from more than 127 million to about 90 million), even as the number of people ages 60 and above increased by almost 39pc (from 180 million to nearly 250 million). Based on our analysis of official statistics and other population data, we estimate that by 2030 the 20–to-24 age group will shrink by another 20pc (to around 73 million), while the 60- plus category will grow by 56pc (and reach 390 million). By then, Chinese people 60 and older will account for more than one-quarter of the total population. These changing demographics create major political tests for China’s leaders, present and future. One is how to maintain growth as the population keeps ageing and the workforce’s relative size keeps shrinking. Another is how to deliver the economic and social benefits that Chinese people now expect from the state. Based on official Chinese statistics, we estimate that China’s public spending on education, health care and pensions has increased from 6.3pc of gross domestic product in 2007 to 11.6pc of gross domestic product in 2016 — faster than spending on military or domestic security programmes. Assuming that China simply maintains welfare benefits at current levels, the population’s ageing could push up public spending on education, health care and pensions from 10pc today to 17pc of China’s gross domestic product by 2035, and then 23pc by 2050 — that’s the share of gross domestic product for all government spending today. Should China increase welfare benefits in line with high-income countries — a stated aspiration of the Chinese leadership — they could take up to 32pc of the gross domestic product by 2050. Unless the Chinese government can increase tax revenues, it will be left with little to spend on other stated priorities, like its “One Belt, One Road” initiative or military expansion. Moreover, the results of greater expenditures have been uneven so far. Spending on education heavily favours the urban elites. Reimbursement rates for health care vary widely according to one’s social status. The average pension payment is less than $10 per month for a rural elderly person but nearly $500 dollars for a retired civil servant. A scare last summer over delayed payments in one rust-belt province was a fresh warning that China’s pension system, which is organised by both region and employment sector, is too fragmented to be reliable and struggling to keep up with the population’s ageing. Education and health care, two sectors over which the government has tremendous control, are among the most inefficient in China. China’s educational system is hyper-competitive, yet it is not turning out the most creative or productive workers. Education also is very expensive, which may dissuade parents from having children. So, too, with high housing costs. The Chinese government urgently needs to address these mounting demographic pressures with systemic reforms. It must provide adequate child care and equal access to public education, and ensure quality in health care. It should postpone the retirement age (currently 55 for women and 60 for men) and nationalise pension standards. More broadly, it needs to promote social equality, especially gender equality, and a work-life balance. Two generations of Chinese, many of them raised as only-children, have experienced China’s prosperity, and if their parents and grandparents hoped that the state could provide food and shelter, they now expect safe medicine, clean air, adequate health care and decent pensions. The Chinese leadership’s political legitimacy is on the line. For decades, China mortgaged its population for the sake of economic growth. It’s payback time.