Economics, International economy, Pethokoukis

Why China’s one-child policy reversal comes too late to boost its economy

Image Credit: shutterstock

Image Credit: shutterstock

China’s decision to loosen its one-child policy is a moral triumph but unlikely to be an economic one. In theory, a higher fertility rate would give China more workers to financially support the elderly and create a younger, more economically dynamic society.

But here’s the problem: China’s fertility rate is 1.55, even lower in urban areas. It’s an extremely low 0.7% in Shanghai, for instance. Continuing urbanization will continue to push down the overall fertility rate.

And research suggests that once a nation’s fertility rate falls below a certain level, it is nearly impossible to reverse the trend. As Jonathan Last writes in What To Expect When No One’s Expecting:

Fertility trends have the turning radius of battleship not a go-kart. And the further fertility drops, the more unbendable the downward trend becomes. It is difficult to change direction from a rate of 1.75. Below a sustained rate of 1.50, there are no examples of a country returning to replacement level.

Singapore would seem to be a relevant example, given that three quarters of its residents are ethic Chinese. In the 1960s, as Last notes, Singapore’s government began a sustained campaign to lower the nation’s fertility rate through a public relations campaign — “Stop at Two” — liberal abortion policy, and financial incentives. In 1976, the fertility rate hit the government’s 2.1 target. But then it kept dropping, falling to 1.74 by 1980 with the biggest drop among the most educated.

So then Singapore reversed course. The “Two is Enough” slogan was replaced by “Have Three Or More Children If You Can.” Larger families were given tax incentives, and maternity leave was increased from one year to four for government workers. By 2000, Singapore was directly paying parents to have more kids: $9,000 for the second child, $18,000 for the third. Families also got housing preferences. But nothing worked. Last:

In many ways Singapore has become a natalist utopia, where traditional beliefs are embraced in a way conservative American natalists can only dream about. … And yet despite Singapore’s traditionalist stances and heroic efforts to encourage family formation, the country has met with unremitting failure. In 2001, Singapore’s fertility rate was 1.41. By 2004, it was 1.24. Today it is 1.11.

Despite this new policy, China is still on target to get old before it gets rich. People can be financially nudged into having the number of kids they want, but not more than they want. And once a nation’s birth rate falls too low, it’s probably a lost caused. So it’s probably too late for for advanced economies like Germany (1.36), and Japan (1.39). The US, however, could benefit from policies that eased the financial burden on parents, making it more likely they would have the number of kids they want — an outcome with significant economic pluses.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

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