China is Literally Running Out of People

China’s new “Two-Child” policy is supposed to fix it’s growing demographic problems. Guess again – the numbers say it’s the same, slow motion train wreck as the One Child Policy.

Part 1 of this series looked at how the China’s long tradition of female infanticide – not its infamous One Child Policy – is the real reason why its population has tens of million more men than women.

This post will look at the core goals of the One Child Policy, how achieving those goals has put China on a disastrous demographic track, and what impact, if any, its new Two Child Policy will have on the nation’s economic and political future.

 

Population Growth and Fertility before 1980

Population policy had been a concern of the CCP (Chinese Communist Party) long before the official promulgation of the One Child Policy in 1980.  Accounts describing the development of One Child Policy have centered on a few key themes: a backdrop of global concerns about population growth as a hindrance to economic development; the CCP’s post-Mao era focus on economic development and growth; and a belief that China’s very high birth rates and population growth could choke-off growth in per capita GDP.

The build-up to the One-Child Policy was gradual but unstoppable. From the nation’s establishment of a Birth Planning Council in the 1960s, to the 1971 internal policy guidance on population planning (State Council Directive No. 15), to an increasing volume of official propaganda encouraging later marriages, longer times between births, and fewer children (“wan, xi, shao”, or “later, longer, fewer”), to wider access to contraception and abortion, to the establishment of population goals directly linked to national economic objectives, this population control freight train finally arrived at its first major destination with the 1980 institution of a nation-wide One Child Policy.

The statistics behind the policy-making help explain the CCP’s drastic action. Looking at the 1965 to 1975 period – the time at which the key elements of the One-Child Policy were developed – raw population growth in China was averaging 2.5% a year. This stupendous level of population growth was viewed by the technocrats and leaders of the CCP as a threat to the nation’s long term economic future.

What was driving this growth was high fertility rates – Chinese women were having a lot of kids. Estimates from the mid-1950s suggest a TFR (total fertility rate) of over 6 live births per woman and even a higher number prior to that date.

TFR refers to Total Fertility Rate. The UN defines TFR as “The average number of live births a woman would have by age 50 if she were subject, throughout her life, to the age-specific fertility rates observed in a given year. Its calculation assumes that there is no mortality.”[1] It’s one of a number of measures for understanding population growth, and it provides measurement against an important benchmark. The Replacement Rate TFR is 2.1. If a country’s average TFR is 2.1 over an extended period of time, that nation will experience zero population growth absent any other factors.

The irony was that China’s TFR was in free fall even as the final version of the One Child Policy was being rolled-out on a national basis.

 

China TFR Chart

What was happening in China was a phenomenon repeated again and again in developing countries during the last half of the twentieth century – the so-called “demographic transition” from an environment of high birth and death rates to low birth and death rates. In simple terms, as health care improves (reducing infant and child mortality) and incomes rise there is a corresponding drop in fertility rates.

Chinese leaders in the 1970s might have expressed skepticism that such a transition was underway in China or that it would so dramatically affected fertility rates. (Even today there’s debate about the root causes of demographic transition.) What is clear is that improved access to health care dramatically reduced the nation’s infant mortality and overall death rates. Combined with increased access to contraception and higher numbers of abortions (over 5 million procedures in 1978)[1] , total fertility rates also fell.  In other words, the One Child Policy was formally instituted at the very moment that the rate of population growth was plummeting.

 

China’s Demographic Reality

In the thirty-five years since the One Child Policy’s creation China’s demographic landscape has been transformed. A combination of unceasing “One Child” propaganda combined with brutal enforcement (forced sterilization, involuntary abortions, and high fines for unsanctioned births) has lowered total fertility rates and slowed population growth to close to zero.

China Pop TFR Chart

Chart 1: China’s Total Population 1950 to 2050 with Actual Total Fertility Rate

Between now (2016) and 2025 population growth will be minimal. By 2025 the UN forecasts that China’s population will peak at 1.4 billion people, and thereafter begin a slow decline. This UN estimate (its “medium fertility variant” forecast), assumes China’s fertility rate will slightly increase to 1.59 in the 2015-2020 time frame and to 1.66 in the 2025-2030 period.

By themselves these numbers are cause for modest concern. A slight decline in population can put a drag on a country’s Gross Domestic Product (GDP) by decreasing demand for basic commodities (food, housing) and infrastructure (roads, schools, etc.).  One way to sustain GDP growth in the face of a simple, shallow population decline is increased labor and capital productivity, and since 1980 China’s economy has delivered steady gains in productivity across all sectors of the economy

The problem is that China’s gradual population decline is not simple. It will be accompanied by a dramatic drop in China’s working age population.

 

Where Are the Workers?

While the UN estimates that China’s working age population will peak in 2015 (see chart 2), estimates made public by the Chinese government put the start of the decline in 2012.

China Working Age Chart

Chart 2: China’s Working Age Population Ages 20 to 59 1950 to 2050

 

What this decline means to the Chinese economy is that country will have to generate significant, ongoing increases in agricultural, manufacturing and service sector productivity to sustain and grow GDP.  In addition, labor will have to flow magically and effortlessly between the agricultural, manufacturing and service sectors to assure that of skilled labor shortages don’t drive wage growth higher than productivity growth. (This is a country with severe restrictions on internal immigration.) Finally, the country’s tax structure will have to adjust to a smaller number of workers supporting a larger group of pensioners.

One of these economic freight cars – wage growth – has already left the station. Average yuan wages in China’s urban areas rose over 11% per year in the 2000 – 2014 time frame.  It’s hard to imagine how a long term decline in the working age population will  do anything but continue to drive wage growth and weaken China’s competitive position vis a vis India, Indonesia and other rapidly developing, high population nations.

China’s future economic problems may mirror those now facing Japan. Japan’s population peaked in 2009, but like China its working population decline started far sooner – in the mid-1990s.  The country has since struggled with low levels of GDP growth. Today, despite low unemployment and high labor force participation, the country’s economic prospects remain cloudy, in part due to the enormous public debt assumed by the Japanese government to maintain social services for its rapidly aging population.

 

What About the Two-Child Policy?

The only people that assert that China’s new Two-Child Policy will somehow avert this demographic train wreck are the uninformed or Chinese government and Communist Party officials.  In simple terms, the forces of global demographic transition combined with decades of propaganda and enforcement have made the prospects for a population turnaround virtually nil.

In our last post on this topic, we used the example of India as a nation that has been running demographically in parallel with China, albeit one without a brutal population control policy.  That post looked at the male/female ratios for the countries, and concluded  here was little chance of the Two Child Policy changing China’s male/female ratio.

The same applies to the two countries Total Fertility Ratio. India’s demographic transition has lagged China’s, but as the chart below shows, it’s TFR is expected to drop below the 2.1 replacement rate by 2035.

India China TFR

Chart 3: China and India TFR Rates 1950 to 2050

 

If that’s the outlook for a nation with no limits on fertility, it’s hard to conclude that China will somehow see above-replacement rates for fertility anytime in the foreseeable future.  It is doomed to see not only population decreases, but a dramatic drop in its working age population between now and 2050.

 

Add This to the CCP’s “Must Do” List

Figuring out how to avoid a demographically-driven economic train wreck before mid-century is just one more major, long-term challenge to the Chinese Communist Party.  It’s a big deal – many believe that the CCP’s ruling legitimacy is now based solely on the party as a guarantor of economic growth and individual welfare and well-being. (The Party’s role as the victorious voice of a long oppressed people is so, well, 20th century.)

While that’s a simplistic understanding of the CCP’s relationship with the people of China, what can’t be denied is that China is a nation of still rising expectations. Its growing middle class – educated and sophisticated – expects the CCP to manage the economy in a way that assures continued economic growth.  The CCP has reinforced these expectations with public commitments to GDP growth rates that are unprecedented for a country at this stage of its economic development. In the past two years, China’s new, aggressive leadership had doubled-down on those commitments, and is struggling to meet its goals.

Over the next two decades, as China’s overall population declines and its labor force shrinks and becomes less competitive, the Chinese Communist Party will have to radically reset the country’s economic expectations. The alternative will be to see the political unrest now seething below the surface erupt out into open confrontations between the CCP and anyone in China that has a stake in its economic future.

 

 

 

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