Why China needs to change the ‘One-Child’ policy now

China’s ‘One-Child’ Policy was introduced in 1978 to alleviate the social, economic and environmental problems created from a baby boom in the 1960’s, such as overcrowding, strain on social services, strain on ecosystem and high unemployment from excess labour supply. However it has also created unintended consequences associated with imbalance in gender ratios and in population demographics. Over the past few years, the Chinese National Population and Planning Commission have hinted at the possibility of one day transitioning towards a Two-Child policy instead of abolishing the policy completely. Though officials have clearly stated the One-Child policy will remain untouched for at least another decade. With the growing threat of an ageing population, it’s almost certain changes to the policy will occur in one way shape or form; however the issue that remains is when?

Looking at the current population pyramid of China (Graph 1, Appendix), we can see that the One-Child policy has resulted in a high portion of the population in the 40-49 age group (born in the 1960’s) and 20-24 age group (born in mid 1980’s – 90’s) whom are most likely children to those born in the 60’s. Data from the US Census Bureau in Table 1 (Appendix) compares the proportion of people in the working age 15-64 category and people over 65 between 4 different countries in the current 2012 period and 2050, shows that China is among the countries with the highest working population at the moment at 74% compared to the US of 66%. However between now and 2050 the Bureau predicts that China will see its working age population plunge by 14% and the elderly age group will soar by 18%  assuming the One-Child policy is not relaxed. A comparison between the population pyramids of Japan 2012 and the projected of China in 2050 (Graph 3, Appendix) will show a frightening mirror image to where China is headed if the policy isn’t changed, what’s also alarming is that during that time China’s workforce will also drop by 200 million people.

Due to the non-existent pension in China, it’s the norm for the younger generation to take care of the elderly members in the family. This can play a contributing factor to a potential problem if they decide to leave the One-Child policy untouched for another 10 years. The problem is due to the income associated with different age groups, in general people in their 30’s typically have higher earning power and are more productive than those early into their career in their 20’s. In 2050 the largest age group would be 60-64 years old whom are currently in the 2^nd largest age group 20-24 years old. People born between now and the next few years will be in their 30’s by 2050 thus rebalancing the workforce, whereas people in the next decade will be in their 20’s by 2050. If the government had delayed the changes in policy by 10 years, it effectively puts the majority of the elderly burden on those in their 20’s when earnings power aren’t typically strong. But if the government acted now, the burden would be distributed more evenly among the workforce and it also alleviates the major slowdown in economic activity and productivity caused by a huge gap in the workforce, as there would now be a substantially higher number of people in the 30’s age group.

In the short run, changing the One-Child policy now does carry some costs and benefits. One major benefit would be a transition towards consumption driven economic growth rather than government spending on construction. However China has had a constant struggle with inflation and overcrowding, such a change in the One-Child policy could undermine the objectives of current macroeconomic policies. It can also undermine the original objectives it set out to achieve and risk recreating the social, economic and environmental problems rampant in the 1970’s. But given the severe consequences of the rapidly ageing population ahead, the Chinese government needs to act now as this problem cannot be fixed if they wait around any longer.

Graph 1:

Table 1:

Graph 2:

Source: US Census Bureau: http://www.census.gov/population/international/data/idb/region.php