Carmel Fisher - Is China's baby policy change just the leg up their economy needs

The China pessimists have had a hard time of late.  All the news coming out of China has been positive and trending in the right direction.    

The news that interested me most was speculation that China’s one-child policy is to be relaxed and revised to a two-child policy in the near future.

Reaction from markets and media to this possible policy change was uniformly positive.  Analysts immediately crunched the numbers and pronounced that up to ten million new babies could be expected in a Chinese baby boom.  Many suggested that a two-child policy is just what is needed to avert the Chinese workforce going into steep decline, and said the policy would put China’s economy on a better footing for decades to come.

On the Hong Kong stock exchange, baby-related stocks leapt in value.  Pram manufacturer Goodbaby jumped 20% in a week, baby food company Biostime lifted 15% and nappy-maker Prince Frog rose 6% on the speculation.  

However, while any loosening in the policy should be applauded – the one-child stance is, after all, an infringement of the most basic human freedoms – it is probably not the nirvana that many think.

For a start, the one-child policy has never been strictly enforced.  Ethnic minorities have been exempted, farmers are allowed a second child if the first is a girl, and the urban middle class have been prepared to pay a fine in order to have more children.  In fact the one-child policy has been lucrative for the government, with $US326 billion apparently collected in fines in the past 34 years.

The fundamental problem is that babies need mothers and the number of Chinese women of childbearing age is in rapid decline.  This is the legacy of fewer births due to the one-child policy.  Families today either have one boy, or one boy and one girl.  Few have one girl, and none have two girls (officially).  The result is an imbalance of the sexes, with 117 boys born for every 100 girls in the countryside, and 138 boys for every 100 girls in urban areas.  

Even if family planning restrictions were scrapped altogether, it would not be big enough to reverse the long-term decline in China’s birth rate or in the size of its working-age population.  Even if babies starting arriving tomorrow, it would take another 15 or so years before they entered the work force.  In the meantime, workforce numbers will fall as more women take time off to have babies.  And in the longer term, it will likely lead to an increase, not a decrease in the dependency ratio.  

There are currently five Chinese workers for every pensioner.  This ratio falls to two to one by 2035.  With a two-child baby boom, a working couple of the future might find themselves supporting an extra child as well as four retired parents of their own.

While not necessarily an economic panacea, any loosening of the one-child policy should be greeted positively as it loosens a restriction on a basic human right, and it demonstrates that the new Chinese government is reform-minded, which must surely be a good thing.