China in Transition

Easing the One-Child Policy

Chi Hung KWAN
Consulting Fellow, RIETI

In China, as problems associated with the labor shortage and the aging of the population become more serious, pressure is increasing to review its one-child policy. As the first step in that direction, a policy of allowing the birth of a second child if at least one spouse of a married couple is an only child was decided on in November 2013 at the Third Plenary Session of the 18th Central Committee of the Communist Party of China. The impact of this decision has been attracting attention.

The current state of birth control

The one-child policy was introduced in 1980 as part of birth control efforts to curb population growth. The government has been promoting a preferential incentive policy for families with one child (a subsidy as well as an exemption from or reduction of school and medical expenses for that one child, etc.) as well as a strict penalty for families that violate the policy, such as an administrative disposition for national public servants and fines for the general public. However, while the existing system is based on this one-child policy, it does not cover all couples and makes various exceptions, as follows ("News Briefing: China's Family Planning Policy has been Improving Gradually through Practice," New China News Agency, December 28, 2013):

  • (1) One-child policy
    Couples living in most urban and suburban areas and residents in rural areas in the six provinces (municipalities directly under the central government) of Beijing, Tianjin, Shanghai, Jiangsu province, Sichuan province, and Chongqing are allowed to have only one child.
  • (2) One-and-a-half-child policy
    Couples living in rural areas in 19 provinces (autonomous regions), including Hebei province, are allowed to have a second child if their first child is a girl.
  • (3) Two-child policy
    a) In all provinces (municipalities directly under the central government and autonomous regions), couples are allowed to have a second child if both the husband and the wife are an only child.
    b) Residents in rural areas in Hainan, Yunnan, and Qinghai provinces and Ningxia and Xinjiang Uygur Autonomous Regions are allowed to have a second child, whether or not the husband and the wife are only children.
    c) Residents in rural areas in the seven provinces (municipalities directly under the central government) of Tianjin, Liaoning province, Jilin province, Shanghai, Jiangsu province, Fujian province, and Anhui province are allowed to have a second child if either the husband or the wife is an only child.
  • (4) Three-child policy
    Farmers and rural people in certain minority groups are allowed to have three children. This includes (1) minority group farmers and rural residents in Qinghai province, Ningxia and Xinjiang Uygur Autonomous Regions, Sichuan province, and Gansu province; (2) minority group farmers and rural people with two female children in Hainan province and the Inner Mongolia Autonomous Region; and (3) small population minority group residents in rural areas and residents along the national borders in Yunnan province, and small population minority group residents in Heilongjiang province.
  • (5) Special policy
    In the Tibet Autonomous Region, Tibetan residents in urban and suburban areas are allowed to have a second child. There are no regulations for farmers or rural people in the Tibetan group or for minority groups with a small population.

Based on data from the sixth national census (2010), the breakdown of the population covered by each of the above policies is estimated as follows: Those covered by the one-child policy account for 37.5%, those covered by the one-and-a-half-child policy constitute 52.8%, those covered by the two-child policy consist of 5.8%, and the others make up 3.8% (based on the above mentioned New China News Agency article on December 18, 2013).

The economic effect of the current policy adjustment will be limited

When considering the impact of easing the one-child policy on the macro economy, we must focus on the corresponding changes in the working-age population (ages 15-59) and the potential growth rate.

Around 2010, China's working-age population began falling from its peak, while the aging of the population began accelerating (Fig. 1). While an aging population is a phenomenon generally seen in developed nations, China will have to address the difficult challenge of reaching this stage before it has become wealthy. Given the additional factor of the depletion of excess labor in rural areas (the reaching of the so-called Lewisian Turning Point), the labor shortage has become noticeable. The potential growth rate has also been falling, restricted by the reduced labor supply. The aim of easing the one-child policy is to put the brakes on the falling potential growth rate by increasing the labor supply.

Figure 1: Changing Age Composition of China's PopulationFigure 1: Changing Age Composition of China's Population
Note: The projected values have not taken into account of the easing of the one-child policy.
Source: Compiled by the author based on United Nations, World Population Prospects: The 2012 Revision.

However, as the experience of many countries suggests, the birth rate tends to fall with economic development and higher income. As China has already reached the level of a middle-income country, it is no longer possible to expect a sharp increase in the birth rate even if the one-child policy is eased. Furthermore, China has large regional disparities, and a rise in the birth rate will be more pronounced in the less developed inland areas and rural areas than in the coastal areas and urban areas, where the economy has already been developed and income is approaching the level of that of developed nations. If this is the case, even if the labor supply increases in the medium and long term, the quality of labor in terms of the level of education and health could decline in contrast.

In addition, even if the birth rate starts to rise in the near future due to the current policy adjustment, it will take a long time for the newly born babies to grow up and join the labor market. In the meantime, a rise in the dependency ratio (the sum of the child and elderly populations divided by the working-age population) in line with the increase in the child population could push down the potential growth rate by decreasing the household savings rate.

Thus, the economic effect of easing the one-child policy will be limited, and we should not expect too much from it.

The original text in Japanese was posted on February 5, 2014.

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February 5, 2014