Yahoo Finance How China’s collapsing birth rate risks wrecking Xi’s dreams of global supremacy
China has a problem that other advanced economies are already well familiar with – its women are rejecting motherhood.
Despite offering tax breaks to young parents and impressing upon women that procreation amounts to patriotism, China’s birth rate is falling fast.
Figures for last year show that the country’s population shrank by 2m to 1.4bn, marking the second year of decline after six decades of growth.
It comes after fertility rates previously fell to their lowest on record in 2023, equating to 1.09 children per woman.
For President Xi, dwindling birth rates and a shrinking workforce pose further problems for China’s economy, which reportedly grew by 5.2pc in 2023 but is now projected to slow significantly for decades to come.
According to HSBC’s James Pomeroy, China’s population decline does not come as a surprise but certainly poses a challenge.
“This is a continuation of a story that’s been going on in China for some time,” he says. “Since 2016, [the birth rate] has been dropping very quickly. That essentially is creating a huge economic headwind further down the line.”
New births fell to 9m in 2023, down from 9.56m in 2022.
More people also died in China, bringing the death rate to its highest level since 1974 when the Cultural Revolution claimed as many as 3m lives.
The country’s fertility rates are among the world’s lowest – but are still higher than in places like South Korea.
The changing demographics are a remarkable shift given concerns once related to having too many babies, rather than not having enough.
China for nearly 40 years had a one-child policy in place that affected most families, forcing households to seek approval from the government to have children.
It later loosened this to two children in 2016 and more recently has started encouraging people in some parts of the country to have even bigger families.
“Its major impact was not to depress fertility but to change China’s gender balance sharply in favour of males over females,” says George Magnus, an independent economist and author of the book Red Flags: Why Xi’s China is in Jeopardy.
While the policy undeniably had a significant impact, some experts warn that Westerners rely on it too heavily to explain why China’s young are not starting families today.
China’s fertility rate from the 1990s onwards actually hovered around 1.6 to 1.7 – similar to where the UK is now.
However, the effect of China’s draconian zero-Covid policies has had a massive impact, says Amlan Roy, a partner at LCP.
Its lockdowns lasted far longer and were more extreme than in most other countries leading to riots.
“We are railing against Boris Johnson even now [over lockdown], but in China, this was going on even into 2023,” Roy says.
For an economy where much of its workforce is still informally employed, the impact on people’s lives was severe.
“They’ve lost their savings,” says Roy. “Many lost their jobs, many went back to their villages.”
The question at the heart of the issue, adds Magnus, will be familiar to many in the West.
“The issue really is why don’t people want to have children nowadays? Or why do more and more people live with their parents rather than get married and raise families? “ he says.
“Childcare is expensive. It’s not universally accessible at a reasonable price. The decline in the youth population, the lack of opportunity for many people including graduates, fewer and fewer people are getting married – these things mitigate against people having children or certainly having more than one child.”
These changes pose a big problem for the Chinese economy and the ruling Communist Party.
Its population is projected to near-halve by the end of the century, according to Goldman Sachs’ forecasts based on United Nations estimates.
It comes amid a wider slowdown in growth.
Until the 2010s, China grew in double digits every year, although it has since slowed to 5.2pc, its lowest level in decades.
The low birth rate compounds wider issues, says Magnus.
“The retirement age is really low in China,” he says. “It is 60 for men, 55 or 60 for women. Female participation at work is declining. Older people’s participation at work is declining. There’s no emigration, productivity is at a standstill.”
By contrast, rival countries like India and Indonesia are growing rapidly and becoming increasingly important to the world economy.
While China is the world’s second-largest economy in terms of nominal GDP, large parts of its population are still very poor. On a per-person basis, GDP is higher in places like Costa Rica and Argentina.
“It is a huge risk that China gets old before it gets rich,” says Pomeroy, although he remains somewhat optimistic.
“China is less exposed to an ageing population than many developed economies, partly because you don’t have as high a level of government debt.
“You don’t have the same pension exposures. You don’t have the same provision of national health care which costs more when you have an ageing population. The impact of the demographic transition in China is much smaller than it would be in somewhere like the UK or across much of Europe.”
Yet, the momentum across China’s economy has undoubtedly slowed and some analysts are now calling into question whether the country can overtake the US.
Some, like Pomeroy, still believe it’s possible but Goldman Sachs and JP Morgan no longer see it as a given.
To have any chance of achieving this, Magnus says president Xi must change his course of action.
“They should spend less time trying to encourage people to have more children, and more time trying to develop an agenda to manage the consequences of a stagnant or declining population,” he says.
However, what most experts do agree on is that what is happening in China is not an isolated case.
“The Chinese situation in terms of what’s happened to the birth rate over the course of the last five or six years is probably not too dissimilar to what’s going to happen here in the UK,” says Pomeroy.
“It’s very easy to latch on to the world’s largest population shrinking but it’s very much not alone.”
