The Chinese one-child policy, instituted in 1970, is coming to an end. On Thursday, October 29th the nation announced that all couples will now be allowed to have two children. The impact on China’s economy—particularly given its economic slowdown—will likely be significant.
The one-child policy was originally created to limit the population in light of diminishing national resources. However, the one-child policy became a threat to the nation’s growth and has gradually undergone revisions, starting in 2013. There are numerous factors that illustrate why the Communist Party leaders changed the one-child policy in light of the new economic framework.
Unsurprisingly, the declining birth rate throughout China is prevalent. “The number of babies has plummeted as a result of the policy and other changes in China, to 12.1 per 1,000 people in 2013, from a post-reform peak of 23.3 in 1987.” What impact does a declining birth rate have on an economy? For starters, it means a shrinking population of workers. “That can hold back economic growth and drive up wages too quickly, leading companies to move factories to lower-cost nations in Asia and elsewhere. The number of people ages 15 to 64 declined in 2014 for the first time in at least two decades, a drop of about 1.6 million, or 0.2 percent, to 1.004 billion.”
The big demographic changes also mean that the population will be older. This means health-care costs will grow without a younger population sizeable enough to shoulder the burden of supporting older generations. “The United Nations projects that the number of Chinese age 60 and older will more than double in the next 25 years to 431 million.”
The emerging markets crisis that erupted in volatility around the world still has Chinese officials—and global investors—cautious. The change in the one-child policy illustrates the measures Chinese officials are taking to change course and protect their economy. While the change is a significant reversal of policy—one that has long characterized China—its impact will likely remain unknown for some time.
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