Ou-yang Hui – Dean’s Distinguished Chair, Professor of Finance, and Associate Dean for the Executive MBA Program

China’s National Bureau of Statistics released data on January 17 revealing that the country’s population at the end of 2022 stood at 1.41 billion – a decline of 850,000 from the previous year. This marks the first time the country’s population has fallen since 1962.

Increasing the fertility rate is a challenge for any nation. In China, however, where fertility rates have been low for many years and the legacy of the one-child policy is deeply rooted in the culture, increasing the birth rate will be a significant challenge.

The Connection Between Fertility Rate and GDP Per Capita

The first factor that determines fertility growth is a country’s scale of economic and social development. As a country gets richer and its GDP per capita income increases, fertility rate will generally fall. China’s fertility rate, however, is the lowest among nations with comparable GDP per capita.

We created a model based on the relationship between GDP per capita and the corresponding birth rate. Our data shows that Japan – long considered a country with a low birth rate – has a fertility rate of 1.4, which actually exceeds the theoretical value that would correspond to its GDP per capita of USD $39,000. The United States and Singapore show a similar trend.

Moreover, due to the high costs of education and intense levels of competition in Taiwan and South Korea, the real birth rate falls 0.5 points below what it should be. This differential is even greater in China at an astonishing 1.0.

In other words, China ‘s current GDP is USD $10,000. Its theoretical fertility rate should be as high as 2.3, yet its real fertility rate is only 1.3. China has emerged as one of the nations with the bleakest population prospects, experiencing a shrinking population before it has reached a high level of wealth. There are many reasons for this.

The One-Child Policy

Although the family planning policy is no longer in place, its legacy nevertheless has had a significant impact on China. It has both altered the concept of childbearing in society and drastically reduced the number of women of childbearing age.

Currently, the number of women of childbearing age in China has shrunk by 13% compared to ten years ago. In the next ten years it could shrink by 30% or more.

The Cultural Impact

Many attitudes among East Asian cultures which have had a suppressing effect on fertility include:

• Excessive investment in education driven by its perceived importance leads to a decline in fertility. Women spend more time in education and postpone childbearing.
• Extended working hours limits the time parents can spend with their children.
• Females typically shoulder domestic duties which puts pressure on their desire to want more children.
• Children born out of wedlock is generally frowned upon in society.

The above is evidenced by the fact that in the United States and Canada, the birth rate of East Asian ethnic groups is generally lower than local ethnic groups.

There is also another cultural aspect that is unique to China: its labor participation rate is the highest among all East Asian countries. This highlights the difficulties of childcare and the opportunity cost of childbirth.

One of the most frequently reported reasons for women’s resistance to having a second child in China is “no one to take care of the child”, according to the country’s numerous fertility surveys.

High House Prices, Education Costs, and a Large Proportion of Migrants

Numerous studies in China indicate that “high house prices” have put families off wanting to have children. This trend is particularly evident in large and medium-sized cities.

In terms of education, a lack of investment and an unequal distribution of academic resources across the country has led to the concept of “involution” (or “neijuan” as it’s called in China), where increased pressure and competition has significantly reduced the family’s desire to have children.

With regard to population mobility, because an increasing number of young people from rural areas are moving to cities, spouses living apart has become a common phenomenon. Even if migrants work in the same city, their economic status hinders them from attaining a residential permit, buying a house, and attaining access to medical care and education.

Is Negative Growth Reversible?

Two scenarios may reverse the trend of negative growth: First, a rebound in birth rates could occur with an improvement in the economy. For instance, during the 1970s, a sharp decrease in birth rates was observed in the U.S., Japan, and Europe due to global stagflation and increased access to birth control. However, the fertility rates improved in the 1980s with the end of stagflation.

Second, government support could increase birth rates. Despite a higher GDP per capita of USD $50,000, which is 39% higher than Japan, Sweden has a fertility rate of 1.8, outperforming Japan’s rate of 1.4.

Exploring Sweden’s Family Policies as a Potential Model for China

Sweden only spends around 3% of GDP on family benefits which is significantly lower when compared to countries such as Japan, South Korea, and Singapore. So what makes Sweden’s family planning policy particularly comprehensive?

• Comprehensive parental leave system – parents are entitled to 480 days of paid parental leave with each child under the age of eight. Each parent is entitled to 60 days of holiday. The remaining 360 days can be taken by any parent.
• Generous parental allowances – parents are paid 80% of their income as an allowance for each child in the first 360 days of their 480-day parental leave. A reduced amount of 180 SEK is subsequently paid for the remaining 90 days, regardless of income.
• Well-developed childcare service system – parents have the right to leave their children at preschool after the age of one. They only have to pay 8% of the preschool costs. This strong support system allows parents to bring up children without it interfering with their working lives.

How Should China Respond to Negative Population Growth?

In addition to its “Three-Child Policy” (which allows couples to have up to three children), as well as various other associated measures introduced this year, China should take the following additional measures to increase its fertility rate:

• The government should step up its awareness-raising efforts to demonstrate the practical benefits of having children and boost the visibility of child-bearing support policies, while encouraging families to make full use of them.
• Increase cash subsidies, improve the parental leave system, construct a more comprehensive childcare system, and reduce the cost of housing and education.
• Introduce policies to increase parental leave and tax breaks for high-income groups, raise cash subsidies for low-income groups, allow shared parental leave, reform the household registration system to improve fertility willingness of migrant workers, and encourage various regions to introduce local government policies that tailor to the local culture and environment.
• Experts have advised to extend maternity leave and to punish companies that discriminate against female employees with three children. However, these measures may lead enterprises to be less willing to hire female employees in the first place. A more effective strategy would be to reward companies that uphold women’s rights.

To sum up, increasing fertility is no easy task for any country and it is especially a challenge in China where the concept of having one child is deeply ingrained in the culture. Rather than set itself high goals it is important for China to adopt a gradual, long-term strategy with repeated measures.