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Solving the Fertility Conundrum

by Ouyang Hui

April 18, 2022

Population is the most important basis for economic growth and for a long time, an ageing population was considered the preserve of developed countries. In 2020, there were 12 million births in China, not only a record low, but also far lower than previously expected. The country now has a total fertility rate of 1.3 for women of childbearing age, which is significantly lower than the replacement fertility rate of 2.1 and, rather more worryingly, below the international warning threshold of 1.5 that signifies a “low fertility trap.”

In explaining why China’s fertility rate is so low, there are the oft-cited factors of economic and social development, East Asian culture, the psychological impact of the one-child policy, education pressures and the burden of housing prices. But how accurate are these explanations and, in the light of international experience, can low fertility rates be reversed?

Low fertility rates

Economic and social development is generally the first thing that defines fertility rates—as a country’s per capita income grows, fertility rates usually fall. But this hasn’t been the case for China where the fertility rate is well below expected levels. A country with China’s per capita income should expect to see a fertility rate of around 2.3.

The inherent pressures of East Asian culture are often cited as one of the reasons for low fertility rates, but the reality of the data suggests that this is no longer a bullet-proof excuse. For example, Japan, which has always been considered a relatively childless country, has a fertility rate of 1.4 which, when compared to their GDP per capita of around $39,000, places them well above the GDP/fertility rate trend line. Singapore’s fertility rate also exceeds the theoretical level and South Korea and Taiwan have fertility rates that are 0.5 below the theoretical level—a gap usually attributed to high education costs and fierce social competition. But for China, the gap is a staggering 1.0, which should correlate to a GDP per capita of $40,000, four times the current number.

Why are rates so low?

There are several different contributors to China’s exceptionally low fertility rate, the first of which is a lack of change in psychology of family planning at the level of individual couples in spite of the change in family planning policies. Somewhat counterintuitively, the relaxation of child-related government policies hasn’t had the level of impact on fertility rates that people expected. Before the change from a one-child to a two-child policy in 2016, many predicted that births would rise to an annual peak of 40 million, but the actual peak was around 18 million and since 2018 the number has fallen to a point below pre-two-child policy levels.

The long-term implementation of the single-child policy has shaped the social concept of fertility. Most young Chinese today, and their parents have grown up in only-child scenarios and do not see any problem with that as the status quo, nor do they feel they have any incentive to change. This is in stark contrast with the US, where if a family decides to have a child, they very rarely stop at one.

Fertility intention surveys—ascertaining the level of desire to have children—in China indicate there is an increasing number of people who do not want to have children, compared to those who intend to have one or two kids. But these results vary based on the strictness of legacy policies at the local level, with eastern Chinese provinces that have historically had stricter limits on procreation having the lowest level in terms of intentions.

Pre-existing family planning policies have also reduced the number of women of childbearing age in the Chinese population, the impact of which has been, and will continue to be, enormous. There are now 13% less 20-35 year-old women in the country than there were 10 years ago and this number is expected to shrink by a further 30% over the next decade. Japan exemplifies the issue—its fertility rate has risen steadily since 2005, but actual births are down due to a lack of childbearing women.

A second contributor to China’s low fertility rates are East Asian cultural influences prevalent in the region. Both Japan and Singapore are East Asian nations with “normal” fertility rates, but this is generally understood to be the result of the various fertility incentives pursued in each country. And while these two are outliers, from the abundance of research on the topic, there is a consensus that East Asian culture today is tending to suppress fertility rates.

There are several defining cultural factors that have a knock-on effect on fertility rates: a high emphasis on the importance of education can be both expensive and keep women in education longer, meaning that they have their first child later; the higher expectations of domestic responsibilities on Chinese women; Chinese working culture promotes hard work and long hours which mean less parenting time available; there is social resistance to having children outside of wedlock; and, with a higher number of women in the labor force in East Asia, the opportunity cost of having children is higher.

The issue is made clearer by comparing the fertility rates of East Asian communities in the US and Canada with the focal mainstreams—even when educational expectations are controlled for, surveys have found that the fertility rates of the East Asian communities are noticeably lower.

The third contributing factor is a combination of social issues that take their toll on fertility rates. The impact of high housing costs has been felt particularly in large and medium-sized cities where there are additional cost pressures for families to deal with. The Chinese education system, for example, is highly dependent on family resources because of the fierce level of competition for college entrance and the uneven distribution of the educational resources available. Rapid economic and social progress has caused anxiety for parents with regard to their children’s performance and the ubiquity of the internet, which allows for easy comparison, has only exacerbated the issue.

Many prospective Chinese parents have made it clear that they would prefer not to have any children if they are unable to give them everything they need, and the spiraling costs of housing and education are making this increasingly likely.

Improving geographical mobility has also impacted China’s fertility rate with more mobile youth moving to cities and away from their partners. And, even if couples were to move together to the same city, the way that the Chinese internal migratory system is set up makes it difficult for these couples to buy property, receive adequate medical care and access education for their children—thereby lowering fertility intentions. There is a general perception that rural areas have higher fertility rates, but the ideal number of children for couples in rural China is also less than two, lower than the equivalent rates of both Japan and South Korea.

Is low fertility reversible?

Post-war international experience has shown that reversing declining fertility rates is possible, but not easy, as rebounds are often just a modest step-up from an already low baseline and subject to recurring slumps. In the 1970s, the US, Europe and Japan all saw their fertility rates drop sharply due to the proliferation of contraception and entrance into a period of economic stagflation. Around a decade later, when the countries were emerging from that economic slump, fertility rates started to rise but only at around one-fifth the rate of the previous decline.

In order to get statistics moving in the right direction, significantly improving a country’s economic prospects appears to be one of two main approaches. The other is the creation of strong government policy support, such as that found in Nordic countries.

After introducing a range of policies to encourage fertility in the 1980s, the Nordic countries—which include Sweden, Denmark, Norway, Finland and Iceland—saw fertility rates rise by 0.3-0.6% over a five-to-ten-year period and rates have generally remained at stable high levels since then. Sweden’s perennially high fertility rate is, in part, related to its impressive per capita GDP of over $50,000, but even accounting for this, the country’s fertility rate can be considered high.

Policy has been known to work best when it involves multiple approaches and multiple levels, and the more generous the better. Sweden offers parental leave of 480 days to be used before a child turns eight, and both parents are entitled to 60 days of leave with the other 360 to be split between them. For the first 390 of those days, there is a childcare allowance that is paid at a rate of 80% of the parent’s income. Families with no income are paid 180 kronor (RMB 125.85) per parent per day, with the remaining 90 days paid at a flat rate.

There are also incentives in place for shortening the time between births, a robust system of childcare services—kids over one can be placed within three to four months of applications and parents pay just 8% of costs—and there is a strong support system that allows parents to raise kids without interrupting their work. Total family welfare spending in Sweden is over 3% of GDP, much higher than in countries like Japan, South Korea and Singapore.

For policy to be effective there also needs to be an understanding that it is a long-term process and successful implementation will have both a significant time-lag and will involve future drops in fertility rates. Singapore introduced policies in 1984 but saw no rise in fertility rates until 1986, after which it rose steadily for four years before trending back down. Japan had an even longer lead time, introducing policies in 1990 and only really starting to see improvement in 2005.

The lower the starting fertility rate and the longer the status quo has been held, the weaker the effect of policies in boosting rates will be and the harder it is to reverse fertility trends. The main reason France has maintained a fertility rate of 1.9 to 2—close to replacement fertility rate—has been its continued focus on its population since the 1930s.

Government policy is not a blanket solution and responses to different policies vary depending on demographics. Childcare cash subsidies are more effective for households with low incomes and education levels and have a greater impact on increasing third or higher births, than encouraging families to have a first or second child. In contrast, maternity leave systems work better for high-income households as the main constraint on these couples is time, rather than money.

In South Korea, where high housing prices are a limiting factor on fertility intentions, the introduction of a policy providing 50,000 units of subsidized housing per year to low-income newlyweds, in conjunction with longer maternity leave and higher fertility subsidies has been shown to have a positive effect on fertility rates.

What can China do?
The ultra-high welfare policies of the Nordic nations are based on their strong financial resources and a per capita GDP that is five times higher than China’s. Obviously, there is little chance that China can replicate such policies, but what the country does have is a social elite that can shape opinion and behaviors, something it can utilize in the pursuit of rectifying its fertility problem.

The government should also step up its propaganda efforts, using less rigid slogans and providing more guidance showing the benefits of having children. By using various media, they can highlight the emotional benefits, the difficulties an elderly population will face without children to take care of them, more favorable views on marriage and an increased sense of male familial responsibility, among other things. The aim is to strengthen propagation and increase popularization of policies that support childbirth and help families fully utilize the aid at their disposal.

The decision to have children is multifaceted and therefore solutions require a comprehensive and coordinated policy approach utilizing business, society and governmental actors. A strong top-down design that includes cash subsidies, increased parental leave and development of a childcare system in line with education and housing policies is a necessity. Incentives such as tax breaks for companies that run childcare services can be used to encourage business involvement.

These policies also need to be correctly aimed at relevant demographics. Some families in China would benefit from the maximization of policy dividends through shared parental leave, while internal migrants would see better results from household registration reform. At the same time, different regions should introduce locally-tailored reforms.

The motivations behind these changes have to be scientific in nature and come from a long-term perspective. It is key that all policies are researched and tested before being implemented, pilot schemes are used, policy makers are cognizant of the long-term impact of different policy options and that they avoid deliberate focus on short-term results. For example, instead of choosing to punish companies for the unfair treatment of new mothers—which often leads to businesses avoiding employing women altogether—it is better to provide organizations with flexibility and reward those better at protecting women’s rights.

Raising rates
Promoting fertility and increasing fertility rates is hard, long-term and requires ongoing commitment. China’s one-child policy is deeply rooted in the country’s psyche and the fertility rate has remained low for a significant period of time, making any change a massive challenge. China needs to be prepared to fight a long-term battle and wait for policies to take effect before abandoning them. For starters, the country needs to move away from a focus on massive growth and take the first steps towards stopping fertility rates from continuing their decline.

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