Since the beginning of the 1950’s China’s population exploded. Starting from roughly 500 million, the number of inhabitants almost tripled to 1.4 billion people. Putting it into perspective, this is more than North America, Australia, and Europe combined have. Policy makers in the 1970`s knew that this strong economic growth will lead to an overpopulation of the country, and so came their response – the implementation of the One-Child policy in 1979.

 

Source: www.researchgate.net

This law prevented Chinese families to have more than one child (with some exceptions) by forcefully sterilizing woman and introducing large fines for mothers with more children. The problem China is facing today is that the policy worked too well. 50 years ago, the total fertility rate (that is, the average number of kids a woman has over her life) dropped from 6.5 to 1.6. Experts say that a country with a rate below 2.1 will not be able to maintain its size, resulting in a shrinking population and economy. However, China is not the only country that is facing this problem. In fact, more than half of the world population lives in a country with the same problem or is on the way to encounter it soon.

This demographic crisis China is facing will significantly impact its economy (GDP), its military, and also its current president in power, Xi Jinping.

 

Threats

In order to understand this situation a bit better, let us have a look at the so-called “population pyramid” (represented by the two graphs shown below). The reason why this pyramid is so important is that it shows the balance between the different age groups and their percentage of the total population. At the bottom are babies, continuing through all the age groups to retirees. People ranging from 18-45 are called the “Spenders”, as they are strongly contributing to the economy due to their high tendency of spending rather than saving. From 45-65 are the “earners”, they are the biggest contributors to economic growth because they usually have the highest income and therefore also pay the highest taxes. Everything above are the retirees, paying no taxes but getting pensions and social payments. The most interesting thing to notice is that from one day to another, a person contributing the most to the economy retires and so contributes the least to the economy now. The problem with the graph, like the one of China, is that throughout history they used to look like the one graph on the left side: with many babies at the bottom and getting narrow to the top. If you have a look a the graph on the right, however- the graph representing the year 2017- we can see that the proportions have dramatically changed.

What is really important to see is the two big bars in the chart of 2017 (right), one being the “spenders”, and the other one being the “earners”. For this reason, China is seeing such a huge economic growth, but this also implies that in some years it will decrease dramatically because all of these people will retire, and there are not enough follow up people to maintain such growth. To put this into perspective, a single child in China has to care for two parents and four grandparents.

Another factor that adds up to this crisis is the continuous trend to move to the cities. Back in the days without advanced technologies and machines, children were the best factor of productivity maintenance and improvement, but due to the increased industrialisation, they are becoming more of a liability, rather than a utility.

But one does not always have to see the bad sights alone; this change indicates an increase in education, more opportunities for women in the workforce and better healthcare systems. This furthermore leads to an increase in productivity, immigration, and taxes – all strong contributors to a country’s economy.

Unfortunately, these things have several downsides as well. For example, countries that now give incentives to have more children make employers more hesitant to hire young female workers. Let`s take Sweden as an example: A couple is allowed to have, per child, 480 days of paid maternity leave. Obviously, this is a huge cost for companies, which leads to the issue just mentioned.

Also, China has implemented incentives such as monetary help for families with a second kid, but somehow this all does not seem to work out. One reason may be that the one-child policy has resulted in two generations with just one kid, so people now see this as the common norm, and it is hard to break these again. This is further enhanced with the pressure for young workers to work longer just to maintain their standard of livings, due to the rising taxes necessary to support the ever-growing number of retirees.

This doesn’t mean that China cannot do anything against this problem. For example, the increasing number of people working in cities makes them also bigger contributors to the economy. Additionally, the young workers that will replace the old ones are far better educated, from an average of six years of education to an average of 11 years. Not to mention, the increasing automation partly contributes to solving this problem. However, this might have long-term implications that are hard to predict.

 

This demographic problem that China, along with many other developing nations faces is of great magnitude. Even if these countries manage to increase fertility again, demographic changes happen over a long time-period. Babies born today will start contributing to society in 18 years, at the earliest! For now, it is hard to predict what the real implication of this will be in the upcoming years. Nevertheless, no matter the outcome, it will define how countries develop throughout the 21st century.