China’s Declining Birth Rate Threatens its Economic Growth Prospects

Summary

  • Demographers predict a further decrease in birth rates in China for 2023, due to unresolved issues such as gender inequality and high childcare costs.
  • The ongoing economic uncertainty, coupled with an intensifying property sector crisis, are also affecting fertility rates.
  • As elderly care and retirement benefits become more expensive, the strain on local government debts intensifies.
  • Meanwhile, concerns have been raised about underreporting of COVID-19 related deaths.
  • China’s ageing demographic presents its own set of challenges, with numbers of 60-year-olds predicted to exceed 400 million by 2035.
  • Efforts to encourage childbirth are being made, through longer maternity leave, tax deductions, and housing subsidies.

Demographic Trends in China

Data on population trends, to be released on January 17, is expected to show a continuing decrease in China’s birth rate. The number of newborns in 2023 is predicted to continue to decline from the previous year’s number of 9.56 million. The Chinese birth rate has been experiencing a downward trend since 2016 due to persistent issues of gender inequality and high childcare costs.

Impact on Economy

Among factors impacting birth rates is a growing youth unemployment rate and reduced wage rates for civil servants and white-collar workers. The crisis in the property sector, which houses most household wealth, has also intensified. With declining consumer numbers and workforce, the growth prospects of the world’s second-largest economy are at risk. Added to this, increasing elderly care and retirement benefits costs put further strain on local governments grappling with debts.

Uncertain Future

As per Xiujian Peng, senior research fellow at Victoria University’s Centre of Policy Studies, the slower economic recovery and uncertain future of China weigh more heavily on fertility rates than the relaxation of COVID-19 restrictions.

Effect of COVID-19 on Demographics

With the unexpected removal of restrictions in December 2022, the COVID-19 virus spread through China’s 1.41 billion population rapidly. Following this, a sharp increase in deaths was reported. Suspicions regarding China’s data transparency have been fueled due to an overburdened crematorium system and pressure on doctors to underreport COVID-related deaths.

China’s Ageing Population

China faces the challenge of a rapidly ageing population, where people aged 60 years and older are estimated to rise from 280 million currently to over 400 million by 2035, representing a larger number than the US population.

Encouraging Childbearing?

Local governments are trying to reverse the declining birth rates by implementing various measures including longer maternity leaves, tax benefits and housing subsidies. Yet, low incomes, high job uncertainty and gender discrimination are still discouraging childbirth.

Marriage Trend

The significant decline in marriage rates in 2022, lowest since 1979, signals a potential further decline in birth rates in 2023. Single women in China usually don’t receive child-rearing support, making marriage a leading indicator for births.

Last Thoughts

The recent report by the Yuwa Population Research Institute highlighted the need for “urgent” measures to reverse the decline in newborns via generous family subsidies stating that, “The most worthwhile investment in China today is children.”

Low fertility rates may lead to implications in the forex market due to potential changes in China’s economic growth trajectory and demographic structure, thus influencing investor confidence and constituent assets.

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