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China Still A Long Way From Solving Its Demographic Crisis

Business, China, Company Strategy, Economics
By John Richardson on 20-Jul-2014

china_one_childSO much for a new demographic dividend, as we warned last November when China announced that it had relaxed its one-child policy.

If you recall, Beijing decided that couples would be allowed to have two children if just one of them was an only child. The previous system stipulated that both parents had to be only children for the couple to be exempted. There are also other existing exemptions, including permission for ethnic minorities to have more than one child.

But we cautioned that, apart from the more obvious problem that the one-child policy had left a legacy of not enough women, young people had also got out of the habit of having more than one baby because of the cost of living.

Investors, however, became convinced that a baby boom was on the way.

The Economist, however , points in this article from its 19 July issue:

About 270,000 couples applied for permission to have second children by the end of May, and 240,000 received it, according to the national family-planning commission. It means China will fall well short of the 1m-2m extra births that Wang Peian, the deputy director of the commission, had predicted.

The problem is partly bureaucratic. China announced the relaxation of the one-child policy in November: if at least one of two parents is a single child, the couple may have two children. Provinces began implementing the new rule only in January. Fearful of a baby boom that would overwhelm hospitals and, eventually, schools, they have made the application process cumbersome. In the eastern city of Jinan, for instance, would-be parents must provide seven different documents, including statements from employers certifying their marital status.

Another problem is that it costs  25,000 yuan ($4,030) a year to raise a young child, which is equivalent almost to the average annual income, adds the same article.

What The Economist fails to mention is that the cost of real estate also makes having anything more than one child,  or even one child, prohibitively expensive for many couples in China.

So what does this tells us?

It tells is that China has another reason to for taking the air out of its property bubble.

It also tells is that China must, and we are sure will, press ahead with its anti-corruption drive in order to create more equitable society.

“I have a degree in chemicals engineering and an MBA, but I am not connected and so I don’t have any chance of making a good living. I am worried about the cost of starting a family,” we were told by a Beijing resident last year.

By connected he meant that neither of his parents were either politicians or politically well-connected business people.

China has to press ahead with these reforms as there is simply no way that it can allow its birth rate to remain where it is at the moment, just 1.5 per woman compared with the replacement rate of 2.1. Any country, particularly a developing country such as China, cannot afford a birth rate of only 1.5.