How Birth Rates Will Impact China's Economy

Two child policy will not avert an eventual plunge in births in China say analysts, but changes to fertility will influence China’s economy in the decade to come

Daniel Rohr, CFA 28 March, 2017 | 4:39PM
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The influence of demography is often imperceptible quarter to quarter or year to year. But over the long term, it can prove decisive. For much of China’s past 30 years, demography aided extraordinary growth and supported an increasingly investment-heavy economic model. In the next 10 years, we expect demographic change will drag on growth rather than drive it and radically reshape China’s economy. The seemingly limitless supply of “surplus” rural labour, which fuelled rapid urbanisation and productivity gains, will begin to dry up.

The working-age population will contract just as the senior population surges. China’s unusually high support ratio – the number of working-age adults for each child and senior – will collapse, draining the huge pool of savings that funds outsize investment outlays but stabilizing consumption growth as the overall economy slows.

Two Child Policy Will Not Avert a Plunge in Births

If demography is destiny, the future begins with fertility. Many of the demographic changes China will experience over the next 10 years – slowing population growth, a shrinking labour force, and a rising support ratio – are consequences of a premature fertility crash caused by harsh family planning laws.

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About Author

Daniel Rohr, CFA  is a senior equity analyst at Morningstar.