China’s announcement that it would relax its long-standing policy of allowing couples to have only one child is likely to give China’s slowing growth rate a boost.
The reason, according to Citigroup analysts, is that China’s population (like the rest of Asia) is aging, and that could become a problem for pensions.
In China 8.5 percent of the population is currently over 65, and this is set to rise to 23.9 percent by 2050, according to United Nations data.
“China has reached a turning point where the demographic dividend will become a liability,” said Shuang Ding, China economist at Citi.
Chinese state media reported Friday that the government would allow couples to have two children if one of the parents is an only child. The change was intended to promote “long-term balanced development of the population in China,” according to the state-run Xinhua news agency.
Under the current law, couples living in Chinese cities can only have two children if neither have any brothers or sisters.
China\’s one child policy has meant the total fertility rate – the average number of children that a woman would give birth to over her lifetime – has declined from 3.0 during 1975 to 1980 to around 1.6 during 2005 to 2010, the Citi note said. The note was released in October in anticipation of the changes approved by China’s rulers at its Third Plenary Session earlier this week.
“The resulting decline in the dependency ratio [the ratio of the working-age population to the dependent part of the population not in the labor force] has contributed significantly to China\’s amazing growth performance. However, working age population appears to have peaked…Population aging would reduce China’s growth potential and put pressure on the pension system,” added Ding.
China’s economy has slowed in recent years as the government transitions from an investment led model to one based more on consumption.
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