End of China’s one-child policy unlikely to boost economy: analysts

30 October 2015 06:56 pm - 0     - {{hitsCtrl.values.hits}}

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AFP - China abandoned its decades-old one-child policy Thursday to confront a looming slump in the economy’s workforce that it is probably powerless to prevent, analysts say.

All couples will be allowed to have two children, China’s official Xinhua news agency announced as the Communist Party brought an end to decades of strict, sometimes harsh enforcement of the rule.

But there are serious doubts that Chinese couples want more children. And even if they did, it would take at least 15 years before their offspring were old enough to have an impact on the greying workforce.

“In reality, the one-child policy had already been abandoned,” said Patrick Artus, analyst at French investment bank Natixis.

The strict rules introduced in the 1970s have been progressively relaxed, with Beijing announcing in 2013 that couples could have two children if either of them was an only child.

Growth in the world’s second largest economy is likely to slow to around seven percent this year, the lowest rate in a quarter century and a long way from the double-digit rates that it enjoyed just a few years ago.
At the same time, China is heading towards a demographic shock, analysts say.

According to UN forecasts prior to Beijing’s announcement, the Chinese population aged 15-59 is set to fall by around nine percent between 2015 and 2030.
“China’s one child policy was a logical choice at the time, though perhaps crudely enforced.

Without it, China might have faced catastrophe,” said Anna Smajdor, medical ethics analyst at the University of East Anglia’s Norwich Medical School.
“However, increasing the child quota is unlikely to work in rebalancing China’s ageing population, because China like everywhere else is looking at a low birth rate especially among affluent, well-educated women.”

Women in China’s poorest rural areas were already allowed to have more than one child, she said.

Over the long term, there are two ways to boost economic production: increase the size of the workforce or boost productivity, said Edward Hugh, an independent economist based near Barcelona in Spain. “There is a huge time lag, 15 years plus, before this has any impact,” Hugh said.

Productivity gains are meanwhile likely to be harder to achieve as China shifts towards a consumer-led, services-based economy, he added.

“The low hanging fruit has been taken and then you get less bang for your buck.”

Growth in the Chinese workforce has in any case made only a “small contribution” to the economy’s development in the past 20 years, Capital Economics’ China economist Chang Liu and Asia economist Gareth Leather said in a report.

“The main reason why we expect growth to slow over the coming decades is not that the labour force will soon start to shrink but that the pace of productivity growth is likely to slow as the room for catch-up with richer economies diminishes,” they wrote.

Christian Deseglise, HSBC economist and lecturer at Columbia University, said China could not transition towards becoming a developed nation without sacrificing a little growth. “The rebalancing could mean six or seven percent growth, not 10 percent,” he said.
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