China's One Child Policy and Its Economic Impact

Introduction

Since Deng Xiaoping began to open the Chinese economy in the late 1970s, there have been substantial changes in China's demographics. These changes have both helped to support China's economic growth and presented Chinese authorities with significant challenges. The One Child Policy was introduced in 1979, virtually concurrent with China's economic modernization. In terms of direct influence, this policy left China with a relatively old population. In terms of indirect influence, it led to an uptick in female infanticide, leaving China with a generational demographic heavily skewed towards males. Combined with rapid economic shifts and corresponding internal migration from rural areas to urban areas, it is clear that China has been subject to considerable shocks as a result of both its economic policies and its population control policies.

This paper examines the impacts of China's changing demography on its changing economy. With both components subject to extreme and rapid change, it is difficult to draw conclusive findings with regard to these impacts, but reasonable inferences can be made as to how demographic changes have affected Chinese economic development in both the rural and urban sectors.

Major Demographic Shifts

China began its economic modernization policies in the late 1970s, in the wake of the Cultural Revolution. The Communist Party of China, unlike its Soviet counterpart, had failed significantly at economic development, leading to mass starvation that killed millions of Chinese, mainly in rural areas. The nation had experienced a baby boom during the 1950s and 1960s, giving the country a relatively young population. Two-thirds of Chinese were under the age of 30 in the late 1970s and entering their prime reproductive years. With potentially hundreds of millions of new mouths to feed, no new arable land, and a stagnant economy, the PRC undertook the drastic measure known as the One Child Policy (Hesketh, et al., 2005). This policy was more complicated than the name suggests, with rules governing not only family size and spacing of children, but also the conditions under which a couple could have more than one child. In rural areas, multiple children were typically still permitted.

The population of China at the time was around 800 million people (IIASA, 2009). Since the introduction of the policy, fertility rates dropped considerably. The baby boom had been fueled by fertility rates between 5.6 and 6.3 children per woman; by 1990 this rate had fallen to 2.45 and was still dropping (Ibid.). The impact of this steadily declining fertility left China with a bubble cohort of people who formed the bulk of the workforce that drove economic development from the 1980s through the 2000s.

Today, another demographic shift is evident. The One Child Policy remains in effect, but the trend toward smaller families has also become a societal norm. As China develops economically, fertility rates are beginning to trend toward those of other developed Asian societies. In urban areas, fertility rates are estimated at 1.43 (Ibid.) and dropping toward the levels seen in Japan, Singapore, and Hong Kong — all of which have among the lowest fertility rates in the world (Hesketh, et al., 2005). China is now faced with a rapidly aging population expected to follow demographic trends seen elsewhere in Asia (Chan, et al., 2006).

Underlying Reasons for Demographic Change

The Chinese government recognized that it would be unable to meet the challenge of feeding its population if growth was not curtailed. The One Child Policy, however, was not the beginning of population control. The government had maintained an informal initiative throughout the 1970s to promote lower fertility rates, resulting in a declining rate across that decade. The One Child Policy was simply an institutionalization of that informal policy. China's citizens had, for the past thirty years, been lowering their fertility rates — arguably even without the formal policy. Certainly in recent years, social norms have shifted away from large families, particularly in the economically developed cities and towns.

It is not just the size of China's population that has changed, however. The composition of the population has also shifted, owing to a Chinese cultural preference for male children. The One Child Policy did not alter this preference, so the incidence of female infanticide increased. This has led to a skew toward males in China's demographics today. Males make up 51.3% of China's total population and the same percentage of the working-age population (CIA World Factbook, 2009) — the inverse of most modern economies.

The rate of demographic change in China was, from the early 1970s to the early part of this decade, very rapid. The country generally supported the government's efforts, which brought about a startling decline in fertility rates from the early 1970s until the early 1990s. Since then, the pace of change has slowed. Several factors may explain this. One is that a more open, economically mobile society is less likely to defer to government input into daily life. Another is a degree of population momentum: the fertility rate may have slowed, but with a massive bubble of cohorts of child-producing age, the sheer number of births has remained high. According to UN estimates, this momentum is expected to continue through 2025, at which point China's population will begin to decline as the bubble cohort begins to die off (IIASA, 2009).

Impact on Rural Economies

The One Child Policy was often not applied to rural families. Even so, those families saw a reduction in fertility rates. There are two main consequences of this for the Chinese rural economy. The first is that poverty rates declined significantly. In 1978, an estimated 260 million Chinese lived in poverty; by 1997 that number had fallen to 50 million (Fan, et al., 2002). China has little in the way of a social safety net, so the reduction in poverty was largely a consequence of increased savings rates. Rural Chinese families, with fewer mouths to feed, were able to save more of their income. Moreover, with fewer children to care for them in old age, parents developed a greater propensity to save (Wei, 2009). Savings rates in China are now among the highest in the world. Rural Chinese who remain poor are generally considered to be caught in structural poverty where savings are not possible.

The high savings rate has helped to drive China's economy, largely by reducing rural poverty so substantially. Horioka and Wan (2007) noted that early studies showed "future income growth has a negative and significant impact on…future savings rates," indicating that as income grows in rural China, savings rates tend to decline. In cities, however, this pattern was not found to hold. Indeed, the increasing urbanization of China has paralleled a dramatic rise in savings rates. In rural areas where poverty still persists, savings rates have not increased, but there has been substantial migration to urban areas.

Conclusion

It is sometimes difficult to separate the impacts of China's massive demographic shift from the impacts of the government's economic policies, since the demographic shift was itself the consequence of specific economic policy. What is evident, however, is that China has fueled its economic growth with a surplus of workers born in the 1950s and 1960s. The generation that followed was significantly smaller, which has produced a number of downstream effects on the country's economy.