China’s Demographic Winter

Written by Richard Hokenson 

Slower economic growth in China was both inevitable and predictable. That it happened at the same time with a decline in the number of persons of working age is not coincidental (see Chart 1). The Chinese labor force is shrinking. The setback in growth is somewhat softened by workers moving from low productivity agriculture to higher productivity in urban areas but that won’t last for long. Their economic growth rate will continue to decline.

Their demographic situation goes from bad to worse. Any thoughts that a relaxation of the one-child policy would improve their longer-term outlook are banished by the news that the number of live births declined for the second year in a row, falling by 11.6% to 15.23 million in 2018 (see Chart 2).

That is the lowest number of births since 1961 when Mao Zedong’s Great Leap Forward economic campaign led to millions of deaths and aborted or miscarried births (see Chart 3).

Although increased urbanisation plays a role in depressing the birth rate, our (Hokenson & Company) view has always been that it is the changes in the social mosaic that are much more important, specifically a declining marriage rate and a rising divorce rate (see Charts 4 and 5). Marital status is critical because for Chinese women, unmarried motherhood remains the final taboo. Only about 1% of children are born outside of marriage which is similar to Japan, Korea, India and much of Africa. For the first time in more than a decade, China’s divorce rate is climbing faster than the rate of new marriages. The shift was even more pronounced in Shanghai where divorces rose by 13% and the number of marriages actually declined by 3%. Ironically, a new property tax laws helps to spur divorce. The new law imposes a 20% tax on the profits made by homeowners selling their property. A loophole, however, allows for divorced couples with two homes, one in each of their names, to sell the properties tax-free.

Many developed and developing countries have programs intended to increase their birthrate. As best as we can determine, women are eligible for benefits regardless of marital status. Thus, countries that already have a relatively high percentage of births out of wedlock are potentially in a better position for the programs to have an effect (in about one-third of OECD countries, the percentage of births out of wedlock exceeds 50% [see Chart 6]). Even if China were to introduce a pro-natality program, it is highly likely to only be targeted at families. President Xi Jinping has stated that “Families are the cells of society…Society will be stable if we have peaceful families; society will be harmonious if we have happy families.” So far, however, family formation remains elusive for China.

The collapse in the birth rate further aggravates their ageing situation. China is not very old today but it ages very quickly (see Chart 7). Their population is increasingly unbalanced – too few children being born and the elderly living longer. It is hard to be a great power if your population is shrinking.


This update was researched and written by Richard Hokenson, as of March 29 2019


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