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Demographer James Liang on China's extremely low fertility
The leading entrepreneur and public intellectual says what happened to Japan in demographics is now happening in China more rapidly and severely and calls for more comprehensive pro-birth policies.
Today we provide a translation of a recent article by Dr. 梁建章 James Jianzhang Liang, a leading demographer in China, well-known for his decade-long warning on China’s demographic challenges.
Dr. Liang was a research professor of applied economics at Guanghua School of Management, Peking University. He received his Ph.D. from Stanford University and his master's and bachelor's degrees from the Georgia Institute of Technology.
Dr. Liang is unique among economists and public intellectuals because he co-founded and led Trip.com Group Ltd., a leading Chinese multinational online travel company, where he is now Executive Chairman. He held a number of technical and managerial positions at Oracle Corporation from 1991 to 1999, both in the United States and China. He was the head of the ERP consulting division of Oracle China from 1997 to 1999.
The text is sourced from his WeChat blog published on January 17, 2023.
James Jianzhang Liang: Here comes the “gray rhino” - What does extremely low fertility mean?
Population decline, a long-term concern, finally arrived in China. According to data released by the National Bureau of Statistics of China on January 17th, China’s population registered 1.41175 billion at the end of 2022, down 850,000 from the end of the previous year. It is the first time in nearly 61 years that China's population has declined - no surprise for those who have always paid attention. In fact, as early as 2016, the growth of China's population began to fall annually, from 9.06 million in 2016 down to 480,000 in 2021, mainly resulting from the continued low fertility rate.
In 2016, the number of births rebounded temporarily (new births at 18.83 million), boosted by the Two-Child Policy. Only six years later, however, the number of births in 2022 fell by nearly HALF to 9.56 million. Such a slump is even beyond the most pessimistic estimation.
Let’s compare China with different countries. Take India, with a population roughly equivalent to China's. Currently, India has more than 20 million new births each year, more than twice the number of China, and it will have a total population far larger than China in the future. Supposing China’s average life expectancy stands at 80 years, even if China has 9 million births each year, it can only maintain a population of some 700 million in the long run. Besides India, China’s future population will also be overtaken by many countries with high fertility rates, such as the United States, Nigeria, and Pakistan.
In general, the total fertility rate (TFR) between 1.3 and 1.5 is referred to as an ultra-low fertility rate. A case in point is Japan, whose TFR stands at 1.4. In China, if there are 9.56 million births per year (the 2022 level), the TFR is still less than 1.1, only half of the replacement level and even 0.3 lower than Japan's and 0.5 lower than western developed countries. Such TFR can be called an extremely low fertility rate and is almost among the world's lowest, only slightly higher than South Korea. Predictably, China will face more severe birth shrinking and population aging than any other country. Worse, its 2022 decline is just a start — there is little chance to reverse it in the short term.
It is worth noting that COVID-19, at least in 2022, is not an obvious contributor to the shrinking population, as China secured effective pandemic containment over the past three years. In contrast, COVID may lead to declining births in 2023.
[Pekingnology: Dr. Liang appears to suggest that for births in 2022, the decision to bear children was most likely made in the early months of 2022 or 2021, during which time China’s covid control measures largely kept the society running smoothly. However, the repeated covid flare-ups, due to the highly contagious Omicron variant, disrupted Chinese social order in mid and late 2022, which conceivably could lower people’s child-bearing decisions, and that will show up in 2023 numbers.]
Overall, China's first population decline cannot be attributed primarily to the pandemic but the combination of various factors in the long run. Therefore, even if China quickly exits the pandemic [Pekingnology: after dropping covid controls nearing the end of 2022], new births will not rally significantly. Such an illusion should be given up, and a long-term and forward-looking attitude should be taken toward China’s population.
The shrinking fertility rate directly leads to a declining population, and the aging population will put China at a clear disadvantage in future international competition. Therefore, what will happen if the decline becomes the norm for China's population in the long run? The elderly care is the first to bear the brunt. The newborn babies of each year will become the backbone of society in twenty to forty years. As the main creators of wealth, they will take on many social responsibilities, including elderly care. However, as the proportion of new births to the total population continues to decline, the wealth creators will shrink for a long time. At the same time, the number of elderly who need support is expanding. That is to say, the heavier burden of elderly care will fall upon fewer young people in the future.
What’s worse, the plunge in the young population may undermine the innovation of China’s economy. The vitality and resilience of China’s economy are driven by the country’s advantages of having a super-large market and population. If the total population, particularly the young population, goes down, such advantages will gradually disappear. Moreover, the economic slowdown and the aging population will inevitably result in less inclination of youngsters to innovate and start up businesses, thus dealing a heavy blow to the creativity of the whole economy. This is similar to what has been happening in Japan over the past few decades — just more rapid and severe in China.
Because of that, we have made many calls in the past decade for close attention to China’s population problems and the introduction of policies to help lift the fertility rate. Some of our calls have been adopted over time. For instance, Shenzhen is now soliciting public opinion on《育儿补贴管理办法》Measures for Administering Subsidies for Child-Rearing, under which a three-child family will be eligible for a maximum subsidy of 37,500 yuan (US$5,529). Besides, Shanxi, Shaanxi, Yunan, and other places have launched similar policies or are planning to do so.
However, the above-mentioned policies are far from enough. For one thing, regarding the soaring child-rearing cost, the current cash subsidies may not bring the expected results of childbirth encouragement until being further expanded. Some European countries have successfully raised the birth rate by spending 2-3% of GDP on average to encourage more babies. Since the birth rate is lower in China, it may take China 3-5% of its GDP to see some improvement. Our previous articles have suggested ways to reduce child-rearing costs, such as cash handouts, tax exemptions, and subsidized mortgages. And now it is the time. This is because proactive fiscal and monetary policies can serve as a great stimulus to the economy against the backdrop of overcapacity and insufficient demand. If these policies favor families with children, they can encourage childbirth and boost the economy simultaneously.
For another, cash subsidies are not enough to eliminate families’ concerns about childbirth. For example, as newborn babies may overburden families, China needs more preschools built in the future to raise the preschool enrollment rate among children aged 0-3 from less than 5% to around 50%, helping to ease child care burden with public services. To this end, hundreds of billions of yuan should be channeled throughout the whole society. Moreover, children may be overwhelmed by pressure from fierce competition in education when they grow up, which also stops young couples from having more kids or even the first. To solve this problem, an overhaul of the education system, including canceling Zhongkao (the Senior High School Entrance Examination) and shortening the schooling length, is needed to liberate children from the excessive burden. This will ultimately increase the child-bearing willingness among young people.
In conclusion, despite the fact that we have long ago predicted China’s population, it is still shocking to see it come so rapidly. The population decline unseen in China for many years has once again sounded an alarm to the whole society. All kinds of worries following the declining birth rate are approaching, and the “gray rhino” of an extremely low birth rate is looming larger. The impact of the birth rate plunge in the past five years on China’s economy will take about 20 years to manifest fully. We are optimistic about China’s economy in the short and medium term, but the long-term negative impact is bound to be tremendous. The gray rhino is now coming closer with slow but steady steps. In response, efforts must be made to undo, or at least lower, the negative impact of the population crisis on China. (Enditem)
Dr. James Jianzhang Liang is among six high-profile who penned a letter for “opening up economic activities” on December 3, 2023.
ICYMI here is the last Pekingnology newsletter summarizing Henry Huiyao Wang’s recent dialogue with Susan Thornton and Douglas Paal.