Demographer James Liang on China's extremely low fertility
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.
梁建章：灰犀牛来了——极低生育率意味着什么？
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.
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Some Western countries like Australia are addressing this issue through immigration. I think this is a card that has not been used yet by China, even if it is restricted to Chinese diaspora only.
I agree with the assessment that China’s extraordinarily low total fertility rate (TFR) will cause huge problems in the future. China will no longer be able to leverage economies of scale due to its smaller population, taxes will have to be high to support the elderly, and those less fortunate will have to work into their 70s due to a strained pension system.
However, I don’t think the solutions proposed by Liang are going to be sufficient. It is important for China to learn from other nations’ failures to increase their own respective TFRs. Singapore just hit a new low of 1.05 this year. South Korea is at 0.8. Even Norway is now at 1.45.
Worldwide statistics show that developed countries have a lower TFR. These countries typically comprise of people who are wealthier and have access to a social safety net far better than the global average.
Therefore, it is naïve to think that giving people money will do much to improve birth rates. Indeed, Singapore has been trying this for more than a decade now and its TFR continues to fall. If Singapore cannot succeed with subsidizing births, China will not succeed since China has far less ammunition to use on this front given it is a far poorer country.
Initiating pro-birth policies such as parental leave is also unlikely to help much. Norway has some of the best social policies to improve births, but its TFR has recently, like China’s, started to plummet.
So here are my proposals (admittedly as a non-specialist):
1) Change the mindset of China’s young adults regarding definitions of a “happy family”. This is the most important point. Malays in Malaysia have a TFR of approximately 2. Chinese in Malaysia have a TFR of approximately 1, despite having more income. Money is therefore not what results in larger Malay families, but cultural differences. To remedy this, the government needs to embark on a major propaganda campaign with pictures of large happy families everywhere, accompanied by slogans of how parents are the nations true heroes. The idea that children should have a happy childhood free of educational pressures should be reinforced. This sounds silly but given the TFR differences between ethnic groups within individual countries, it is clear cultural mindset is the most significant determinant, not economics.
2) Link child rearing directly to career success. The youth in many developed societies now have far more ambitious career aspirations than their parents and grandparents. This is particularly true for societies such as South Korea, where career prestige is important. For those employed in the public section, China should reward actions that improve society. This should include child-rearing. It is these children after all, who will be paying for everyone’s future retirement through their taxes. Therefore, actions such as caring for children or having 2 or more children should factor into job promotions. Data on the average number of children for employees of large companies should also be analyzed so that tailored solutions can be sought to improve work-life balance at those companies with low TFRs. The reason this will work better than cash subsidies is that today’s young adults are interested in more than money. Indeed, societies of richer people have lower birth rates, not higher. Many young adults in developed societies, with South Korea being one such example, consider career prestige too. It is far more satisfying to be able to tell the mother-in-law that you got promoted to the position of “Executive Vice President” than to tell her you received a 2000 RMB cash handout for having a third child (even if the work promotion, in addition to your own competence, was also due in part to having that child). What we are seeing today is a generation of youth who have had an unprecedented amount of investment in their educations. They want to show their parents and family that the investment was worth it, and they achieved career success. Directly linking child rearing to career success will remedy this situation.
3) Allow young parents to travel. Nowadays, young adults get to see the world through social media and want to experience it for themselves. This is challenging for adults with many children. I wonder if introducing a system similar to “Summer Camps” in the United States would allow a few weeks each year for parents to take the trips they have always dreamed of. These “Camps” would be publicly funded and focused on fun activities for the children (sports, watching movies, learning outdoor skills, i.e., not educational) but would give parents time to engage in the activities that only childless parents today can easily enjoy.
Note that with each of these initiatives, it is important to place the burden of child-rearing on the parents and family unit. Society should NOT place this burden solely on women. Campaigns should target men as child-rearers who play an (ideally) equal role. I would also propose introducing paternity as well as maternity leave and strongly encourage fathers (even through somewhat coercive means) to take paternity leave. I do not think that increasing parental leave will increase births, given that some of the countries with the most parental leave have the lowest TFR. However, it can be used to encourage fathers to take a more active role in childrearing. It is unacceptable in this day and age to expect the mother to simply raise the children herself, and it should be frowned upon for fathers to avoid taking paternity leave.