Saturday, August 11, 2012

The One-child Policy may stall China's rise

During a recent trip to China, I spoke at a couple of conferences on the evolution of the population policy, in India and China. That gave me an opportunity to discuss with quite a few Chinese, scholars and students, the various dimensions of China's one child policy. I was also surprised to learn that increasing number of Chinese scholars are questioning the utility of the population policy, and warning of the serious implications. With the help of research inputs from Prateek Kapil, I have tried to explore some the potential consequences of the one-child policy for China, and for the rest of the world. China has defied many conventional wisdom, whether it can defy the old adage “demography is destiny” will be seen over the next few decades. A version of this article has been published in the Geopolitical Information Service.

In the past three decades, China's rapid economic development has attracted attention of the world as well as led to some anxiety. However, in the next three decades, China's trajectory will be determined by its rapidly changing demography. The signs are that China's one child policy could stall its rise as dramatically. Today, China faces its biggest challenge, it may become old without becoming rich.
During his rule, Mao Zedong had suggested procreation was a patriotic duty to boost labour force. After Mao's death, and the ensuing power struggle, Deng Xiaoping took over the reins of power in Beijing and initiated his economic reforms.
In another clear break from the Mao era, on 25 September 1980, the Politburo of the Communist Party issued an "open letter" to all members of the party and the Communist youth league, urging them to take the lead in having only one child.China's leaders were reacting to an unprecedented population boom - from 540 million to 960 million people in just under 30 years. By 2010, population growth was slowed. Chinese authorities claim some 400 million births have been prevented over the last three decades.
In the 1970s, the fertility rate was about 5.5. By 2010, the United Nation's Population Fund estimated the fertility rate at around 1.6 in China. According to the UN’s population division, the nationwide fertility rate will continue to decline, reaching 1.51 in 2015-20. The Chinese Academy of Social Sciences (CASS), in a report in 2010, had warned that officials were seriously overestimating the fertility rate (the number of children an average woman can expect to have in her lifetime). CASS report urged the government to try to and boost the fertility rate at least to the replacement level of 2.1.
In contrast, America’s fertility rate is 2.08 and rising. And India's fertility rate stands at 2.63.

The Social Impact
The one-child policy, combined with a traditional preference for boys, has sharply distorted the sex ratio (the number of females for every 1000 males). According to the UN estimates, the child sex ratio at birth has declined from 935 females in the 1960s to 842 in 2010. Many Chinese men over the age of 40, may never find a bride. A survey done by the Xi'an Jiaotong University in 369 villages spread over 28 provinces found that on average there are 9 bachelors in every village, with an average age of over 41 years. This distortion is also leading to increase instances of violence and trafficking of women within, and also from outside China.
This policy has also led to phenomenon like black marketing in the adoption market, and “official” seizures of what the administration labels illegal babies. A slew of negative side effects have been noted, including a rise in sex-selective abortions and even infanticide as many families sought male offspring. There has been also been many reports of forced abortions, sterilizations and other brutalities.
The one-child policy came under renewed scrutiny in June 2012 after 22-year-old Feng Jianmei was forced to abort a seven-month fetus by local officials who claimed she had violated family-planning rules. It was also revealed that the officials had demanded a huge 40,000 RMB from this couple as fine and bribe to allow them to have the second child. The picture of the listless woman on a hospital bed soon after the abortion, led to a storm of protests in the Chinese social media. The officials have now been hauled up by their superiors.
This was hardly a rare incident. During visits to China, it is not uncommon to come across young Chinse in their twenties who acknowledge that they may not have been born if their parents had not been able to pay off the local officials.
The policy is also leading to new social issues in an old civilisation. In China, traditionally, children looked after their old parents. The 4-2-1 family structure means that often it falls upon an young couple to take care of two sets of parents and four sets of grandparents. With economic growth and millions of people moving away from their homes in search of better lives.
China's latest census puts the senior citizen population at 185 million, or 13%, over 60 years in age. And a tracking survey released in July 2012, found that almost half of them are living independently, and do not see their children too often.
A draft law proposed in June 2012, to protect the rights of elderly, includes a clause that would make it a legal duty of children to visit their parents regularly. While the intentions behind the law may be good, a “legal duty” may not really meet the emotional needs of parents. Equally importantly, for many migrant Chinese workers, it is not very feasible to take leave to travel home more than once a year, many may not also be able to afford the cost of travelling long distances.
The established old-age security system too has failed to meet the growing demand. There were about 38,000 old-age home in China in 2009, taking care of about 2.66 million elderly. But an additional 3 million beds are required to just meet the current needs.

The economic impact
The economic impact of an aging China is already being felt. The median age in China has risen from 22 in 1980, to 35 now, and if the trend continues, by 2050, it will be closer to 50 years. In contrast, the median age in the United States would be around 40 years by 2050, and for India it is expected to be about 35 years.
The number of young people in the age group of 18 to 22 years peaked at 125.4 million in 2008, and is expected to decline to 56.2% of that peak by 2020. Over the next ten years, the population in the age group of 20-40 years could decline by 100 million.
Chinese businesses are already feeling the pinch of this shifting demography. The increasing incidences of labour disputes is just a manifestation of the shortage of appropriately skilled labour, and the rising labour costs. It is projected that between 2013-15, the working age population in the age group of 15-64 years, will begin to shrink.
The much talked about labour dispute at Foxconn Technology Group which assembles Apple's iPad and iPhone, a couple of years ago, is typifies the challenge. In February 2012, the company announced a hike in starting monthly pay to 1,800 RMB (US$ 286), and this was the third hike since 2010, when the salary was 900 RMB. Foxconn is now planning to move a part of its manufacturing facility to Indonesia.

Addidas has announced the closure of its garment production facility by October 2012. IKEA is considering a move to Italy, to save cost, and improve quality. And Nike's facility in Vietnam recorded higher share of production than China's in 2010.

A study by the Boston Consultancy Group, released in earlier in 2012, found that more than a third of executives at US based companies with sales of over US$ 1 billion, are either planning to bring back some of their production to the US from China, or are considering it. BCG predicts that improved US productivity and competitiveness, coupled with rising costs in China, would make a range of industries move at least partially back to US. This could create 2 to 3 million manufacturing jobs in the US, with an investment of US $ 100 billion, over the next decade.

A growing number of economists are predicting a slow down in China in the coming decades, due to shrinking labour pool, and rising costs. And the aging demographic trend is likely to reduce China's capacity to power economic growth due to increased domestic consumption.

The Other Dimensions

Changing demography presents its own security and strategic challenges. The low birthrate has adversely affected the recruitment of young people to the military and security services.

The tragedy is that One-child policy was never supposed to be a permanent measure, but was meant to bring down population growth to a manageable level. Tian Xueyuan, a leading member of the team that oversaw the policy's introduction, told the Jinghua Times: "The purpose of the policy was to control birth rate for one generation." The subtext has gone far beyond these justifications today.
Yet, few expect significant changes to the one-child policy soon. Chinese officials continue to argue for continuity.
Noted political commentator Fareed Zakaria has succinctly summed up - “This is actually a fascinating real life example of the problems with centralized authoritarian regimes, even when they're as well run as China's. When they make good decisions - on economic policy, for example - they are rapidly implemented and well-executed. But the same is true when they make a bad decision, or a decision that no longer makes much sense. That seems to be the case with the one-child policy.”
The irony is that Mao celebrated procreation, so that there would be ample cannon fodder to showcase China's power. While Deng, unleashed the animal spirit of China in the economic sphere, yet, put the fretters in the bed room. China has paid a huge price for Mao's follies. And may yet have to pay again for Deng's mistaken policy on population. Only a new generation of leaders in China might be able to break China free from the legacy of its two supreme leaders, and avoid a demographic doom. But reversing the demographic trend is extremely difficult, as Japan, Singapore, and some other developed economies have discovere. If China fails to reverse the trend towards becoming old before becoming rich, then the rise of China would stall in the next few decades years.

Speculating on Deng Xiaoping motives underlying the one child policy
One may never know the real motive behind Deng's decision to push for the one-child policy. But one could speculate on a few factors that might have influenced his decision.
  1. In the 1970s, population growth was the biggest buzz in the world, and Deng may have wanted to signal to the world about his progressive concerns.
  2. Deng wanted to break from Mao's legacy, and just as he embarked on market reforms, he questioned Mao's views on human proliferation.
  3. While embarking on market oriented reforms, Deng would have faced many challenges from within the Communist Party. So the one-child policy sent a message to the party and the population, that while China would liberalise the economy, the party would still control one of the most personal decisions of the people. This may have reassured the party that it would retain absolute power over the people, even while the people may enjoy some freedom in the economic domain.