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Changing its baby policy may not be enough for China

China is hoping it can fix a big population growth problem by easing its one child policy rule, but a number of skeptics say the rule changes will barely move the needle.

China has decided to abandon its 35-year-old one-child policy, allowing all couples to have two children.
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China has a slowing fertility rate and an aging population, trends that were started after China's autocratic government made a rule in 1979 that couples could have only one baby. In more recent years, slowing population growth has been a source of concern for Beijing. By abandoning its one-child rule, the fertility rate, which is the number children a woman has in her lifetime on average, is now forecast by economists to rise from 1.9 to only 2.1.

And that may not be enough.

"One-point-nine to 2.1? This won't dramatically change China's population metrics," said James Smith, chair in labor markets and demographic studies at Rand Corp.

"China should have scrapped its child policy altogether," he said.

But some China watchers say even that would not be enough to trigger a baby boom. Duncan Wrigley, who specializes in China macro research at NSBO Bank, forecasts roughly 1 million to 2 million more babies a year versus 17 million currently.

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History has also shown us that Beijing's move to ease restrictions slightly back in 2013 really didn't help. "The increase in births was only one-quarter of expectations," said Wrigley.

Money is an issue, too.The average cost of having a child has gone up dramatically over the past 10 years. Wrigley pointed out that rising incomes and the cost of child-bearing in China has already contributed to a reduced desire to have children.

Capital Economics wrote in a report Friday that urban residents, who would be the biggest beneficiaries of any changes in the rules, do not generally appear to want more children. Experts who spoke with CNBC said families will need motivation and an impetus to expand their family — perhaps even a "second-child package" to help parents who don't have a lot of money.

But China economist Chang Liu at Capital Economics said he's skeptical of financial aid helping as well, given that similar moves elsewhere in Asia have not appeared to work.

"The Singaporean government has tried a range of measures in recent years, from financial incentives to music videos and leaflets. Yet Singapore's fertility rate remains at 1.2, far below the replacement rate and above only its East Asian neighbors Macao and Hong Kong (1.1) and equal to South Korea (1.2)."

Are Chinese baby boom predictions overstated?
Are Chinese baby boom predictions overstated?

According to the United Nations, 23 million people age 80 or older were living in China in 2013. The U.N. forecasts that by 2050, China will still have the largest population in that age group— 90 million.

Chinese typically retire around age 50-55, which by global standards is relatively young.

But a 2014 research paper titled "Healthy Aging in China" published in The Journal of the Economics of Ageing, says postponing retirement age by itself cannot do the full job. Whether retirement can be postponed depends on the health status of the would-be retiree.

Personal health is a challenge in China. The paper notes that China has growing rates of smoking and obesity, as well as worsening pollution.

As China ages faster, there will be mounting pressure on the government to use campaigns to promote healthy living and increase overall health care spending. According to the U.N., China's per-capita health expenditure is much lower than the United States, Europe and most of East Asia, including Japan.

Another policy that Beijing could change involves migration and benefits. China has a policy of tying benefits to where a citizen is born, which makes it challenging for families to move to cities and change locations in general.

"China has made it hard for families in rural parts of the country to migrate to the city, which is hampering growth and population trends," cautioned Smith.

While policymakers may introduce more measures to make the country younger and more productive, it will be difficult to determine any time soon whether these initiatives, including last week's announcement, are working.

"It's going to be hard to see the immediate effect of this on the population and economy in general, let alone predict what kinds of companies would benefit," says Nandini Ramakrishnan of JPMorgan Asset Management.

The market reaction following China's decision to ease its one-child policy sent a handful of stocks higher. Specifically, multinationals that already do business in China and specialize in baby products and medicines saw increases in their share price: Danone, Nestle, Kimberly Clark and Abbott Labs, among others were all seen as "China baby plays."

But JPMorgan Asset Management is skeptical.

"Consumer and service oriented sectors would benefit with population growth, but ... any more clarity on what specific kinds of companies will depend on which parts of the population might grow now (i.e. urban vs rural, middle class vs high or low income brackets, skilled labor vs unskilled)," Ramakrishnan said by email.