China's two-child policy problems

When China last week announced it would end its highly contentious "one-child policy" which dates to the late 1970s, the official Chinese media were quick to proclaim the wisdom of the change.

"The long-awaited move immediately excited the public," proclaimed China's official English language newspaper, China Daily. "China's historic elimination of its one-child policy will give birth to new business opportunities."

The decision will eventually allow all Chinese couples to have two children. Investors and financial markets responded. Companies seen as benefiting from the change, including milk powder companies doing business in China like Mead Johnson, Danone, Nestle and Synutra, saw their share prices jump in anticipation of more births in the world's most populous country.

A couple takes pictures with their baby on the Tiananmen Gate in Beijing November 2, 2015. China must continue to enforce its one-child policy until new rules allowing all couples to have two children go into effect, the top family planning body said.
Kim Kyung-Hoon | Reuters
A couple takes pictures with their baby on the Tiananmen Gate in Beijing November 2, 2015. China must continue to enforce its one-child policy until new rules allowing all couples to have two children go into effect, the top family planning body said.

Maternity medical care, baby food, kids' clothes, toys and other entertainment for children could well be winners as well should a Chinese baby boom indeed ensue.

The pressures leading to the policy change are clear. The change was "intended to balance population development and address the challenge of an ageing population," the official Xinhua news agency reported.

China now faces a slowing economy, a rapidly aging population, and a dramatically shrinking workforce. While China's population is nearly 1.37 billion, its working-age population – defined as 15- to 64-year-olds – is actually dropping. Demographics now constrain China's once rapid growth.

This is just one unintended consequence of the nation's drastic one-child policy, and its at times brutal enforcement. By 2030, China is expected to have more than 243 million people over the age of 65 – an 85 percent increase over today.

Yet, China is likely to find that its policy pronouncements are insufficient to change the social norm of a single child anytime soon. As China's citizens move up the income ladder, payouts and penalties are likely to have less and less power to change behavior.

That's one clear lesson from across Asia. As nations have grown wealthier, more and more of their citizens have delayed having children, or having any child at all, focusing instead on careers and other goals.

When it comes to that most personal of decisions – how many kids to have – Singapore's struggles to first lower and then spur a higher birthrate are particularly instructive. Government policies even from the most effective of governments do not necessarily generate the envisioned results.

In the 1960s and 1970s, as Singapore began its own march to developed nation status, government officials were worried about a growing population overwhelming the job market, housing, health care facilities and other infrastructure. A government campaign followed, with a core message: "Girl or Boy – Two is Enough."

The government legalized abortion, offered cash incentives for voluntary sterilization and disincentivized having more than two children.

By the mid-1980s, the government campaign to persuade parents to "stop at two" children proved too successful. Labor shortages were projected. And officials changed tack and now offered financial incentives to encourage parents to have three children. Those "who can really afford it" were encouraged to have more.

Special tax rebates, child-care subsidies and prioritization for government-subsidized housing and the removal of earlier disincentives that discouraged more than two children followed.

Now, decades later, Singapore still struggles to address workforce issues. A richer Singapore has developed a preference for small families that has proven resistant to change. And yet, Singapore still evolves and succeeds – ranking as the No. 1 place in the world to do business, according to the World Bank.

China is likely to face similar challenges, including how best to evolve to address a shrinking workforce and lower growth rates. Rethinking and harnessing the potential of what an aging population can contribute is one step. But changing to a two-child policy is not the answer.

A "two-child policy" like the "one-child policy" of population controls remains a powerful symbol of China's efforts to control its people. But as China has found with its stock exchanges, human behavior – like market forces – cannot be fully controlled or predicted, even by the most powerful bureaucrats of Beijing. A more confident China would understand that, and allow its citizens to live as they choose, and to compete, to fail and to succeed on their own.

Commentary by Curtis S. Chin, a former U.S. Ambassador to the Asian Development Bank. He is currently managing director of advisory firm RiverPeak Group. Follow him on Twitter at @CurtisSChin.