Will the one-child policy wreck China’s economy?

China’s rapid economic development and America’s evident vulnerabilty after the Global Financial Crisis could make the Chinese a bit smug. But as leading demographer Nicholas Eberstadt points out in a frightening article in the Far Eastern Economic Review, China faces gigantic economic problems as the legacy of its one-child policy.

Inexorably—and by now inescapably—a host of new and unfamiliar demographic problems have arisen, all of which will plague China's next generation. These problems will compromise economic development, strain social harmony and place the traditional Chinese family structure under severe pressure; in fact, they could shake Chinese civilization to its very foundations.

First of all, China’s impressive growth rate has been fuelled by abundant cheap labour. But a repeat performance is unlikely. China’s population is about to start ageing rapidly and each generation of workers will be 20% smaller than the previous one.

Instead, leading Chinese economists—among them Professor Cai Fang, director of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences—argue that the Chinese economy has already reached a turning point where those seemingly unlimited reserves of rural labor have actually been tapped out, and any future increase in demand for labor will only be supplied by increasing wages.

Then, there is the “senior tsunami”. By 2035, one out of four rural dwellers will be over 65. Although Japan has the highest proportion of elderly in the world, its problems will be dwarfed by those of China., whose per capita income is 15 to 20 times lower than Japan’s. As nearly everyone knows, or ought to know, the US has a serious problem with its unfunded social security system. But its liabilities are equivalent to four months of total economic output. China’s, on the other hand, are more than 100% of GDP. “The existing social security system is doomed to collapse under its own weight,” says Eberstadt.

Add to this, the gender imbalance, which we have covered before in Demography Is Destiny. By 2020 about 20% of China's rural men between the ages of 35 to 44 will never have been married. What will happen?

Speculating about this is almost like imagining the end to a science fiction story—the drama takes us into a universe whose coordinates are far removed from the world we know. Even so, what may be hardest of all to imagine is that at the end of the day, this profound demographic disjuncture would leave China's economy, society and polity altogether unaffected.

The most subtle part of Eberstadt’s analysis has to do with China’s way of doing business. The family has always been central to its economy. But Chinese are growing up now in a “kin-less” society in which their only blood relatives are ancestors and descendants. They will have no siblings or cousins.

What will become of Chinese economic performance when this key element of the country's growth formula is radically altered? One can of course imagine compensating social adaptations, such as a more reliable rule of law or deeper affinities to friends. But if history is any guide, such social adaptations are often slow and halting, and there is no guarantee that they will emerge in time to remedy the loss of social capital that is taking place before our eyes.

No one can predict the future with certainty, but the legacy of the one-child policy could put the devastation of Mao’s Great Leap Forward in the shade, says Eberstadt.


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