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Changing demographics to support consumption

Changing demographics to support consumption

09-08-2018 | Insight

Will the Chinese soon be free to decide how many children they have? The Chinese authorities announcing the end of the commission charged with implementing family-planning policies appears to be pointing in this direction. Why is China, which so long has been known for its one-child policy, changing its stance?

  • Victoria  Mio
    Victoria
    Mio
    CIO Chinese Equities

Speed read

  • China may abandon family planning to deal with aging, a shrinking labor force and a gender imbalance
  • Young urban, educated women are not overly keen on producing the babies China needs
  • The increasing wealth of the Chinese (urban) population is driving consumption

The Chinese government introduced its one-child policy in 1979, in an effort to curtail the fast growth of its population, which was curbing the country’s economic growth per capita. The measure proved effective. Without it, China claims 400 million more children would have been born.

Little over a generation later, the country finds itself faced with problems of a different nature. First of all, the Chinese population is aging rapidly. The Chinese government estimates that in 2030, a quarter of the population will be 60 years or older, against 13% in 2010. Second, the preference for sons over daughters has led to a considerable amount of abortions on female fetuses. This has resulted in a gender imbalance, with the number of men exceeding that of women by 30 million. For every 100 women there are 106 men, against 102 on average in the rest of the world. This is causing social problems, as tens of millions of men cannot find a woman. Third, China’s labor force has been shrinking over the past four years. This is starting to cause problems for companies and pension funds.

Easing does not have the desired effect

In 2015, the Chinese government already eased its family-planning policy, allowing its inhabitants to have two children from then on. The authorities hoped this would bring three million additional births a year through 2020, adding more than 30 million workers to the labor force by 2050. The much-anticipated baby boom did not materialize, however. Over 2017, China’s birth rate declined by 3.5% compared with 2016.

As it turned out, quite a number of mostly urban, educated women did not feel like having babies anytime soon. Reasons cited were lack of time and energy, costs, and worries that a baby might thwart their career. In response, the Chinese government has now hinted at abolishing its family-planning policy altogether and is encouraging young women to reproduce.

The population’s composition is improving

Contrary to it sheer size, the composition of the Chinese population is changing for the better, though. The country’s wealth is propelling the emergence of a middle class. As of 2017, the number of middle class households is expected to show a 15% compound annual growth rate, reaching 48 million households in 2020 (middle class being defined as households with an income of USD 25,000 to 50,000). Also by 2020, there should by 320 million new city dwellers - especially in the lower tier cities – and 150 million people of 65 years or older1. Together, these new demographic segments are pushing up consumption. The middle class is embracing high-end products such as premium brands, new tech and travel abroad. Wealthy older people are spending more on services, such as financial services and healthcare. And young city dwellers are spending more and more on entertainment and innovative products. Maybe increased prosperity will inspire the expansion of family size more than any centralized policy ever could.

1 Sources: McKinsey, National Bureau of Statistics, NDRC, UN Department of Economic and Social Affairs, US Census Bureau, Deutsche Bank , CICC

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