When liberal economic reformers came to power in the late 1970s, China’s rapidly growing population was seen as an obstacle to economic development and improved living standards. Deng Xiaoping’s Politburo introduced new rules designed to ensure that population growth did not outpace economic growth: China’s so-called ‘one-child policy’.

From 1980 new rules set limits for births. Urban workers were limited to one child per family, but were often able to apply for permission for a second child if their first was a girl. Rural residents were generally permitted two children and ethnic minorities were often permitted three or more.

Although the one-child limit was only strictly applied in cities, the enforcement of birth limits everywhere was harsh. Violators were subjected to steep fines and forced abortions. To meet population targets, zealous local officials would often coerce sterilisations for women who had already given birth to the maximum number of children they were allowed.

Although many people suffered greatly from the birth restrictions, China’s citizens largely accepted the policies as necessary. As any visitor to China well knows, street-level conversations about China’s social and economic ills typically conclude with the observation that China’s population is too big (ren taiduo).

The problem now is that after spending decades convincing China’s citizens of the need to reduce the birth rate, China’s leaders now accept that the policy was either unnecessary or a mistake. Alarmed at the prognosis of an ageing population and a shrinking workforce, China’s policymakers have in recent years relaxed the restrictions. The central government abolished the one-child rule in 2015, allowing all married couples two children. Last week it announced they could have three.

So far the policy reversals have done little to arrest the fall in birth rates. Many Chinese families choose to have only one child because the perceived costs of raising children are too high. And many women are choosing not to have babies because structural inequalities at home and in the workplace make pregnancy and childrearing an unwelcome choice. This is a common trend across many societies. Twelve million babies were born in China in 2020, down from 14.65 million in 2019 — the lowest rate in six decades. With a fertility rate at 1.3, one of the lowest in the world, China’s population is expected to start declining by the end of this decade. Its working age population already peaked a decade ago.

The big question is what this means for China and what, if anything, policymakers should do about it?

Some analysts are concerned that China’s economy could become caught in an income trap if the population begins to decline before reaching high-income status. Others fret that the ageing population will become a huge burden on younger generations and on China’s fiscal resources. International relations specialists muse about the consequences of population decline for China’s superpower potential and for the balance of power with the United States, which is better positioned to harness immigration to compensate for its similarly low birth rate.

In our lead article this week, Bert Hofman provides an analysis of China’s population problem and options for policymakers. On the question of population impact on growth, Hofman notes that China’s workforce has been shrinking for years, and that demographics are no longer a contributing factor to economic prospects and that leaps in labour productivity are delivered by better educational outcomes and technological advances. He also says that, if needed, more workers could be mobilised by increasing the retirement age — currently 60 for men, 55 for women — and wonders whether technological advancement will make it easier to care for the elderly.

What matters for living standards is not the total population size but its structure. The dependency ratio is key: the number of dependants (below and above the working age population) relative to the working age population. With the working age population having peaked, the dependency ratio has been increasing rapidly. Increasing the retirement age will change that ratio overnight (reducing the numerator and increasing the denominator) but only buys time against the demographic trend.

Although Hofman acknowledges that pensions will add greatly to fiscal pressures, especially if presently paltry rural pensions are brought into line with urban standards, he sees no evidence that China’s gradually declining population will knock China off its current economic growth trajectory — at least not for the next couple of decades.

China’s own policymakers, however, clearly want more births. And, given the census data and population forecasts, it is hard to imagine that a ‘three-child’ limit will remain for long. Whatever China’s policymakers decide to do, the changes will almost certainly be gradual. Although analysts in China and abroad generally agree that the removal of all family planning restrictions would have little or no impact on the birth rate, complete abandonment of birth controls could be an embarrassment for the Chinese Communist Party. It would make a mockery of one of its signature policies of the reform era (citizens’ collective responsibility for birth control was written into the Constitution in 1982), and leave many wondering why the state so aggressively invaded their private lives in the first place.

Long term economic growth depends on three Ps: population, participation and productivity. China will in the next decade join its Northeast Asian neighbours and many other rich countries with a shrinking population. Increasing the number of those participating in the workforce will help. And as Paul Krugman said, ‘productivity isn’t everything, but, in the long run, it is almost everything’.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.