Taking Stock: China’s Demographic Solution: Too Little Too Late?

At NEPC, a major research focus is on understanding the current and future impact of megatrends. One of the four megatrends we have identified is demographics, particularly the aging of global populations.

To this end, China’s potential shift towards ending birth limits underscores the major demographic challenge facing the world’s second largest economy as its population ages significantly over the next 20 years. China will likely overtake the United States as the world’s largest economy in the 2030s. At the same time, China’s population will start to shrink. To the extent its labor force also contracts, China may struggle to maintain the robust growth levels that catapulted its economy into prominence on the world stage.

A boost in population from eliminating birth limits will be helpful in combatting this demographic challenge. Still, this is not an easy or quick fix. While this policy shift may bring long-term benefits to its economy, China’s challenges are still two-fold:

• Its one-child policy resulted in a gender bias, significantly skewing its population towards men, rendering match-making a challenge.
• China may fall victim to its own success as rising prosperity and better education tend to go hand-in-glove with declining birth rates. To this end, looser restrictions around family planning may not result in an uptick in population growth.

At NEPC, we believe that while megatrends are disruptive, they will likely evolve slowly. A potential shift in China’s family-planning policy is worth following closely, but it will likely make a dent on its demographics only 20-to-30 years down the road.