China baby boom fears outweigh evidence of falling fertility rates

November 19, 2013 1:32 pm

China baby boom fears outweigh evidence of falling fertility rates

By Lucy Hornby

Fears of a baby boom are leading China to keep a tight grip on family size, with only a minor relaxation in the Communist party’s one-child policy despite evidence that birth rates have already fallen faster than intended. The party announced on Friday that couples where one spouse is an only child may have a second child, a policy change that could result in about 1m additional births a year but still fundamentally limits most couples’ ability to choose.The shift came after several years of debate that pitted reformers against those who argued that China’s population is still too big.

“Experts have worried that if every family is allowed to have a second child then there might be a peak in population,” Mao Qun’an, spokesman for the Ministry of National Health and Family Planning Commission, said on Tuesday. “If all of a sudden a lot more kids are born in a certain year, education, employment and others will be affected. That’s why we adjust it gradually and smoothly. This is to avoid the impact population peak might bring.”

Fears of a baby boom won out even though China’s comprehensive 2010 census surprised experts with evidence that the fertility rate, or the number of children a woman might bear in her lifetime, had fallen to around 1.08, nearly the lowest in the world.

“A big problem in the past when China did population projections, and even for projections now, has been that fertility rate estimates have not been very accurate,” said Zhang Juwei, deputy director of the Institute of Population and Labour Economics at the Chinese Academy of Social Sciences. He said that past projections on which the government based its policy were about 1.8. Most Chinese academics now use a rate of about 1.5 for their projections, he said.

The one-child policy has distorted China’s demographic structure into a pattern more typical for a developed country, leading to concerns the country will get old before it gets rich. Last year, the pool of working-age Chinese shrunk for the first time. By 2030, the number of people over 60 is expected to double to 400m.

China’s most recent census with its more accurate count of the population played an important role in determining the decision to relax the policy, Mr Mao said.

Chinese experts estimate that relaxing the policy will result in 1m-2m additional births a year for the next few years, a 5-10 per cent increase. More than 50m families in China have only one child, according to official statistics, but not all would be eligible for a second even under the relaxed policy, and many might not want another even if they were allowed.

Already there are many exceptions. Opposition to the policy among villagers and minorities was so fierce that it was relaxed fairly early on. Rural residents are allowed a second child if the first is a girl and ethnic minorities are allowed two or, in some places, three children. In practice, many in the countryside have more. About a decade ago, city couples where both spouses were only children were allowed a second child.

Selective abortions mean that there are now 117 boys born for every 100 girls in China, creating a potentially destabilising future cohort of men who can never have families. The problem is so acute that China officially forbids doctors from revealing the baby’s gender, but couples can easily find out.

Eligible couples will still have to apply for permission to have their second child, and jurisdictions where a lot of people are likely to do so may “do a better job in managing second child applications in order to prevent concentrated childbearing in a short time period”, the Ministry of National Health and Family Planning Commission said.

Relaxing the policy does not mean an end to fines or other coercion for couples who do not meet the strict criteria. Last summer, the Chinese internet lit up with outrage over the photograph of a 23-year-old woman, Feng Jianmei, lying exhausted next to the body of her aborted seven-month-old foetus.

Ms Feng, a rural resident, was legally entitled to have a second child but had not filled out the paperwork to get authorisation, and could not pay the $6,300 fine the family planning authorities demanded of her. Her family was later harassed for speaking to foreign media.

Fines can be significant, and have spawned a bureaucracy that is resistant to giving up power. This spring in Beijing, the fine for a second child when only one spouse was an only child was Rmb300,000 ($50,000).

The policy’s defenders say it has allowed China to develop economically without the population pressures faced by other developing countries. They estimate that without the policy China would have about 400m more people than it does now.

But reformers say the heartache and brutality of the one-child policy was unnecessary. Other Asian nations with no involuntary restrictions on family size have seen birth rates plummet to the extent that some now encourage mothers to have more children.

The fertility rate in Taiwan – with a similar cultural background to mainland China but a different political system – has dropped to 1.1 as couples with small apartments and high education costs choose not to have more children.

In China some isolated pilots have also shown that with relaxed rules, people choose to have fewer children than they are allowed and the gender ratio is less skewed.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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