
On January 18th, the National Bureau of Statistics (NBS) announced that China’s working age population (ages 15-59) had declined in 2012 by 3.45 million, or 0.6 percent, marking the first decline in working population “in a considerable period of time.”

The head of NBS, Ma Jiantang, admitted: "I can't deny that I'm worried about this problem.” Indeed, the problem is perhaps more serious than originally thought. HSBC co-head of economics Frederic Neumann commented in the Financial Times, “Most projections . . . estimated that the decline in the working age population would start around the middle of this decade…but [the numbers] show it has already happened, which suggests the decline over the next few decades will be faster than expected.” UN figures showed that China’s total population would start declining after 2030, a number that senior Communist Party officials are now revising to 2020, by which point the China Development Research Foundation estimates that the working age population will decrease by another 29 million.

This means the end of the demographic dividend, which is a productive advantage brought about by a large labor force and a low dependency ratio–lower numbers of those not in the labor force vs. those in the labor force. China has already begun to see the consequences of a smaller labor force and the end of the demographic dividend. A number of provinces, especially those on the coast, have experienced labor shortages, and have even lobbied the central government to relax the one child policy to alleviate the crunch. A smaller labor force could push even more manufacturing jobs to move to countries like Myanmar, Vietnam, the Philippines, and Indonesia, and a change in the dependency ratio poses a significant burden to a country in terms of health care costs (among other social service costs). And China is certainly aging quickly: in 1982, the 60 and over population was 8 percent of the total–a number that has grown to 14.3 percent. It is estimated that China's elderly population will hit 360 million by 2030, from about 200 million in 2013.

The decline of the working age population and the end of the demographic dividend are largely due to the one-child policy, introduced in 1979, and responsible for anywhere from 100 to 400 million less births. It should be noted that it is not a “one child” policy across the board: second children are allowed for ethnic minorities, rural families whose first child is a girl and for parents who are both only children. The one child policy has also led to a dramatic gender discrepancy: compared to the global average of 103-107 boys for every 100 girls, China’s figures are 118 boys for every 100 girls.

So is changing the one child policy the answer? First of all, is there a political possibility that it could be changed? On one hand, as Reuters has noted, departing president Hu Jintao excluded the phrase “maintain a low birth rate” in his November Communist Party congress work report (for the first time in a decade), indicating a possible openness to the idea among top leaders. On the other hand, just before Ma’s announcement on behalf of the NBS, the National Population and Family Planning Commission issued firm pledges to uphold family planning at its annual conference, according to South China Morning Post.

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Even if the one-child policy were changed, it would not be a silver bullet. On the most basic level, a change today would bear fruit in 15 years, when today’s babies join the labor force. Additionally, there are a number of societal factors that would suppress the birth rate even if the policy was lifted, especially in urban areas. For instance, the cost of education can be significant in China, as can medical expenses, which are largely not covered by the state. Children are expensive, and with elderly parents to take care of, less Chinese are willing to leverage their futures for bigger families. In cities, there is also the issue of expensive real estate: one-bedroom apartments (already beyond the reach of many) are not conducive to multiple children. Finally, contraception is inexpensive and widely available, making it easy for women not to have children if they choose not to.

For a long term solution, lifting the policy is the right answer. According to the Economist, S. Philip Morgan of Duke University estimates that if all restriction were relaxed, the fertility rate would be approximately 1.62, not far above the current 1.47 rate. So if the policy was to be eliminated, there is very little danger of a population explosion. Instead, the population triangle, which is quickly becoming top-heavy, could get an assist at the bottom levels.

More short term solutions are needed, solutions that would focus on adapting the economy to the new reality of slowing population growth and the ensuing transition away from a low-skill manufacturing economy. For example, developing and supporting innovation, promoting a consumer-spending driven economy, and raising the workforce’s level of education. Thus, ending the one child policy is just one piece of the puzzle: coping with these demographic changes will require China’s leaders adopt a comprehensive strategy.