No, a Three-Child Policy Alone Will Not Save China from an Impending Demographic Crisis

By Senqi Ma

A common Chinese saying goes, “High housing prices are the best contraceptives.” This aphorism is born out in data. As Chinese citizens have flocked to cities, soaring costs of living have contributed to plummeting birth rates. According to new census data, China’s population averaged only 0.53 percent annual growth over the last decade. As this trend continues, China’s population is set to peak over the coming decade and begin a steady path downward.
 
On July 20, the Chinese Communist Party Central Committee and the government State Council laid out a new three-child policy that permits couples to have a third child and provides incentives for them to do so. The new policy replaces the universal two-child policy that began in 2016 and is regarded by many as a near-complete liberalization of China’s decades-long family planning policies as it eliminates related penalties. The three-child policy may help slow population decline on the margins, but it will not reverse the trend.
 
Rapid Urbanization and High Housing Costs
China has been experiencing rapid urbanization in recent years. China’s 2020 census shows that 63.9 percent of the population now lives in urban areas compared to 36.1 percent who live in rural areas. This marks a 14.2 percentage increase in the urban population from a decade ago. In only four decades, China has quickly reduced the gap with major advanced economies in terms of urban population (see Figure 1).
 

Figure 1: Urbanization Rate in Selected Countries (Source: World Bank)
 
China’s rapid urbanization has been fueled by an influx of rural migrants moving into China’s cities in search of employment. Low mobility was once a distinctive feature of the Chinese population. In a sample survey in 1988, 85.1 percent of the Chinese population had never left the county where they were born. Today, however, China has a migrant population of 376 million.
 
Most migrants are concentrated in China’s large cities. 2019 data shows that Shanghai, Shenzhen, and Beijing have the largest amount of population net inflows. Furthermore, the top 10 cities with the largest amount of population net inflows are all located in three city agglomerations: the Beijing-Tianjin-Hebei region, the Yangtze River Delta region, and the Pearl River Delta region. From a global view, as people concentrate in urban areas, they tend to have less children.
 
At the provincial level, China’s population is increasingly concentrated in more developed eastern provinces. The wealthy provinces of Guangdong, Zhejiang, and Jiangsu experienced the largest population increase over the past decade, with about half of this increase taking place in 2019 and 2020. Meanwhile, the population of three less-developed northeastern provinces – Heilongjiang, Jilin, and Liaoning – decreased by 11 million. These population changes have corresponded with similar shifts in economic activity. The gross domestic product (GDP) of Guangdong, Zhejiang, and Jiangsu has more than doubled since 2010. Over the same period, Heilongjiang, Jilin, and Liaoning saw their GDP increase by only 33.8 percent, 43.5 percent, and 37.4 percent, respectively.
 
The breakneck economic development of urban areas, coupled with a constant population influx, has led to exorbitant housing prices that make it too costly for many people to have children. High childcare costs in Chinese cities are compounding the difficulties.
 
Home ownership is a top priority for many families in China, especially for couples looking to get married. According to a 2017 report, 70 percent of Chinese millennials are already homeowners. Among those millennials who were not yet homeowners, 91 percent planned to buy property in the next five years. The homeownership rate among millennials in China is much higher than in many developed countries such as the United Kingdom (31 percent), the United States (35 percent), and France (41 percent).
 
However, housing prices in Chinese cities are increasingly far too high for young couples to afford. According to Numbeo, the price-to-income ratio (calculated as the ratio of median apartment prices to median annual family disposable income) of Shenzhen and Shanghai is 44.7 and 41.9 respectively. In New York City and London, the ratio is only 9.5 and 13.6. In its 14th Five-Year Plan, China pledges to accelerate the cultivation and development of the housing rental market in order to make housing more affordable, but it remains to be seen whether these efforts will succeed.
 
High Costs of Education and Extracurriculars
The cost of raising children is exorbitant, particularly if parents want to provide children the range of extracurricular activities and classes that are increasingly becoming the norm. Raising a child in Jing’an District of Shanghai from birth to middle school, for example, will cost 840,000 RMB (about $130,000), among which education costs alone account for 510,000 RMB (about $78,800). For families with an annual income of 50,000 RMB (about $7,700), expenditure on children accounts for 71.1 percent of annual income.
 
These factors will likely lead to an even lower birth rate, and government policies are likely to do little to stop it if they do not address the high cost of raising children. A survey conducted by the Beijing Bureau of Statistics 20 months after the launch of the pilot two-child policy in February 2014 showed that 37.7 percent of eligible couples in Beijing wished to have a second child, but only 9.6 percent actually applied. More recent surveys have shown signs that the new three-child policy will have similar lackluster results. On the same day of the announcement of the three-child policy, Xinhua News Agency conducted an online survey that was later deleted from popular social media site Weibo. The survey showed that an overwhelming majority of the participants “will not consider it at all” when it comes to having a third child.
 
The Good News
These trends indicate that China will face serious challenges in stimulating the country’s birth rate. Yet there is good news in the census results.
 
The gender balance of the population continues to improve. Data shows that the sex ratio (the ratio of men to women, with women equaling 100) for the entire population is 105.07, down from 105.2 a decade ago. More importantly, the sex ratio at birth, which indicates where the population is trending in the future, is now 111.3, down from 118.6 in 2005. The improved gender structure serves as a buffer for the low birth rate and signals better gender equality.
 
While China is likely to continue facing downward pressure on its birth rate, there are rays of hope that improvements are being seen in other areas. The real problem here is not about relaxing family planning policies, but providing substantial incentives and supporting policies to lower the cost for parents to raise children.

Senqi Ma is a former intern with the China Power Project at CSIS.