China’s birth rate is not a problem for the economy – now

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The birth rate in China continues to fall. “The 10.62 million births last year, compared to 12.02 million in 2020, barely exceeded the 10.14 million deaths,” according to the the wall street journal. China’s birth rate per woman has now fallen to 1.3, well below the replacement rate of 2.1. The country’s low population growth, both current and future, has raised concerns about China’s future economic growth. This concern is greatly exaggerated, even though it is clear that China’s fastest growth has passed.

The economy of any nation simply depends on total population multiplied by output per person. This arithmetic is correct but hides important information. Many people are not productive. This is not an insult, but an acknowledgment that children and many older people produce little economic value. The arithmetic offers more insight if rephrased: A nation’s economy depends on total labor force multiplied by output per labor force.

Right now, babies are a drain on the economy, not a boost. Every parent knows that. Twenty years from now, today’s baby will be important to the economy, but that’s of little value to forecasters looking a few years into the future.

China’s economic boom began when Deng Xiaoping also took political control in late 1978. He instituted many reforms, including tolerance of entrepreneurial activity. This tolerance started with small steps but eventually led to massive industrialization, especially in coastal cities.

China’s period of rapid growth did not come from people growth but of the people migration. The movement of people from poor rural areas to Chinese cities could be the largest migration in human history. This migration shifted people from low-productivity agricultural work to higher-productivity factory work, and this was made possible by the government’s tolerance of entrepreneurship.

The rural farmers of the Chinas were not bad farmers, but they produced relatively little because they lacked tools and, in the early years of communism, worked communally. The higher productivity of urban factory workers led to higher wages as companies competed for available workers.

In previous articles, I have argued that due to current politics, China’s economic miracle is coming to an end. Even before that, however, I had seen that China is too mature for rapid economic growth because the easiest opportunities for expansion had been used. The two points of view are compatible. The first is not necessary, while the second is unavoidable.

In the coming years, China’s economic growth could rebound. A rebound would require the government to substantially relinquish the control over the economy that it has increasingly exercised in recent years. Even then, growth would not match the 10% rate achieved for most of the past 40 years. This is not a prediction but rather a description of a possibility that seems unlikely at this point.

A nation does not need a growing population to have a high and rising standard of living per person, although a larger population will certainly inflate the raw size of the economy.

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