China's ticking demographic time bomb

When China released its GDP growth figures earlier this week, all eyes were on the hard economic data, such as the rate of growth and retail sales figures.

Most reports, however, have overlooked one of the most important datasets, which was buried at the end of a lengthy press release: the country's shrinking labour force.

China's working age population (between 16 and 60) declined by 3.7 million, the third consecutive year of continuous decline. The number of new urban workers also decreased from 11.88 million in 2012 to 10.70 million last year.

What is interesting is that China's National Bureau of Statistics just changed its definition of working age from 15 to 59 to 16 to 60 in 2013 in an attempt to shore up the alarming numbers.

The trend is unmistakable: China is losing able-bodied workers at an ever faster rate. Who would have thought that China, the most populous country in the world, would eventually run out of surplus workers!

The contraction in the workforce is likely to get worse. The Chinese Academy of Social Sciences estimates the labour force will decline by 1.55 million people every year before 2020, 7.9 million between 2020 and 2030 and a staggering 8.35 million between 2030 and 2050.  

The country's population decline is also made worse by China's notorious one-child policy, which was relaxed considerably last year and the long-standing culture of preference for men over women. Thanks to the one-child policy, China has one of the lowest birth rates in the world. In 2011, the fertility rate was 1.04 and 1.18 the year before, according to data from the National Bureau of Statistics.

The birth rate in China is less than half of the world's average and significantly below the fertility replacement rate of 2.2, which the country needs to maintain its current level of population. Models tell us if the current trend persists -- which is likely -- China's population could shrink by as much as one third between 2030 and 2070. 

In addition, China also has one of the worst sex ratio imbalances in the world. There were 100 female babies born to 115 male babies in 2014. By comparison, a healthy sex ratio should be between 102 and 107.  

After years of foot-dragging, data fabrication and resistance, Beijing finally relaxed its one-child policy, allowing eligible young couples to have a second child. The county's Family Planning Commission estimates there are up 20 million eligible young people who could have a second child, yet the take-up rate has been extremely disappointing.

In Sichuan, one of the country's most populous provinces with more than 80 million inhabitants, only 28,646 couples applied -- and only 5,530 of these applications were approved. Figures for major metropolises like Beijing and Shanghai are much worse. In Beijing, only 2,300 couples applied to have a second child in a megacity of more than 20 million people.

Instead of a mini baby boom after relaxing the one-child policy, the country will continue to face first a gradual and then sharp decline in the working age population, which will put more and more pressure on China's fragile and inadequate social security system.

China needs to do couple of things quickly. First, it must eliminate or at least significantly cut back on the regressive and harmful one-child policy. It goes to the heart of China's economic future as well as its social stability. Beijing only needs to look at Japan to have a glimpse of its potential future.

China's leading economists and demographers have argued that the government needs not only to get rid of the one-child policy, but it must also introduce measures to entice more young people to have babies. Maybe the government needs to come up with a slogan like former Treasurer Peter Costello's “One for mum, one for dad and one for Australia.”

One of the leading advocates is Liang Jiangzhang, a successful entrepreneur and a Stanford-trained economist taught by the late Gary Becker, one of the world's most influential population economists. He says it is possible that China would face another collapse in the birth rate, similar to the one experienced in 1990.

“The government should not only completely free up its birth policy, it must also seriously think about introducing a range of incentives to boost birth rates and launch a campaign to promote young people to have more babies,” he told Caixin, a leading business publication.

The power of the Family Planning Commission must be curtailed. The irresponsible bureaucracy has been consistently understating the country's demographic crisis and fabricating the fertility rate in the face of mounting evidence to contrary. There are also question marks over the billions that the commission collected from citizens that breached the one-child policy.

Japan's current woes should be a wake-up call for Beijing. There is every possibility that China might end up in a worse position than its neighbour. At least Japan got rich before it turned grey, whereas China may end up with a lot of wrinkles before it becomes prosperous.