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China makes announcement allowing families to have three children


China’s governing party has recently made the announcement of relaxing the two-child policy to a maximum of three children in an effort to drive population growth within the nation.


In the past, China had scrapped its decades-old one-child policy in 2016 by replacing it with a two-child policy for similar reasons.


Initially, the one-child policy was introduced within China to ensure that China’s population growth could be controlled as at the time, the nation’s population was rising very rapidly.


This was a problem for China at the time as the rising population was likely outpacing growth meaning that if the trend were to continue, the Chinese population would see decreasing living standards as there would be increased strain on services as well as higher scarcity due to increased demand for products.


It is estimated that since the introduction of the one-child policy, 400 million births within China have been prevented, however, this has caused a new problem within China which is typically known as “japanification.”


Japanification is a situation where a nation sees incredibly low consumption due to an ageing population.


An elderly population is a problem for an economy as elderly individuals, especially those on state pensions, do not have a lot of disposable income to spend on goods and services.


This means that, if an economy’s population is largely elderly, or has a significant share of old individuals, then consumption in the economy is low as consumer spending is stifled due to low incomes.


Consequently, Japan, a nation where 30% of its population are classed as being ‘old,’ suffer from extreme japanification as consumption is low.


This has caused Japan to adopt a negative base interest rate as this extreme case of expansionary monetary policy is used in an attempt to drive consumption within Japan’s economy.


Increasing consumption is very important as consumer spending is a component of aggregate demand, meaning that if consumption rises, aggregate demand expands and the Japanese economy grows.


So, as previously illustrated, China is set on track to having the same issue of japanification, perhaps even worse as the UN projects that in 2050, 27.5% of China’s population will be over 65, an increase from 9.5% in 2015.


China’s rising ageing population is mainly attributed to the nations large economic growth and industrialisation which has led to better living standards and medical care which has led to a rising life expectancy.


Consequently, in an attempt to try to prevent japanification, the CCP has announced the removal of the two-child policy.


The removal of this policy is designed to increase births and population growth in China which in future, will slow down japanfication as new births will increase the percentage of the population which is young, thus solving the issue as younger individuals consume more as they participate within the labour force.


This increased participation will also help solve China’s current problem which is a labour shortage within the nation.


However, experts claim that the relaxation of these draconian measures will not help solve China’s labour shortage and will not help prevent japanification from occurring in future.


This is because when the one-child policy was relaxed into a two-child one, China’s population growth saw an insignificant change, because of this, experts believe that China will see a similar trend with the new relaxation of the policy.


The reason behind the slow population growth despite the removal of legislation is due to the fact that bearing children within China is very expensive, consequently, there are not many incentives for China’s population to have more than one child.


So with China’s birth rate decreasing from 18 million in 2016 to 12 million last year, the CCP has a problem as China’s economy is on the brink of japanification.


However, the CCP knows that relaxing the policies won’t be enough, for this reason, the Chinese government has also announced "supportive measures, which will be conducive to improving our country's population structure, fulfilling the country's strategy of actively coping with an ageing population and maintaining the advantage, the endowment of human resources,” Xinhua news agency reports.


These supportive measures will likely include childcare services such as daycare to ease the financial pain and time-related opportunity cost associated with childbearing in an effort to incentivise Chinese families to bear more children to fix the nations labour shortage and to prevent japanification.

 

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