globalEDGE Blog: China's One-Child Policy Reform: Its Effect on Global Business

China's One-Child Policy Reform: Its Effect on Global Business

File under: Economics, China, Investment,

After a 4 day meeting in Beijing, party leaders agreed to make changes to the infamous one-child policy in China. This previous policy allowed one child to be born into each family unless both parents were only children, in which case they may have another child. Additionally, couples in rural areas were allowed to have a second child provided that their first was a girl. Although theoretically this law was implemented to combat poverty by decreasing the total amount of births, the result instead was a long-term imbalance of genders and a capped labor force. Consequently, the Chinese government has altered the policy to ensure continual manufacturing growth in the coming years.

On November 15, 2013, the ruling Communist Party announced that it will now allow families to have two children if either parent was an only child instead of both. Michael Silverstein, senior partner at the Boston Consulting Group, predicts that 2 million babies will be born into China next year in addition to the current annual pace of 14 million newborns annually. With this projected baby boom, a variety of opportunities for industries providing consumer goods will emerge. According to economic analysts, companies from Europe and North America alike have not been aggressive enough when selling their products and services in China in the past. However, these changes prove that China is extending an invitation for private-sector and foreign competition in industries that had been previously controlled only by the central government, providing potential opportunities for international business transactions.

Silverstein expects a wide assortment of economic effects in 2014 for China. Aside from the obvious increase in the Chinese birth rate, the capital economy is expected to grow and fund more programs promoting infrastructural investment to support urban development. The local and national government is also expected to invest in more technology-driven sectors. In Africa especially, attempts will be made to secure the abundant natural resources to be used for the energy industry.

Some skeptics believe that despite its intent, this innovation in policy will not alleviate the shortage of workers that China is currently experiencing. For the past three decades, outsourced companies from across the globe have relied upon China for their cheap labor in assembly line factories. But with changing attitudes and living conditions, the labor force is tightening now more than ever. From 2008 to 2010 alone, the number of 18 year olds working on assembly lines decreased by one fifth. In the last decade, college enrollment tripled among this age group as well. China’s youth simply do not want to work in the stressful conditions exacerbated by factories and instead are seeking secondary education to locate better-paying and relaxed jobs. Living conditions have so greatly improved in the country that workers do not need to exert as much effort to sustain themselves. Additionally, many have parents who will support them financially, allowing them to pursue education rather than work in factories. Despite the millions of projected Chinese births, the lack of intrinsic motivation to work in industrial manufacturing will continue to prevail as an economic issue.

As China implements policies to further free their markets such as the newly nicknamed “two-child policy”, foreign participation is set to increase and subsequently consolidate Chinese infrastructure in urban areas. Social conditions are being newly renovated for middle-class families to grow in size and, more importantly, spending power. Economically, China can be expected to grow even more so in 2014 than it did in 2013.

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