New Baby Boom for China? Not So Fast

China has a problem. In fact, China has multiple problems, but perhaps the most concerning issue is its greying populace. Throughout the world, advances in technology and knowledge in the general population of birth control, have left advanced countries facing demographic crises. China is no different, and while not considered an advanced country, it faces similar issues that are plaguing its population.

Overpopulation is a hot topic amongst the media and everyday people, but the fact remains that slowing population growth creates a problem all its own. Aging demographics increase the amount of aid needed for senior citizens, while decreasing the number of productive workers. From a basic economic standpoint, all else being equal, fewer productive workers lead to less economic output. For China, the one child policy is beginning to rear its head in data and projections, and the Chinese government realizes this.  In fact, the Chinese government lifted the one-child policy last week, but it may be too little too late. The one child policy’s effect on population has created a future lack of domestic consumers. This is a key point, as China has placed an emphasis on growing its economy through domestic consumption and production, a shift away from a mainly export-based economy. In the long run, China faces key demographic issues that will have a negative economic effect.

Globally, the news of China’s one child policy reversal has been met with increased expectations for foreign companies looking to capitalize on the potential population boom. Companies making products relating to babies and children saw their stock prices take a jump in the days after the announcement. While these companies may directly benefit over the next few years, the long term impact on China’s economic growth will likely be relatively insignificant. Past policies that have eased restrictions on child-bearing in China have had poor results in terms of additional births. For this reason, the “baby boom” some are expecting is likely to be relatively muted. Muted growth in the amount of working-age citizens, coupled with a boom in the number of retirement-age citizens, will likely become a significant drag on economic growth and resources in China.

The perception of China’s economy as an unstoppable force is being challenged more than ever. China has been very successful in the past half-century, taking itself from a largely impoverished agrarian nation, to the world’s second largest economy. China was able to sustain astronomical levels of economic growth through infrastructure investment and manufacturing prowess. These results were not sustainable forever, and the Chinese government has recognized a need to shift the economy to a basis of domestic consumption amid higher personal incomes. This will be increasingly a challenge, as eventually potential consumers will decrease, as elderly welfare recipients increase. Even today, we see Chinese growth coming back down to Earth, at 6.9% annualized in the third quarter 2015. Many western analysts believe even this number is overstated, saying the Chinese government is saving face. With Chinese GDP numbers at 6 year lows, it will be interesting to keep an eye on reports coming from Beijing.

The changing demographics and shift in the Chinese economy have left many foreign countries and companies with cloudy futures. Many countries, such as Brazil, who relied on China as a market for their products have faced significant headwinds as Chinese demand for foreign goods has fallen as a result of the current economic situation. If the current demographic trends continue to play out, it is most likely that Chinese consumers and other entities will have less overall demand for goods, particularly for foreign goods. Many still think China has enormous potential as a growth market, but have become wearier in recent times about putting all of their eggs in one basket.

Overall, the inevitable aging of China’s populace poses a major problem, both economically and socially. The lift on the ban of the one child policy may be too little too late, but if economic prosperity is to continue in China, the government must make key reforms. The greying Chinese demographic no longer only affects domestic economic growth, but presents a major issue for the rest of the world.