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

Chinese nurse takes care of newborns. (Photo by Gong Bo/VCG via Getty Images)

VCG via Getty Images

China’s birth rate continues to fall. “Last year’s 10.62 million births, compared to 12.02 million in 2020, barely surpassed the 10.14 million deaths,” according to the Wall Street Journal. China’s fertility rate per woman has now fallen to 1.3, well below the replacement rate of 2.1. The country’s low population growth, both now and in the future, has raised concerns about China’s future economic growth. That concern is overdone, although it is clear that China’s fastest growth is over.

Each nation’s economy simply depends on the total population multiplied by the production per person. This arithmetic is correct, but hides some important insights. Many people are not productive. This is not an insult, but a recognition that children and many older people bring little economic value. The arithmetic offers more insight when reformulated: a nation’s economy depends on the total number of employees multiplied by the output per employee.

In the immediate future, babies are a drag on the economy, not a boost. All parents know that. Twenty years from now, today’s baby will matter 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 introduced numerous reforms, including toleration of entrepreneurial activity. This tolerance began with small increments but eventually led to massive industrialization, particularly in coastal cities.

China’s rapid growth spurt came not from population growth but from population migration. The movement of people from poor rural areas to China’s cities could be the largest migration in human history. This migration shifted people from low-productivity farm work to higher-productivity factory work and was made possible by the government’s tolerance of entrepreneurship.

China’s rural peasants were not bad farmers, but they produced relatively little because they lacked tools and worked collaboratively in the early years of Communism. The higher productivity of urban factory workers led to higher wages as firms competed with each other for available labor.

In previous articles, I have argued that China’s economic miracle is coming to an end because of current policies. But I had seen before that China is too mature for rapid economic growth because the easiest expansion opportunities had been taken. The two perspectives are compatible. The first is not necessary while the second is inevitable.

China’s economic growth could recover in the coming years. A recovery would require the government to essentially relinquish the control over the economy it has increasingly exercised in recent years. Even then, growth would not reach the 10 percent rate seen for many of the past 40 years. This is not a forecast, but a description of a possibility that seems unlikely at this point in time.

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

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