China Should Lift Birth Restrictions, Promote Savings, PBOC Says

China should lift all birth restrictions to encourage families to have more babies as the population is aging faster than in developed countries, central bank researchers said.

More emphasis should be put on investment and savings, and the rapid decline in the savings rate must be halted in order to deal with the heavy burden of supporting an elderly population, according to a working paper published by the People’s Bank of China late Wednesday.

“China must recognize that the demographic situation has changed,” PBOC researchers led by Chen Hao wrote in the paper. The country must “realize education and technological advancement will not be able to make up for the decline in population,” they added.

China Should Lift Birth Restrictions, Promote Savings, PBOC Says

Faced with a rapidly aging population, the government began easing its stringent decades-old one-child policy in 2013, eventually changing its rules in 2016 to allow families to have as many as two children. That hasn’t helped to reverse the decline in the birth rate, which reached 10.48 births per 1,000 people in 2019, the lowest since the founding of the nation in 1949. In the U.S., the rate was 11.4 in the same period.

The PBOC’s comments promoting fertility fueled a rally in baby and mother-care related stocks Thursday.

The researchers made a number of forecasts in their paper:

  • China’s labor force will shrink at an annual rate of 0.5% between 2020 and 2025, resulting in a 15.2% decline in the workforce by 2050 from 2019
  • The dependency ratio, or the number of dependents in a population divided by the number of working-age people, is projected to rise to 43.6% by 2050 from 17.8% in 2019

The researchers said China shouldn’t follow the low savings approach in developed economies, saying “consumption was never a source of growth.” The country’s gross domestic savings rate declined to 44% of GDP in 2019 from 51.1% in 2010, World Bank data shows.

China should expand investments in the mid-western regions and other developing countries to take advantage of the labor there, according to the paper. The researchers called for more serious efforts to reduce challenges faced by women in pregnancy and childbirth, as well as a reform of the pension system.

©2021 Bloomberg L.P.

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