China could be one step closer to scrapping its controversial childbirth limits

• The People's Bank of China released a working paper late Wednesday that discussed how the country's aging population problems are worse than that of other nations.
• The central bank paper also compared China's situation to that of India and the United States.
• Authors of the report suggested China allow three or more children per household.

BEIJING — China may be one step nearer to abandoning its controversial policy of restricting childbirth.

The central bank released a paper late Wednesday suggesting the country remove limits on how many children people can have, suggesting that China should "fully liberalize and encourage childbirth."

As China's population began aging, Chinese authorities began several years ago to roll back the decades-old "one-child policy" and allow people to have two children. But births continued to fall, dropping 15% in 2020 in a fourth-straight year of decline.

"In order to achieve the long-term goals in 2035, China should fully liberalize and encourage childbirth, and sweep off difficulties (women face) during pregnancy, childbirth, and kindergarten and school enrollment by all means (possible)," four central bank researchers wrote in the English-language abstract to a working paper.

The 22-page document was dated March 26 and shared publicly on Wednesday.

The paper stated the authors' views do not represent that of the central bank. However, the call to drop restrictions on births marks the latest high-level discussion of how to address China's aging population problems.

Competing with India and the U.S.

One of China's main concerns is the impact these demographic changes could have on economic development.

In two dedicated sections of the paper, researchers from the People's Bank of China laid out how these demographic issues put China at an economic disadvantage to the U.S. and India.

"If my country has narrowed the gap with the U.S. over the past 40 years by relying on cheap labor and the bonus of a huge population, what can it rely on in the next 30 years? This is worth thinking over," the authors wrote in Chinese, according to a CNBC translation.

They noted how the U.S. benefits from immigration even as China's population ages. Meanwhile, India's population and workforce will soon surpass that of China, they said.

From 2019 to 2050, China's population will decline by 2.2% while that of the U.S. will increase by 15%, the paper said, citing UN estimates.

The authors added that the percentage of China's work force is dwindling and it will lose its edge over that of the U.S. in the next few decades. 

In 2019, China's workforce as a proportion of the total population was 5.4 percentage points higher than the U.S. However, by 2050, China's workforce proportion will be 1.3 percentage points smaller than the U.S., the paper said.

China's aging population

In a plan released in March for economic development for the next five years and beyond, Beijing said countering the effects of the aging population is one of its priorities. However, they stopped short of removing a ban on Chinese families from having more than two children.

Educational and technological advances are insufficient to counter the decline in population, and China should remove restrictions on births, the authors wrote.

"If there's slight hesitation, (we) will miss the precious window of opportunity for birth policy to respond to the demographic transition, and repeat the mistake of developed countries."

The paper discussed generally how China's aging population problem is more severe than that of developed countries. In particular, the authors noted that developed countries with an aging population problem tend to be wealthier with a per capita GDP of at least $2,000, while China's is half that at $1,000.

And once the older segment of the population begins to sell property, stocks and bonds to finance their retirement, the ratio will be close to that of a labor force that is buying those assets, which could result in increased pressure on prices, the paper said.

Chinese authorities are set to release results from a once-a-decade census later this month.

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