China series, Part 13: Understanding the One-Child Policy

[Prometheus]

When people think about China, I'll bet that one thing that springs to their mind is the One-Child Policy. I'll bet that most people don't even know that the policy has ended and I'm certain they're unaware that - while nominally a population control measure - it was the biggest driver of China's economic success.

As mentioned in previous posts, Chinese culture has a preference for male children and the first born male is ranked far above all other siblings.

"What does this have to do with economics?" you might ask.

It's simple actually. Let's assume a farming family of 7 (2 parents, 2 sons, 3 daughters) with an income of 1,000 yuan per month and look at their spending. These are hypothetical numbers. Most families weren't making anywhere near that much in '78, but it's easy math to show what I'm talking about.

200 yuan per month is spent on food and sundries

400 per month is spent (or saved) exclusively on the eldest son

250 is spent on the second son

50 each is spent on the daughters

With only one child (a son), a family earning and spending similarly, now has 400 yuan in disposable income each month. Now they can buy some more stuff. The more stuff they buy, the more workers factories will need. Dad takes a job at the factory making twice what he made as a farmer. Now he has 1,400 yuan in disposable income to buy more stuff and increase the need for more factory workers and thus lift many families out of poverty.

It should also be noted that the One-Child Policy began at the exact same time that China opened up to foreign investment. Maybe the farmer just went and got a job at the new factory first, met a nice girl and they started their family with plenty of cash in their pockets to buy their own home (in the 90's) and maybe even a car.

The middle class was on the rise, special economic zones were opening up left and right, skyscrapers were growing faster than bamboo, and those with the right guanxi (see part 7 of the series) were becoming millionaires (some soon to be billionaires). The problems of spring, 1989 swept aside, China had even captured the crowning jewel: hosting the Olympic Games so that everyone could see the powerhouse it had become.

Unfortunately, 2008 was the year that America's economic problems went global and even China's track record of 2-digit expansion for the past several years slowed to the lower single digits.

In 2012, his competition neatly done away with, Xi Jinping takes power in Beijing and he wants "market socialism with Chinese characteristics" to put more emphasis on the word "socialism." The problem for him is that the people have become quite happy with their ability to purchase things and really want to travel outside of China for tourism and study. He wants them to buy domestic... keep the growth but "China First." Sound familiar?

But how do you get a nation of people, addicted to luxury imported goods, to start buying domestic?

First, don't let the people know how many billions of dollars your family is worth. Second, ramp up the anti-western capitalism propaganda while simultaneously ensconcing yourself as the leader of all important committees. Third, drop the One-Child Policy in favor of a Two-Child Policy with the hopes that family spending on two children will force the families to spend their lower amount of disposable income on domestic goods.

So far, it really hasn't worked. Despite all the stories of forced abortions, forced sterilizations, and abandoned [female] children, about half of the families in China had two children during the years of the One-Child Policy anyway. They already knew how to budget their money and still buy their imported goods.

And let's not forget that very early on, the policy was changed so that farmers could have more than one child if the first was a daughter. Couples that both belonged to the same ethnic minority (not Uyghurs) could always have 2 children throughout the decades the policy was in force. Multiple births were not affected by the policy and usually ended up with the government paying a monthly stipend to families with twins. This was a boon to the fertility clinic industry and the birthrate of twins doubled during the course of the policy.

As an aside, I can tell you that I've never met so many sets of twins as I have in my 12+ years teaching in China.

And, finally anyone who had enough money to pay the fines could have as many kids as they wanted, but most stopped at 2 or 3 so as not to strain their guanxi.

In the end, the new Two-Child Policy hasn't had the desired effect. The Chinese birthrate still hasn't recovered to provide "replacement" levels and beyond the non-desire to have 2 children, there is also a "movement" among young people today to stay single. It is estimated that there are about 92 million Chinese men and women who have absolutely no plans to ever get married and have kids. They like the lifestyle their money provides them and don't want to share. I expect that the government will promulgate new "incentives" soon.

A problem created by the One-Child Policy that the new policy hoped to alleviate is the 4-2-1 issue. As mentioned in other posts, the children are meant to take care of their parents in old age. Under the One-Child Policy, a married couple consisting of 2 only children would have their 4 parents to care for as well as their 1 child. That's an enormous economic strain on a family which forced the government to finally enact financial social security payments for the elderly as well as change to the Two-Child Policy.

The SSI payments help lower-income families, but the Two-Child Policy simply adds another mouth to feed that families can barely afford as it is. This means that China is going to have to pay more SSI to the 4-2-1 and 4-2-2 families eventually and don't forget the 92 million single people who will eventually look to the government to pay for their well-being in 30 to 40 years because they have ZERO children to take care of them.

But that's OK, because that's what socialism is all about: taking care of the people, right, Mr. Xi?

Of course, Xi's Belt and Road Initiative is supposed to counter all of that by bringing new prosperity to China. That's why China has been buying up huge portions of Africa since Xi came to power. HE wants their mineral wealth and cheap labor. Unfortunately, for his New Silk Road to get to Africa, it has to traverse the Middle East and their shared hatred of America probably won't be enough to offset how the Middle Easterners feel about China's treatment of the Uyghurs no matter how much money and materiel he supplies them with.

And in the meantime, the wealthy of China have moved millions of dollars to western countries (and their children too) so that when Mr. Xi comes to appropriate their funds and imprison their families, their legacies will already be out of reach (hopefully).

The One-Child Policy may have created an economic boon to China, but its repercussions will be felt throughout the world for years to come.