August 23, 2021:
One thing that made China’s modernized armed forces work was an adequate supply of well-educated and eager Chinese that were capable of mastering the skills required by China’s world-class military being produced. A critical problem is that future generations of well-educated Chinese recruits will be smaller and less eager to choose a military career. The key problem is that too many young Chinese cannot afford to marry and raise more than one child. The government has found this problem very resistant to solutions.
For example, earlier in 2021 China changed its population policy to allow couples to have as many as three children. This supersedes the 2016 law that allowed two children and is latest of many unsuccessful efforts to reverse the low birth rates, especially among the growing urban middle-class. The latest change comes in response to the disappointing results of the seventh national census, conducted during the last two months of 2020. The bad news was that annual growth rates during the last decade were only 0.53 percent versus 0.57 percent for the previous decade. Chinese population experts expect the population to show annual decline sometime in the 2020s. That puts the year of peak population somewhere between 2022 and 2027. This is worse than it looks because birth rates are not growing among the middle class. As defined by education (a college degree), nearly half the population is qualified for middle-class status. When measured by income, less than a third of the new middle class have enough income to support more than one or two children.
During the decades of the “one-child” policy the growing middle-class lavished money on their only child, fueling the drive for nearly all these children to receive a university degree and the highest test scores possible. Currently about 60 percent of young Chinese will attend college and get a degree. Marrying and starting a family turns out to be much more difficult. About 30 percent of graduates cannot find middle-class jobs the new graduates were educated to handle. A more difficult problem is the shortage of affordable middle-class housing in urban areas. The portion of the population living in urban areas grew from 20 percent in the 1980s to over 60 percent now. Home ownership (usually an apartment) is over 70 percent for college educated urban couples, which is higher than in Western countries. While income for middle-class Chinese with a job makes it possible to buy a home and often a car as well, it does not make educated urban couples confident that they can afford the high cost of rearing and educating more than one child.
By mid-2021 the government was devoting a lot of effort to finding ways to increase the birth rate among the educated middle-class, which is the key component for economic growth and the vital for sustaining that growth. The middle-class aspect was noted in 2014, after two children were allowed and it was found that only about 40 percent of couples expressed any interest in applying for a permit to have a second child. Worse, only a quarter of those expressing interest actually applied for official permission to do so. Applying for permission entitles the couple to some cash benefits to help with raising the child. Government surveys showed that in urban areas typical education expenses alone consume over half of family income before the child finishes high school. While basic education is free, parents typically spend a lot more for tutoring to keep their child competitive for the national college entry exam. The government cannot afford to match those costs and middle-class parents will not have a child that does not have a good chance of getting into college, as nearly all middle-class children currently do. While enough new housing was built in the last decade for all middle-class families, too much was built by corrupt officials in areas where the middle class did not want to live. This led to the infamous “Ghost Cities”, some with hundreds of new buildings that could find tenants for less than ten percent of the new apartments. When the government surveyed middle-class couples about interest in having a third child, hardly any were willing. That means the current huge middle-class will not be able to replace itself and will slowly decline if living costs for urban couples are not reduced or heavily subsidized.
There is not enough money available to implement the obvious solution. Recent proposals to limit the wealth of the most successful entrepreneurs run into the same problems encountered in other industrialized countries. The most economically successful families are also key to continued innovation and creating new industries. Sensing the danger, a growing number of economically successful Chinese are making preparations to get out quickly. Many have obtained foreign passports and moved assets overseas, just in case. As the saying goes, “in case the Reds (communists) come back”. Technically the Reds are still in charge. China is a communist police state, one that survived the worldwide collapse of communist governments three decades ago by encouraging the growth of a middle-class and a free market economy before the communist implosion began. China was economically successful but found these “new Chinese” are not as easy to coerce and control as the large poor and rural Chinese population the communists ruled when they took power in 1949. In part that is because the costs of the national police force and media censorship bureaucracy are about as high as the defense budget. That is a unique feature of police state survival.
The declining population is not just about the middle class. The impact of the population decline has long been visible. A general labor shortage began to show up a decade ago as it drove up wage costs. This reduced the cost advantage of producing goods in China. That led to other nations in Asia taking Chinese manufacturing jobs because they had more workers and lower wages. China knew it would have a growing labor shortage because of the “one child per family” program instituted in the 1980s. That policy was officially eliminated after two generations of success. As the first of the “one-child” generation came of age, it turned out to be more of a problem than expected. China failed to pay attention to how this worked out in other newly affluent countries. Many more affluent (than 30 years ago) Chinese women do not want to have more than one or two (or any) children and the government, like their counterparts elsewhere, have not found a way to compel parents to have more kids. This is a common problem with affluence and has already hit Japan and South Korea and every other industrialized nation that does not allow many foreigners to become permanent residents, much less citizens. China has always seen non-Chinese as lesser creatures, a designation many neighbors and adversaries do not appreciate. China has become increasingly alarmed at the impact of its “one-child” policy and its inability to keep things from getting worse.
Chinese leaders never discussed how they would handle the obvious demographic implications of the one-child policy. Several successive Chinese supreme leaders preferred to play political musical chairs and leave the problem unaddressed for their successors. Eventually one of those successors ends up the loser. But at least he can blame his weak predecessors for not doing what had to be done. The problem is that there are no easy or viable solutions.
The negative impact of the one-child policy caused other unexpected problems, like taking care of the growing number of elderly retired Chinese. This was another side effect of affluence. The growing shortage of workers is insufficient for taking care of the larger elderly population. In 2015 there were eleven working age Chinese for every retiree. By 2050, if not earlier, there will only be two for each retiree. At that point, retirees will comprise 30 percent of the population versus over 15 percent now. Traditionally, children cared for their parents in multi-generation households. That model is dying out, and China is faced with huge pension cost increases at the same time they expect their economy to be the mightiest on the planet. In reality the largest single government expense will be the care of the elderly, and this will impose crushing taxes on those of working age and stifle economic growth. It will be more difficult to get workers for unpopular jobs.
Even the military, especially the navy, is already having problems obtaining enough qualified recruits for its smaller but far more high-tech force. The new navy spends a lot of time at sea and most young Chinese see that as an extreme hardship.
The population shrinkage did eliminate one problem. Since the 1980s many of those couples forced to have only one child aborted a child if it was a female, because much more importance is attached to having a male heir. The result became obvious about fifteen years ago when the first “one-child” generation started looking for wives. At that point there were 38 million more males than females in China, and the disparity was growing. The competition for wives is causing problems. That problem solved itself as Chinese couples found daughters were more valuable than tradition long maintained. This was especially true if middle-class daughters received a college education.
Women took advantage of their scarcity, but men are also going to neighboring countries to buy, or even kidnap, young women to be wives. This is causing ill will with neighbors, where females are enticed or coerced (kidnapped by criminal gangs) to become wives of Chinese men who have no other options. It’s not just brides who are moving to China, millions of workers move to China each year. It’s these migrants that will become increasingly important in the next few decades for dealing with the labor shortage, but they cannot become Chinese citizens unless they can marry Chinese. China, Korea and Japan are all hostile to integrating other east Asians into their populations. It happens, but there is a social stigma for having a foreign parent or ancestor.
The government knew that once the 2020 census report was released, a lot more unwanted attention would be paid to the population problems. This will lead Chinese to take a closer look at South Korea and Japan, who enjoyed rapid economic growth a decade or more earlier than China. Japan got there first and now faces inexorable population shortages with no solution in sight. Integrating migrants into the culture is still forbidden although Japan has been forced to at least consider allowing qualified migrants to become citizens, although socially second-class ones. That will change Japanese culture, but that already happened in the aftermath of World War II and Japan thrived because of it.
South Korea is another matter, because the population decline is a decade behind Japan while South Koreans are more open to accepting qualified foreigners. Many South Koreans believe Korea will become united soon and hope this will somehow solve the population problem for a while. Unification is unlikely unless China agrees to cooperate and tolerate a unified democratic Korea as a neighbor. China does not want more affluent Koreans on its borders.
Europe and especially the former British colonies that became the United States, Canada, Australia and New Zealand all thrived by accepting migrants from everywhere and urging them to adapt to the new culture and become citizens. With a few exceptions, that population growth model was not widely accepted in Europe, but it was much more acceptable than in East Asia.