China's one child policy is showing its long term impact with an aging population. But other factors can off set some of this impact.

China’s had a one child policy since 1979 and it’s been a major piece of social engineering and has greatly distorted the age pyramid of China.  The effects of that are now being seen with the rapid onset of the ageing of the population.  In 2015 for the first time ever in Chinese history, the dependency ratio will rise.  That means that more people out of the workforce will have to be supported by those in the workforce.  This is quite a big change. 

At the same time, the one child policy is being whittled away.  Minorities can have more than one child.  Farmers can have more than one child if the first child’s female.  And frankly wealthy middle class people in China’s urban areas can pay to have more than one child.  There is a big move into Hong Kong by pregnant Chinese women to have their babies in Hong Kong so they can have more than one child as well.  So the policy is much less rigorously imposed than it was although there are still some areas, particularly in rural areas of China, or smaller towns, where the policy is still in force. 

The big issue is productivity growth and I think that although the dependency ratio is rising, the capacity for productivity to grow in China over the next ten to twenty years is still tremendous. If you remember that China has a per capita income of just 18% of the US per capita income, or in global terms it is the 92nd poorest country in the world in terms of per capita income, that suggests that there is a lot of catch up still left in the Chinese economy. 

Furthermore, the investment in education is massive and so every person entering the workforce these days is substantially better educated and more productive than those exiting.  All of that I think makes it less of a macro economic problem or a growth or a structural problem because there’s plenty of capacity to offset that greying of the population and the rising dependency ratio.Cli

click here to watch video.