Demographic time bomb: China abandons one-child policy, “Choking Growth”

The policy was drafted 36 years ago on the basis that having more than one child would be a drag on economic growth. Fast forward and the thinking has gone full circle as China abandons the policy in the hope it will defuse a ‘demographic time bomb’ that threatens to choke growth. More details are expected in the coming days with the release of the draft plan, which won’t be completed until the national legislature approves it next year. The knock-on affect pushed Danone shares higher, one of the world’s largest producers of baby formula. China is already the biggest market for baby products, and sales have more than doubled in five years. – Stuart Lowman

(Bloomberg) — China’s ruling Communist Party will abandon the one-child policy introduced in the late-1970s to defuse a demographic time bomb that threatens to choke growth in the world’s second biggest economy.

The party’s decision-making Central Committee approved plans to allow all couples in China to have two children, the official Xinhua News Agency said Thursday at the end of a four-day party gathering in Beijing. The move, which had been expected, comes after a previous effort to relax the policy fell well short of the goal of boosting births by 2 million a year.

A map of China is seen through a magnifying glass on a computer screen showing binary digits in Singapore in this January 2, 2014 photo illustration. Picture taken January 2, 2014. REUTERS/Edgar Su (SINGAPORE - Tags: SCIENCE TECHNOLOGY BUSINESS TELECOMS TPX IMAGES OF THE DAY)

“It shows the party wants to take action as soon as possible, and shows there is no time to delay for China to modify its population policy,” said Wang Yukai, a governance professor at the Beijing-based Chinese Academy of Governance. “They couldn’t wait for the legislation to pass next year. The leaders want the new policy now.”

Read also: The end of China’s one child policy – who cares?

The polices are part of President Xi Jinping’s blueprint to manage the economy’s shift to slower, more balanced growth. The five-year plan represents Xi’s best chance to implement social and economic reforms outlined since he took power in 2012.

China is attempting to avoid the “middle-income trap” and complete its transition from a investment-and-export-dependent developing nation to a “moderately prosperous society” with an economy powered by services, consumer spending and innovation.

The “one-child” policy, which limited most couples to one or two children depending on ethnic background and where they live, was a cornerstone of late leader Deng Xiaoping’s efforts to overhaul the economy. When the policy was adopted 36 years ago, the thinking was that the birth rate of almost 3 children per woman was a drag on growth.

The cap has since been relaxed and calls to lift it completely have gained traction as the fertility rate plunged and eroded the labor pool. The country’s working-age population shrank for the first time in at least two decades last year as growth slowed, echoing Japan’s downturn in the late 1990s.

Shares of Danone, one of the world’s biggest producers of baby formula, rose as much as 3 percent to the highest since April on the news. China consumes about $19 billion of baby food annually, making it the biggest market for such products after sales more than doubled in five years, according to Euromonitor.

The Central Committee’s communique marks the first step in the official roll-out of the 2016-20 blueprint. More details are expected in coming days with the release of the draft plan, which won’t be completed until the national legislature approves it next year.

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