Fear and Steep Fines Still Haunt Chinese Families

TAIPEI (TheStreet) -- In 2005, I interviewed a Shenzhen mother who had just given birth to a second baby and lived in fear of paying a steep fine if caught for violating the one-child policy. She and her husband weren't alone.

China is expected to ease its one-child policy next year and abolish it by 2016 following a proposal from  China's ruling party session last month. Communist officials aim to shore up the domestic labor force and add consumers to the economy, but their move will deliver too little too late.

"In brief, the impact of the policy on the size of workforce will probably be much less than many people think, as not all couples want to or can afford to have a second baby," says Wang Qinwei, China economist with London-based Capital Economics.

The one-child policy handed down in the late 1970s put then reclusive China on the world map for the unusually authoritarian way to control population growth. The policy has held since then, though with more recent exceptions for rural families whose firstborns are girls (not seen by traditional Chinese as farmhands) and for couples who are both single children themselves.

The slow-growth policy has pushed the fertility rate down to 1.6, compared with about 2.4 for other countries at China's level of development, Capital Economics has found. That's also below China's replacement level of 2.2 The population aged 15 to 59 is set to fall by around 7% between 2010 and 2030, United Nations figures show.

And that's bad for productivity, a scenario that could raise labor costs for simple supply-demand imbalance reasons, further hobbling China's once world-class reputation as a place to go cheap while building out multinational corporations such as Microsoft (MSFT) and Anheuser Busch Inbev (BUD).

But you can't just say go have babies anymore and expect them to bounce into the workforce. The Shenzhen couple thought they were rebels embodying a popular but silenced cause. Yet, other analyses suggest that the number of people who want multiple kids has declined as child-rearing costs rise and urban couples rely less on progeny for old-age care. China can still expect a baby boom as couples -- such as the one in Shenzhen -- just want bigger families for either financial security or to live out personal dreams.

But the wave of newborns wouldn't be able to work for 15 or 20 years. Economic growth is slipping today. And the pace of productivity growth is likely to slow anyway as "the room for catch-up with richer economies diminishes," Capital Economics says.

Those looking for consumption dividends from a higher birth rate should refocus to countries with better demographics, perhaps to Indonesia or the Philippines.

Credit Suisse expects 8.3 million additional births from 2014 and 2020, on top of the current 16 million births every year. Average cost per kid under 18 would be just 416,000 Chinese yuan ($68,470), which doesn't buy even a single Porsche 911. High-end brands such as BMW or Louis Vuitton hardly need to step up marketing just for these newborns.

"We think that the market may have over-estimated the number of additional babies following the easing of policy," the Swiss investment bank says in a research report.

The author has no positions in the shares of companies named in this column.

Ralph Jennings is on LinkedIn

Ralph Jennings lived in Beijing for seven years as a writer, editor, student, teacher and consumer. Originally from Portland, Oregon, Jennings has covered financial markets in Asia since 2008. His news reports often examine markets from a macro-policy angle on behalf of individual traders as well as institutional investors. In his view, China is a volatile country that can be understood only by watching it closely week in, week out, followed by analysis mixed with hands-on perspectives. He currently lives in Taipei, where he covers general and financial news in East Asia and studies for a master's degree. He also watches China from the unique perspective of Taiwan's traditional Chinese society with its unique economic and political experience.

More from Opinion

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Time to Talk Tesla: What Happened This Week, Elon?

Time to Talk Tesla: What Happened This Week, Elon?

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks