Essay on "Chinese Economy Since Deng Xiaoping Began"

Essay 7 pages (2324 words) Sources: 12 Style: MLA

[EXCERPT] . . . .

Chinese Economy

Since Deng Xiaoping began to open the Chinese economy is the late 1970s, there have been substantial changes in China's demographics. These changes have both helped to support China's economic growth but have also presented Chinese authorities with significant challenges as well. The One Child Policy was introduced in 1979, virtually concurrent with China's economic modernization. In terms of direct influence, this policy has left China with a relatively old population. In terms of indirect influence, this policy led to an uptick in female infanticide, leaving China with a generational demographic heavily skewed towards males. Combine this with rapid economic shifts and corresponding internal migration from rural areas to urban areas and it is clear that China has been subject to a considerable shock as a result of both its economic policies and its population control policies. This paper is going to examine the impacts of China's changing demography on the changing economy. With both components subject to extreme and rapid change, it is difficult to draw conclusive conclusions with regards to the impacts, but inferences can be made as to the impacts that demographic changes have had on Chinese economic development, both in the rural and urban sectors.

Major Demographic Shifts

China began its economic modernization policies in the late 1970s, in the wake of the Cultural Revolution. The Communist Party of China, unlike its Soviet counterpart, had failed miserably at economic development, leading to mass starvation that wiped out millions of Chinese, mainly in rural areas. The nation had experience a baby boom during the 1950s and 1960s, which gave the country a relatively young population. Two-thirds of Chinese were under the age of 30 in the late 1970s, in and entering their prime reproductive years. With potentially hundreds of millions of new mouths to feed, no new arable land and a stagnant economy, the PRC undertook the drastic measure known as the One Child Policy (Hesketh, et al., 2005). This policy was more complicated that the name suggests, with rules governing not only family size, spacing of children, and when a couple could have more than one child. In rural areas, multiple children were typically still allowed.

The population in China at the time was around 800 million people (IIASA, 2009). Since the introduction of the policy, fertility rates dropped. The baby boom had been fuelled by fertility rates between 5.6 and 6.3 children per woman; by 1990 this rate was 2.45 and dropping (Ibid). The impact of this steadily declining fertility left China was a bubble cohort of people, who have formed the bulk of the workforce that drove economic development from the 1980s through the 2000s.

Today, another demographic shift is in evidence. The One Child Policy is still in effect, but today the trend towards smaller families is also societal. As China develops economically, fertility rates are beginning to trend towards those of other developed Asian societies. In urban areas, fertility rates are estimated to be 1.43 (Ibid.) and dropping towards the levels seen in Japan, Singapore and Hong Kong, all of which have among the lowest fertility rates in the world (Hesketh, et a., 2005). Now China is faced with a rapidly aging population that is expected to trend towards its neighbors in Asia (Chan, et al., 2006).

Underlying Reasons

The Chinese government recognized that it was going to be unable to meet the challenges of feeding its population if growth was not curtailed. The One Child Policy, however, was not the beginning of population control. The government had an informal initiative throughout the 1970s to promote lower fertility rates, resulting in the rate dropping throughout the decade. The One Child Policy was simply an institutionalization of that informal policy. China's citizens have for the past thirty years been lowering their fertility rates, arguably even without the OCP. Certainly in recent years we have seen that social norms have shifted away from large families, particularly in the economically developed cities and towns.

It is not just the size of China's population that has changed, however. The makeup of the population has also shifted, owing to a Chinese preference for male babies. The One Child Policy did not change this preference, so the incidence of female infanticide increased. This has lead to a skew towards males in China's demographic today. Males make up 51.3% of China's population in total, and the same percentage of the working age population (CIA World Factbook, 2009), the inverse of most modern economies.

The rate of change in China's demographics was, from the early 1970s to the early part of this decade, very rapid. The country in general supported the government's efforts at demographic change, which brought about a startling decline in fertility rates from the early 1970s until the early 1990s. Since then, the pace of change has slowed. There are many potential factors for this. One is that a more open, economically mobile society is less likely to value government input into their daily lives. Another is that there is a certain degree of population momentum. The fertility rate may have slowed, but with a massive bubble in cohorts of child-producing age, the sheer quantity of babies has remained high. According to UN estimates, this momentum is expected to continue through 2025, at which point China's population will begin to decline as the bubble cohort begins to die off (IIASA, 2009).

Impact on Rural Economies

The One Child Policy was often not applied to rural families. However, even those families saw a reduction in fertility rates. There are two main consequences of this for the Chinese rural economy. The first is that poverty rates declined significantly. In 1978, an estimated 260 million Chinese lived in poverty; by 1997 that number was 50 million (Fan, et al., 2002). China has little in the way of social safety net, so the reduction in poverty was largely a consequence of increased savings rates. Rural Chinese families, with fewer mouths to feed, were able to save more of their income. Moreover, with fewer children to care for them in their old age, parents have a greater propensity to save (Wei, 2009). Savings rates in China are now among the highest in the world. It is viewed that those rural Chinese who remain poor are caught in structural poverty where they are unable to save.

The savings rate has helped to drive China's economy, largely because it has helped to reduce rural poverty so substantially. Horioka and Wan (2007) noted that early studies had showed that "future income growth has a negative and significant impact on…future savings rates," showing that as income grows in rural China, savings rates decline. In cities, however, this was not found to be the case. Indeed, the increasing urbanization of China has paralleled a dramatic rise in savings rates. In rural areas where poverty still exists, savings rates have not increased, but there has been substantial migration to urban areas.

Impact on Urban Economies

China is becoming increasingly urbanized, as the poor leave rural areas in search of work in factories. China's baby boom gave the country a tremendous labor surplus. When the One Child Policy began to reduce fertility rate, however, it also meant that this bubble generation needed to increase its savings. This could not be done in rural areas. The demographic situation provided the PRC with a measure of demographic stability that allowed it to increase investment economic growth. As economic opportunity increased, the surplus of workers was drawn to urban areas to meet the demand for labor. The ample supply of labor kept the cost of labor low. Combined with strict controls on the yuan, this resulted in strong urban economic growth.

This growth, however, has been strictly focused on GDP growth. In essence, the PRC has been growing by brute force, converting its inexpensive surplus labor into new growth. Now that the major bubble cohorts are in their 40s and 50s, the nation is faced with new economic challenges. It must find ways to improve GDP growth through increased productivity (McKinsey, 2009). This is necessary because as the pool of available workers begins to stabilize and even shrink, the cost of labor will increase. Chinese labor costs are already rising, to the detriment of export firms (China.org.cn, 2007). The urban economy must also begin to grow from within, rather than maintain its continued focus on export markets. Further, the country must continue to add value to its export industries by developing education in the science and technology field (Gupta & Wang, 2009).

Impact on Employment

The rapid growth of the Chinese economy resulted in a low rate of urban unemployment. The One Child Policy encouraged China's young workers, males in particular, to increase their employment income for a number of reasons. One was that they were destined to be the sole provider of support for their parents in old age. Another is that if they were destined to only have one child of their own, they needed to build retirement… READ MORE

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