Demographic flatline will test China’s generosity

China's population may have peaked in 2021, far earlier than expected. Beijing might prefer to continue to tackle root causes including high living costs, but a desire to prop up the economy in a key political year makes less disruptive fixes like cash subsidies practical.

Monday's population data rubs salt in a wound after fourth-quarter GDP pointed to a worrying slowdown that could see growth dip to 2.9% by March, per a Nomura estimate, far below what authorities generally consider acceptable. Natural population growth slumped to merely 0.034% in 2021, compared to 0.145% a year earlier, meaning the country of 1.4 billion people saw a population increase of under half a million. That suggests many regions are already shrinking.

The speed of aging is faster than expected. A 2017 national plan predicted a population peak around 2030. Thus, authorities have been aggressively seeking to lower the costs of raising a family. Last year, President Xi Jinping intensified a crackdown on the housing market, and targeted after-school tutoring companies turning that branch of the education industry into non-profit overnight. But such draconian policies may be less attractive as growth concerns take centre-stage this year ahead of the Party Congress, where a five yearly leadership reshuffle takes place.

Subsidies to young families in the form of cash and tax breaks could be more practical, especially while inflation remains low unlike in much of the rest of the world. After the Chinese city of Panzhihua became the first to give parents $78 per month for a second or third child last year, few have followed suit, probably due to distressed local finances. It's a delicate issue. Soochow Securities economist Ren Zeping's social media accounts were banned after he used them to call for the central bank to "print" 2 trillion yuan, about $314 billion, each year for a fertility fund.

Such incentives will have a marginal impact on young people in China's biggest cities who are shunning procreation because of work stress or a new sense of independence. But they could offer some temporary relief. Yi Fuxian, a well-known reproductive scientist, found Russia's birth rate increased in the eight years after a slew of similar benefits including housing subsidies were introduced in 2007. At least the poor will benefit.