Abolition of 'one-child' policy to have limited effect on China's growth

Can China move forward with structural reform and transition to stable growth led by consumption under the single-party rule of the Chinese Communist Party?

We see a steep road toward the “new normal” economy that the administration of Chinese President Xi Jinping aims to achieve.

The Chinese government has released an outline of its 13th five-year plan on economic and social policies from 2016 to 2020. The core of the programme is to maintain medium and high economic growth by changing the country’s economic structure.

The plan calls for doubling the gross domestic product and the people’s average income by 2020 from their levels in 2010 and sets a goal of building a fairly comfortable “moderately prosperous society”.

To attain this goal, Xi said it would be necessary to maintain an annual average growth of at least 6.5 per cent in the coming five years. This represents a downward revision from the 7 per cent targeted by the current five-year plan.

China’s investment-led high growth has reached a deadlock, as excessive production capacity has become a burden. The country will therefore strive to shift to a consumption-centred economic structure. A likely stumbling block to these efforts is the rapidly decreasing birthrate and aging population. The country’s working-age population, which accounts for a major portion of consumption, has decreased year-on-year since 2012.

Because of this, the new five-year plan abolishes the one-child policy that has been in force since 1979. This step is aimed at rectifying the distorted population structure and securing the necessary workforce. Even if the number of births starts increasing now, however, it will take more than 10 years before the effects appear.

 

Reform of state firms crucial

Birth limits will remain in place, but couples will be allowed to have up to two children. Many urban residents abstain from having a second child due to such economic burdens as soaring educational expenses. Will the new population policy proceed as expected?

To expand the population group that forms the core of consumption, the new five-year plan also lists policies for “balanced development,” such as correction of income gaps and improving treatment for farmers who move into urban areas. All these policy goals cannot be accomplished through perfunctory efforts.

Reform of inefficient large state-owned companies, which are linked with Communist Party elements with vested interests, holds the key to stable growth.

While encouraging private firms’ entry into new sectors, the new five-year plan has committed to “strengthening and enlarging state-run companies.” It is doubtful whether bloated state-owned businesses will be prevented from dampening the vigor of private firms.

Economic cooperation with Japan and other countries will be indispensable to the realisation of China’s goals. Chinese Premier Li Keqiang met with a delegation of the Japan-China Economic Association recently and promised that China would steadily carry out measures to improve the investment environment, such as deregulation and strengthening the protection of intellectual property.

The change in China’s economic management will greatly affect the international community. Japan must deal with the change expeditiously and flexibly through cooperation between the private and public sectors.