China can't reverse falling birth rate even with three-child policy, says top economist

BEIJING • A recently announced "three-child" policy would not prevent a long-term trend towards lower annual births in China, and the country will struggle to raise the retirement age by more than a couple of years by 2025, an influential Chinese economist said.

"I don't think we can drastically raise the birth rate," Professor Yao Yang, dean of the National School of Development at Peking University, said in an interview.

The government's move to allow families to have three children could lead to a short-term increase in births, but "we cannot expect the effect to continue for a long time", he said.

"We'd better prepare for an ageing society," said Prof Yao, who is among a group of economists who consulted with President Xi Jinping and top economic official Liu He last year.

Prof Yao said that despite an ageing population, rising productivity could sustain the economic growth rate close to its potential of 5.5 per cent to 6 per cent over the next decade. China should maintain high levels of investment in urbanisation, education and research, he added.

To slow the pace of a decline in its workforce, Beijing has announced plans to "gradually" raise the national retirement age in the next few years but has not given a timetable.

There is an added urgency to the reforms as China experienced a baby boom in the 1960s, and that cohort is already reaching retirement age, Prof Yao said.

Retirement reforms could be slow though, he said, adding that he did not think the government will raise the retirement age too much, because of "social resistance."

One "realistic" option would be to raise the age by an average of six months a year over the next five years, resulting in a 21/2-year increase by 2025, he said. By 2030, the retirement age for men and women could be five years higher than current levels.

China's plan to introduce property tax legislation by 2025 could help local governments' finances. Nationwide taxes are likely to be collected by the central government but available for spending by local governments, which are currently heavily reliant on land sales for income, Prof Yao said.

"Property tax is going to compensate for local governments' loss of income through land sales because they are quickly running out of land and need a replacement," he added.

Pension funds are sufficient for the near future, but can be supplemented by transferring assets from state-owned enterprises, which have a current net value of about 85 trillion yuan (S$17.6 trillion), Prof Yao said, citing official statistics.

The impact of population ageing is likely to be deflationary: "An ageing society means deflation, not inflation. The interest rate will (tend to) go down to zero, like in Japan."

Consumer spending can continue to expand rapidly despite an ageing population. Prof Yao cited estimates by researchers at the National School of Development that, over the next 30 years, the positive effect of urbanisation on consumption will be more than three times larger than a negative effect caused by population ageing and a decline in the size of the total population.

Birth restrictions could be dropped entirely in the next decade. "Personally I believe China should get rid of family planning policy. That could happen in the next five to 10 years," Prof Yao said.

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A version of this article appeared in the print edition of The Straits Times on June 12, 2021, with the headline 'China can't reverse falling birth rate even with three-child policy, says top economist'. Subscribe