China Launches Child Subsidy Program Amid Historic Birth Decline

The Evolution of China's Population Policy

For many years, the one-child policy in China was a symbol of the Chinese Communist Party’s strict control over family planning. It was often used to illustrate the authoritarian nature of the regime. However, this policy was officially discontinued in 2015 after years of relaxed enforcement. Despite this change, China now faces an unprecedentedly low birth rate, prompting the government to introduce new measures aimed at encouraging families to have more children.

New Childcare Subsidies Introduced

In response to the declining birth rates, the Chinese government has announced a plan to provide childcare subsidies for the first, second, and third child up to the age of three. This initiative is set to begin this year, with families receiving what the government refers to as a “fertility bonus” of 3,600 yuan (approximately €430) per child until they reach three years old. While the national government will cover the base amount, local authorities have the flexibility to add more funds based on their available resources.

The primary goal of this subsidy is to alleviate the financial burden of raising children and to prevent further declines in the fertility rate. Importantly, these subsidies are tax-exempt and not included in calculations of household or individual income. This ensures that families do not lose eligibility for minimum living allowances or extreme poverty assistance.

Understanding the Fertility Crisis

In 2024, China's total fertility rate (TFR), which measures the average number of children a woman is expected to have over her lifetime, was around 1.15 children per woman. This is among the lowest in the world and well below the so-called "replacement level" of 2.1. At this rate, the population would shrink unless there is significant immigration.

Demographers use TFR to assess whether a population is growing, shrinking, or stable. The new policy aims to maintain a relatively stable population size without allowing it to become overly skewed towards an aging demographic. This issue is similar to challenges faced by many European economies.

The Aging Population Challenge

According to the World Health Organization, by 2040, approximately 28% of China’s population will be over the age of 60. This aging population threatens to disrupt the once-growing labor force and competitive wages. It also skews the dependency ratio, with more economic resources directed toward supporting elderly relatives, increased healthcare costs, and pensions.

China's population shrank for the first time since 1961 in 2022, with a yearly drop of 850,000 people as deaths outpaced births. In 2023, the worst year on record, the population fell by about 2.08 million, and the decline continued in 2024, although slightly improved.

The Economic Transformation and Its Consequences

In 1978, China underwent political and economic reforms, including opening parts of its economy to combat rural poverty and integrating hundreds of millions of workers into its labor force. This transformation is considered one of the fastest in history, with China becoming the largest net exporter globally and experiencing an average annual economic growth of about 9.5% until 2018.

However, this economic success came with political and diplomatic influence. Now, the population decline could lead to China falling on the wrong side of the demographic dividend as its pool of available labor shrinks.

Ultra-Low Fertility in Asia

China is not the only Asian country facing this challenge. Several other countries in the region are now classified as ultra-low fertility economies, where population decline has become steep and difficult to reverse, even with pro-natalist policies like child subsidies.

A combination of economic, cultural, and demographic factors can create a cycle of fewer births in these countries. Economically, this decline erodes the very demographic dividend that once fueled the rapid growth of East Asia's wealthiest nations.