Executive Briefings

China's One-Child Policy Is Altering the Country's Economic Landscape

China instituted a one-child policy in 1979 to constrain population growth and foster prosperity for the next generation. The byproduct of that policy is an accelerating decline in the pool of young and largely unskilled labor that is the mainstay of mainland factories churning out low-margin goods such as clothes, toys, and furniture. United Nations projections show that the country is at a tipping point: The number of 15- to 24-year-olds is set to fall by 62 million people-or more than 27 percent-to 164 million people, in the 15 years through 2025.

The resulting upward pressure on wages is forcing mainland companies to upgrade to higher-value products, as Japan did in the 1960s and '70s. China may have as few as five years to make the transition to avoid a slump in economic growth, according to Mingchun Sun, an analyst at Daiwa Capital Markets in Hong Kong and a former economist at China's State Administration of Foreign Exchange, part of the central bank. He says growth may decline from 2016 to 2020 as low-cost producers fail and investment falls away.

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China instituted a one-child policy in 1979 to constrain population growth and foster prosperity for the next generation. The byproduct of that policy is an accelerating decline in the pool of young and largely unskilled labor that is the mainstay of mainland factories churning out low-margin goods such as clothes, toys, and furniture. United Nations projections show that the country is at a tipping point: The number of 15- to 24-year-olds is set to fall by 62 million people-or more than 27 percent-to 164 million people, in the 15 years through 2025.

The resulting upward pressure on wages is forcing mainland companies to upgrade to higher-value products, as Japan did in the 1960s and '70s. China may have as few as five years to make the transition to avoid a slump in economic growth, according to Mingchun Sun, an analyst at Daiwa Capital Markets in Hong Kong and a former economist at China's State Administration of Foreign Exchange, part of the central bank. He says growth may decline from 2016 to 2020 as low-cost producers fail and investment falls away.

Read Full Article