China’s pension problems will not be solved by more children — Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From Financial Times

On October 29, China adopted a policy of two children per family, instead of one. This change is, in large part, intended to mitigate the adverse demographic trend plaguing China’s social security system: the rapidly declining ratio of active to retired workers. The ratio is falling from over 6:1 in 2000 to under 2:1 in 2050.

However, the new two-child policy is not likely to have a big impact on the worker-retiree ratio, so China’s retirement system will remain under stress. To sustain social security, China needs to implement other reforms — moving from a local to a national system and expanding the permissible investments for Chinese pensions.

The one-child policy always had exceptions, such as for rural and ethnic communities. These exceptions were broadened in 2013 to cover couples where both were only children. Yet the birth rate did not take off.

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China must draw the right lessons from the failures of its one-child policy — Yasheng Huang

MIT Sloan Prof. Yasheng Huang

MIT Sloan Prof. Yasheng Huang

From South China Morning Post

In 1983, the UN gave China and India awards for their efforts to control the population. The recipient for India was its then prime minister, Indira Gandhi. She famously pushed for a compulsory sterilisation campaign and even suspended elections in order to enforce it. Her programme failed miserably, and one of its enduring effects is a pervasive distrust of India’s health care system, which still plagues public health efforts today.

By contrast, China’s one-child policy was in place for 35 years until this October, when the government announced a shift to a “one couple, two children” policy.

The contrast in duration between the Chinese and Indian population control policies cannot be sharper, and it is this, among other differences, that prompted some Western observers to argue that the authoritarian Chinese system is more capable of enforcing politically tough but economically rational policies.

The reality is much more complicated. It is true that India has a higher fertility rate than China and it is also true that India could not enforce population controls as effectively as China has. But there are many other differences between China and India that would account for a lower fertility rate in China, regardless of policies. Chinese women enjoy a higher socio-economic status than Indian women. Chinese basic education and public health are far superior to those in India. All these factors would have led to a declining fertility rate in China even if China did not have the one-child policy in place.

Read the full article at South China Morning Post.

Yasheng Huang is the International Program Professor in Chinese Economy and Business and a Professor of Global Economics and Management at the MIT Sloan School of Management.