Breathing new life into China's pension fund
Robert Pozen says besides easing its one-child policy, China must address its demographic time bomb by reforming and centralising its pension scheme to fit the needs of a rapidly ageing population
The end appears to be in sight for China's policy of one child per family. A government official recently announced that China is considering more exceptions to the policy for urban couples; other officials and academics have more broadly raised questions about its merits.
The one-child policy is being reconsidered because China is facing a demographic time bomb. The ratio of the working population to total population peaked in 2010 and is rapidly declining. The percentage of the population aged 65 or older will double by the early 2030s. By 2050, it is projected that there will be fewer than 1.6 workers for every retiree in China.
These trends will not only undermine the efforts of the government to establish a viable pension system, but will also force widespread adjustments in the nation's health and welfare programmes. China faces a monumental challenge in figuring out how to take care of its large and growing legion of elderly citizens.
To improve the ratio of workers to retirees, China should adopt a two-child policy. This change would not overwhelm hospitals. Indeed, China would need a fertility rate of 2.1 children per family to maintain a constant population size. Many Southeast Asian nations have fertility rates below 1.5 children per family - even without restrictions on family size.
The national government is in a much better position to finance the legacy benefits
However, moving to a two-child policy would not be sufficient to address the demographic challenges to the pension system.
