China Considering Financial Rewards to Encourage Second Children

(Bloomberg) -- China is weighing subsidies for couples who have a second child to help increase the birthrate after authorities scrapped a decades-old one-child policy in 2015, official media reported.

The government is considering measures such as "birth rewards and subsidies" to help encourage more people to have another child, Wang Peian, vice-minister of the National Health and Family Planning Commission, said at a conference on Saturday, according to a report Tuesday by the state-run China Daily.

Such incentives, if adopted, would represent a fundamental shift in the Communist Party's approach to family planning, from limiting births to encouraging them. After decades of penalizing many couples who had more than one child, now the world's second-largest economy, which has gained for decades from having an abundant young workforce, is facing a hangover of its one-child policy implemented in late 1970s.

Allowing all couples to have two children still falls short of reversing a trend that threatens to impose a drag on economic growth. And a limited baby boom could still be dampened by the rising costs of child-rearing. Wang said that affordability has become a constraint on Chinese families' decisions to have a second child, according to China Daily.

Read More: China Ending One-Child Rule Too Little, Too Late for Growth

Wang's comments are in line with the advice from one of the nation's top demographers. Policy makers should use public services -- including kindergartens, schools and child care -- to lower costs and encourage cash-squeezed parents to have more children, Cai Fang, vice president of the Chinese Academy of Social Sciences in Beijing and a member of the Standing Committee of the National People's Congress, recently told Bloomberg News in an interview.

Wang said that such a "baby bonus" policy would not be easy because it should be applied evenly nationwide, China Daily reported. The population authority alone can't handle such a plan as it requires consensus and cooperation among all authorities, Wang said.

Read More: Top Demographer Says China Should Allow Three or More Children

Government subsidies may not be a panacea. They had limited success in countries such as Singapore because people tend to have fewer children when they're wealthier and more educated, according to Chen Xingdong, chief China economist at BNP Paribas SA in Beijing.

“The mindset of the entire nation is switching from controlling births to worrying about low births," Chen said. "But many parents would still be reluctant to have kids even if the government encourages them to."

Births reached 17.86 million last year, a 1.3-million increase from 2015, official statistics show. The policy would lead to about 17 million additional births by 2020, and add 30 million young workers by 2050, the family planning commission said in late 2015. The larger labor supply would boost the economy's potential growth rate by 0.5 percentage point, it said.

The working-age population has been shrinking as a result of aging and low birth rates, draining the labor supply. About one in three Chinese will be older than 60 by 2050, compared with about one in seven now, posing challenges to the social welfare system.

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net, Li Hui in Beijing at hli355@bloomberg.net.

To contact the editors responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net, Jeff Kearns, Ken Wills

With assistance from Xiaoqing Pi, Li Hui