China’s population shrinks for fourth straight year • FRANCE 24 English

Key Concepts

• Demographic Crisis in China: Declining birth rate and its economic consequences.
• Value Added Tax (VAT) on Contraception: Removal of a previous exemption and its potential impact.
• Cost of Raising a Child: High financial burden associated with parenthood in China.
• GDP Impact of Low Fertility: Projected economic slowdown due to demographic shifts.
• STI/HIV Risk: Potential increase in sexually transmitted infections due to reduced access to affordable contraception.

China’s Declining Birth Rate and the Removal of VAT Exemption on Contraception

China is currently experiencing a population contraction, a trend that began in 2022. This demographic shift has prompted the Chinese government to take measures aimed at increasing birth rates. A significant recent policy change is the removal of a long-standing Value Added Tax (VAT) exemption on condoms and other forms of contraception. This means the cost of these items has increased by approximately 13%. The stated intention behind this move is to encourage childbirth.

The Economic Burden of Parenthood in China

A primary reason cited for declining birth rates is the prohibitive cost of raising children. The average cost of raising a child to age 18 in China exceeds €65,000. This figure is equivalent to 13 times the average annual per capita disposable income, making parenthood financially inaccessible for many. This economic pressure is leading some individuals to choose pet ownership over having children, as evidenced by statements like, “Our current financial situation is really only enough to support ourselves right now. If we had a child, the cost would be much higher… In the long run, we don't plan to have children. Raising a dog is already expensive.”

Potential Negative Consequences of Increased Contraception Costs

While the government aims to boost birth rates, concerns exist regarding the potential negative consequences of making contraception more expensive. Experts warn that increased costs could disproportionately impact vulnerable populations, leading to a rise in sexually transmitted infections (STIs), including HIV, and unintended pregnancies. As one commentator stated, “I think that without proper protection, the most immediate consequences are the spread of STI, HIV, and a higher risk of unintended pregnancy. For teenagers or women with limited financial resources, these risks can be lifealtering.” This highlights a potential trade-off between encouraging births and protecting public health, particularly among those with limited financial means.

Macroeconomic Implications and Projections

The declining birth rate poses a significant threat to China’s long-term economic stability. The European Central Bank (ECB) projects that low fertility could reduce China’s GDP growth by 0.3% by 2040. Furthermore, the country’s pension and healthcare systems are facing increasing strain due to a shrinking workforce and a growing elderly population. The removal of the VAT exemption on contraception is viewed by many as an insufficient measure to address these complex demographic and economic challenges. The sentiment is that “a few extra cents on condoms is unlikely to make a difference when it comes to China's big demographics problems.”

Government Messaging and Overall Strategy

Despite the skepticism surrounding its effectiveness, the policy change signals a clear message from Beijing: increasing the birth rate is crucial for safeguarding China’s economy. The government’s strategy, at least for now, appears to involve reducing barriers to childbirth, even if it means potentially decreasing access to affordable contraception.

Technical Terms

• Value Added Tax (VAT): A consumption tax added to a product at each stage of the supply chain.
• Per Capita Disposable Income: The average income available to each person in a population after taxes and other deductions.
• STI (Sexually Transmitted Infection): An infection passed through sexual contact.
• GDP (Gross Domestic Product): The total value of goods and services produced within a country's borders.

Synthesis

China’s decision to tax contraception reflects a desperate attempt to reverse a concerning demographic trend. While the government hopes to incentivize childbirth, the high cost of raising children remains a significant deterrent for many. The policy risks exacerbating health inequalities and may have a limited impact on the overall birth rate, given the broader economic pressures facing potential parents. The long-term economic consequences of a shrinking population, as projected by the ECB, underscore the urgency of the situation, but the current approach appears to be a limited solution to a complex problem.