IMF: Two-child policy not enough to cope with aging population

China's move to a two-child policy is unlikely to boost the birthrate, so other policies, such as encouraging women and the elderly to work, are needed to manage the downside of the country's aging society, the International Monetary Fund said today.

The comments followed an announcement that the Chinese government will allow all couples to have two children, altering a decades long one-child policy that experts said would have undermined its GDP growth rate and crippled the pension system.

“Pronatalist policies seem to have only modest effects on the number of births. For example, in Germany, policies to encourage births in the 1970s had only short-lived effects, and the introduction of parental allowances did not have a noticeable impact on the fertility rate, which has remained at 1.35 over the past decade,” Victor Gaspar, an IMF economist, said today.

The IMF did not provide a projection on how the two-child policy would affect China's birthrate. It released a study, instead, that focused on how different policy options would affect age-related spending by 2050 and 2100.

Based on the United Nations' latest population projections, the study said that in developed countries a higher birthrate could reduce the pension and healthcare spending from 21.4 percent, as a ratio of GDP, to 20.6 percent by 2050.

However, increasing the participation of women in labor force would help more, reducing spending to 20.1 percent by 2050. Other options, such as higher migration, more labor participation of the elderly, and a higher retirement age would also have similar results.

Lowing healthcare costs had the biggest affect by reducing spending to 19 percent.

The result is similar in less developed countries, and adopting these changes would exert far greater impact by 2100 than by 2050, the IMF report said.

For China, the IMF found increasing the birthrate would cut pension and healthcare spending by only 0.6 percentage point, compared with baseline, by 2050. Increasing women's participation in labor force would cut such spending by 0.7 point, while increasing the number of elderly in the workplace would cut spending by 1 percentage point. Containing healthcare costs brought the largest benefit, by reducing spending by 1.8 points.

The report cautioned that demographic changes happen much faster than projections, and past projections had proved to be very optimistic.