Over the past decade, China has entered an unprecedented demographic transition. The fertility rate has declined since 2022 and dropped to about 1.0 in 2025, despite successive policy shifts, from the end of the one-child policy to the introduction of two- and three-child policies. Often interpreted as a response to fears of overpopulation, the one-child policy and resulting fertility decline can be also understood as a delayed feedback of the long-term growth-oriented developing model shaped by state-led macroeconomic intervention, and rational household decision-making under uncertainty.
Demographic policy as a macroeconomic intervention
First introduced nationwide around 1980, the one-child policy is often framed as a population control measure aimed at addressing concerns over possible overpopulation and resource constraints. However, from an economic perspective, against the backdrop of the state's pursuit of rapid economic growth, it can also be understood as a government growth-oriented macroeconomic intervention. The reduction in fertility lowered the child-rearing burden for households and thereby freed labour for economic activity. A large working-age population, combined with high savings rates and capital accumulation, contributed to what economists describe as a demographic dividend, assisting the labour-intensive manufacturing industry and export-oriented economics. In this sense, the policy helped create a favourable condition for China's high-growth decades.
An intertemporal trade-off
While this model proved effective in accelerating development, it also implied that long-term institutional foundations, such as redistribution mechanisms, social insurance systems, pensions, and healthcare, as well as upgrades in industrial structure, needed to be built simultaneously. This matters because the demographic dividend was never permanent. It represented an intertemporal trade-off: a form of growth brought forward by borrowing from future demographic capacity. While the benefits of lower fertility were realised relatively quickly, the costs were structurally delayed.
Today, these costs are becoming increasingly visible. Younger generations face a far more challenging environment marked by slower economic growth and an inverted population structure driven by rapid ageing. As population ageing accelerates, pension systems come under mounting pressure, and the window to accumulate sufficient funds to support a growing elderly population narrows. The resulting burden is increasingly shifted onto households, forcing younger cohorts to shoulder the demographic and fiscal "debt" accumulated over previous decades.
More broadly, the one-child policy can be seen as a microcosm of China's development strategy over the past two decades. Economic expansion relied heavily on state-led macroeconomic intervention and policy stimulus, delivering rapid growth while remaining largely dependent on labour-intensive and factor-driven industries. Meanwhile the supporting institutional and social systems failed to keep pace.
Microeconomic logic: fertility as a rational choice
At the household level, fertility decisions resemble long-term investment choices, not short-term consumption. Child-rearing involves high fixed costs, long time horizons, and limited reversibility. Such decisions are therefore highly sensitive to expectations about income stability, employment security, and future welfare provision. For younger generations in China, these expectations are increasingly shaped by uncertainty. Labor market competition is intense, returns to education are less predictable, and real wage growth has slowed relative to earlier decades. Housing, education, and healthcare costs further raise the perceived risk associated with having children.
Under these conditions, postponing or foregoing childbirth is not a cultural anomaly but a rational response to structural incentives. Pro-natalist subsidies or extended parental leave may alleviate short-term constraints, but they do little to alter long-term expectations about security and opportunity. Therefore, despite the end of the one-child policy in 2016 and the government encouraging larger families, the fall in fertility today seems irreversible.
Conclusion
China's fertility decline should not be viewed merely as a demographic anomaly or a temporary reaction to policy shifts. Rather, it reflects the structural consequences of a growth-oriented development model that front-loaded demographic benefits while postponing institutional consolidation. As the demographic dividend fades, the limits of this model become increasingly apparent. Without sustained improvements in productivity, credible social security systems, and stronger redistribution mechanisms, households will continue to respond rationally to uncertainty by limiting fertility. In this sense, reversing demographic decline requires more than policy relaxation—it requires rebuilding long-term confidence in economic stability and social protection.
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