Understanding China's Former One Child Policy

China’s one-child policy has probably gotten the spotlight as much as the size of its population, the world’s largest at more than 1.4 billion. The goal of the policy was to make sure that population growth did not outpace economic development and to ease environmental and natural resource challenges and imbalances caused by a rapidly expanding population.

It was initially meant to be a temporary measure, and is estimated to have prevented up to 400 million births since it was instituted. Some 36 years later, the government-mandated policy was formally ended with little fanfare on Oct. 29, 2015 after its rules had been slowly relaxed to allow more couples fitting certain criteria to have a second child. Now, all couples can have two children.

The reason for ending the policy for all Chinese citizens is purely demographical: too many Chinese are heading into retirement and the nation's population has too few younger people entering the labor force to provide for their retirement, healthcare and continued economic growth. About 30% of China's population is over the age of 50 and the number of workers entering China’s overall labor force has been declining for the last three years, a trend that is expected to accelerate. (For more, see: Benefits of China Changing It's One Child Policy.)

The one-child policy was introduced in 1979 by Chinese leader Deng Xiaoping to curb China’s rapidly growing population. At the time it was approximately 970 million.

When introduced, the policy mandated that Han Chinese, the ethnic majority, could only have one child. In the early 1980s China relaxed the policy to allow couples to have a second child if each parent are both only children. Exceptions also include couples that live in rural china and ethnic minorities with a small population.

The years leading up to the policy followed the founding of The People’s Republic of China. After years of unrest, medical care and sanitation improved and China's population began to grow. At the time this was seen an economic boon for a country that was transforming into an industrial nation from an agricultural one. (For related reading, see: China's GDP Explained: A Service-Sector Surge.)

By the 1950s, population growth started to outpace the food supply, and the government started promoting birth control. Following Mao Zedong’s Great Leap Forward in 1958, a plan to rapidly modernize China’s economy, a catastrophic famine ensued which resulted in the deaths of tens of millions of Chinese.

In the wake of the famine the government continued to promote family planning, such as postponing having children and using birth control. This was derailed temporarily by the upheaval caused by the Cultural Revolution in 1966. By the late 1960s, the government began stepping up family planning campaigns, and by the mid-1970s it introduced the family planning slogan "Late, Long and Few."

Incentives or rewards for families who adhere to the one-child policy include better employment opportunities, higher wages and government assistance. Those who don’t are subject to fines, and access to government assistance and employment opportunities can become difficult. (For more, see: Chinese Sector Investing with ETFs.)  

In late 2013, as part of a package of social, economic and legal reforms, the Chinese government amended the one-child policy to allow couples to have a second child if either parent instead of both is an only child. The change started rolling out throughout China at the beginning of this year.

Through September 2014, 800,000 couples have applied to have a second child, according to the China Daily newspaper, which cited statistics from China’s government run National Health and Family Planning Commission.

It had been estimated that 11 million couples were eligible and that half would eventually apply. One issue preventing Chinese couples from having a second child is that many of them live in cities, where the cost of living is high enough to dissuade them – an issue also faced by couples in the West. (For more, see: Boom or Bust: The End of China's One-Child Policy?)

One of the unintended side effects of the one-child policy is that China is now the most gender-imbalanced country in the world due to a cultural preference for male offspring. This has resulted in the practice of couples opting to abort female fetuses. Abortion is legal in China, although sex-selective abortion is not.

The gender ratio in China is 117.6 boys for every 100 girls born. Some researchers estimate that there will be approximately 30 million more young men than women in China by 2020. This means millions of Chinese men may not be able to find wives. (For more, see: China ETFs: Get in as China Matures.)

China’s one-child policy had been successful in lowering its birth rate, which has declined since the 1990s to an average of 1.5, which means on average women give birth to 1.5 children. This also means it's now faced with an aging population, who rely on their children to support them when they are elderly and no longer working. It's estimated that by 2030 a quarter of the population will be over 60 years old.

Population control had also resulted in a shrinking work force. China’s labor force has been on the decline since 2012. In 2013 it fell by more than 2.4 million. The increasing elderly population and decreasing labor force was the impetus for the relaxation and ending of the one child policy. (For more, see: Top 6 Factors That Drive Investment in China.)

China’s one-child policy is estimated to have prevented up to 400 million births since it was instituted 35 years ago. In the wake of an aging population and shrinking labor force, the policy was first relaxed to allow a second child for many young couples, and then ended formally in October 2015. (For related reading, see: "Why China is The World's Factory.")