China’s New Cash Subsidies: A Bid to Reverse the Declining Birth Rate

Introduction: A Growing Concern for China’s Demographics

China, the world’s most populous nation, is grappling with a pressing demographic challenge: a persistently low birth rate. Despite a slight uptick in 2024, marking the first increase in eight years, the country’s population has declined for the third consecutive year. This trend has raised alarms about the potential economic implications of a shrinking workforce on the world’s second-largest economy. In response, both the central government and local authorities are intensifying efforts to encourage families to have more children. Two Chinese cities, Hohhot and Shenzhen, have recently introduced cash subsidies as part of these efforts to boost the birth rate.

Cash Subsidies: Hohhot and Shenzhen Lead the Way

In a bid to incentivize families to have more children, health authorities in Hohhot, the capital of China’s Inner Mongolia region, announced a new cash subsidy program. Parents in the city who have a first child born on or after March 1 will receive a one-time subsidy of 10,000 Chinese yuan ($1,380). For second children, the subsidy is more substantial: 50,000 yuan per year until the child turns five. Additionally, households with a third child will be entitled to an annual subsidy of 10,000 yuan for the first ten years of the child’s life. This move is part of a broader strategy to address the declining birth rate and stabilize the population structure.

Shenzhen, a major metropolis in southeastern China, is also taking steps to update its pro-natal policies. While specific details of the new incentives are still being finalized, officials have highlighted plans to expand access to child care services. The city aims to "actively and steadily implement" these policies in line with national directives. Shenzhen’s approach reflects a growing recognition that addressing the high cost of raising children is crucial to encouraging families to have more kids.

The Bigger Picture: Why China’s Birth Rate Matters

The decline in China’s birth rate is not just a domestic issue but has significant implications for the global economy. Younger generations in China, similar to those in neighboring countries like South Korea, Japan, and Taiwan, are increasingly delaying or forgoing having children. The reasons for this trend are multifaceted: rising living costs, shifting attitudes toward family life, economic uncertainty, and workplace cultures that are often unfavorable to prospective mothers. These factors have contributed to a perfect storm that is discouraging many from starting or expanding their families.

While the end of strict pandemic-era policies has led to a slight increase in the birth rate in 2024, the overall population continues to shrink. This raises concerns about the long-term sustainability of China’s workforce and economy. A shrinking labor force could hinder economic growth, putting pressure on the government to find innovative solutions to this pressing issue.

A Model for Success: The Case of Tianmen

Local governments across China are looking for inspiration in their efforts to boost the birth rate, and one city stands out as a potential model: Tianmen, a fifth-tier city in Hubei province. According to official reports, Tianmen saw a 17% increase in births in 2024, driven largely by its successful subsidy program. This success story has caught the attention of policymakers nationwide, who hope to replicate similar results in other regions.

However, experts caution that the challenges faced by metropolitan areas like Shenzhen and Beijing are different from those in smaller cities like Tianmen. The high cost of living in urban centers may limit the effectiveness of cash subsidies, as families may still find it difficult to afford raising children despite the financial incentives. This highlights the need for a tailored approach to pro-natal policies, one that takes into account the unique challenges faced by different regions.

Expert Insights: Understanding the Policy Adjustments

Zhang Hongmin, head of the Hohhot Municipal Health Commission’s family and aging section, has provided valuable insight into the rationale behind the new subsidy program. Speaking to the People’s Daily, a Chinese Communist Party newspaper, Zhang explained that previous subsidy programs primarily targeted families with second and third children, leaving first-child families with limited access to preferential policies. This disparity discouraged many from having even one child, as they felt they were not benefiting from the government’s incentives.

To address this issue, Hohhot has expanded its subsidy program to include first-child families, a move that is expected to increase the willingness of younger generations to start families. "After research and evaluation, we have now included first-child families," Zhang said. "This adjustment aims to better leverage subsidies to boost the birth rate." This policy shift reflects a growing recognition that addressing the challenges faced by first-time parents is crucial to reversing the declining birth rate.

What’s Next? Future Measures and the Road Ahead

The introduction of cash subsidies in Hohhot and Shenzhen is just one part of a broader strategy to address China’s demographic challenges. At this year’s parliamentary session, several other measures were announced to support families and address the aging population. These include a modest increase in minimum benefits for rural residents and nonworking urban residents, as well as an "appropriate" increase in the basic pension for retirees. Additionally, the government has signaled plans to expand "public interest" elderly care services.

These announcements come on the heels of another significant policy change: the government’s decision to raise the statutory retirement age for the first time in decades. As more aging Chinese leave the workforce, the pressure to address the shrinking labor force has never been greater. Together, these measures reflect a multifaceted approach to addressing the challenges posed by China’s aging population and declining birth rate.

In the months and years ahead, the success of these policies will be closely monitored. While cash subsidies and other incentives are an important step, they are unlikely to solve the problem on their own. Addressing the deeper structural issues, such as the high cost of living and unfavorable workplace cultures, will require sustained effort and innovation. As China continues to navigate this challenging demographic landscape, the world will be watching to see how the country adapts to these changes and what lessons can be learned from its approach.