China’s National Bureau of Statistics (NBS) dropped a bombshell on 17 January when it released record low population growth data of the world’s most populous country. For a country of 1.4 billion people, the overall population increased by a mere 480,000 in 2021, putting the national growth rate at 0.34 per thousand. It is the lowest population growth since data was available.

“China’s total population will remain above 1.4 billion for a period of time to come,” said Ning Jizhe, head of NBS and top economic planner of China. He added that the three-child policy is expected to gradually add births, while the national life expectancy is also increasing.

China’s strictly enforced one-child policy started in 1980 and was officially ended in January 2016 in favour of the two-child policy. It however failed to boost birth and the two-child restriction was further relaxed to a universal three-child policy, which was passed into law in August 2021.

Outside the policy circle in China, naysayers don’t echo the official stance that China’s population will remain stable. They interpret the record low population growth as a turning point that suggests China’s population may have peaked in 2021 and will very likely start to decline in coming years.

High housing and education costs are quoted in jest by Chinese netizens as the two major “contraceptives”. Unsurprisingly, the negative correlation between home value and birth rate was corroborated by researchers at Zillow, a US online real estate company.

Beyond the lukewarm three-child policy, some of China’s outspoken economists have proposed extreme measures to address the dire situation. Recently, Ren Zeping, former chief economist of China;s beleaguered Evergrande Group and online celebrity, posted an article that urged the People’s Bank of China to print RMB 2 trillion ($314 billion) to support the birth of 50 million babies over the next 10 years. He was banned from Weibo soon afterwards.

Demography has serious macroeconomic implications. Michael Spence, professor of economics and Nobel laureate, in a recent piece, pointed out that a regime change in global economy is taking place.Several decades of developing-country growth have exhausted much of the world’s pools of underutilised labour and potential productive capacity, the forces that have been depressing wages and inflation are receding. Interest rates will rise along with inflationary pressures, which are already forcing major central banks to withdraw liquidity from capital markets.

The regime change in global economy is partially shaped by China’s demographic shift, as the world’s factory is exhausting its large pool of surplus rural labour, namely the millions of migrant workers who have played a key role in maintaining low inflation and supporting China’s expansive growth model.

For an economy that has not yet fully transitioned to a high-income innovative economy, a falling fertility rate exacerbated by an ageing population are double-trouble. In his piece, Spence also illuminated an economic concept in development economics which connects the population with development — Lewis turning point. It describes a development situation in which the economy has fully absorbed its surplus rural labour into the manufacturing sector.

Reaching the Lewis turning point, wages start to increase across the economy, which means the so called “demographic dividend” is over and the economy needs to transition from resource-driven growth based on low-cost labour and cheap capital to growth based on high productivity and innovation. In the transition, argued by James Liang, the chairman of China’s largest online booking service provider Trip.com and a renown demographic expert, the age and size of the population, especially of the young segment, is critical for building an innovative economy. Many developing economies cannot make the transition, which result in the middle-income trap. A 2013 International Monetary Fund working paper predicts the Lewis point in China to “emerge between 2020 and 2025”. That means the Chinese economy is facing an unprecedented challenge to escape the middle-income trap in a looming demographic crisis.