The legacy of China's one-child policy, introduced in the late 1970s to address a huge population spurt but scrapped six years ago, has truly come home to roost. Last year, the country's roughly 1.4 billion population declined for the first time since the Great Famine in 1961.

The fall of 850,000 people, which was announced Tuesday, came a decade earlier than Beijing and the United Nations had predicted and is the result of more than a million fewer babies and a large number of deaths — which some China watchers put down to the COVID-19 pandemic.

Often brutally implemented through forced abortions and sterilization, the one-child policy had widespread ramifications for Chinese society. More boys were born than girls, due to a society where men were more likely to secure an iron rice bowl (a job for life). The lack of children also exacerbated the country's aging population.

By the time the government reversed course in 2016, and eventually allowed up to three children, the birth rate had been falling sharply for years. At the turn of the century, 14.03 children were born per 1,000 inhabitants and by last year, the figure was just 6.77.

Despite Beijing encouraging couples to have more children through tax breaks and subsidies, many people are still put off by the rising cost of living and a clash between traditional and modern values where women are expected to care for children and the elderly while also holding down busy careers.

Population could shrink by 40%

China's demographic time bomb is expected to have ever-far-reaching consequences. The United Nations has forecast that by the end of the century, China's population could fall to below 800 million.

Some think China could now follow Japan, whose economy has suffered years of low growth as a result of a falling birthrate and aging population. China could even struggle to overtake the United States to become the world's largest economy, warned Yi Fuxian, a demographer and expert on Chinese population trends at the University of Wisconsin at Madison.

"China's demographic and economic outlook is much bleaker than expected," Yi told Reuters news agency. "China will have to adjust its social, economic, defense and foreign policies." 

China's economic growth is still dominated by labor-intensive manufacturing. Over the past 20 years, the country's seemingly endless supply of cheap labor helped lower the cost of consumer products, including computers, smartphones, furniture, clothes and toys.

But the one-time low-cost destination is increasingly being undercut by Asian neighbors like India, Vietnam, Indonesia and Bangladesh. Over time, a shortage of younger, productive workers will make manufacturing in China even less competitive.

Productivity boost required

"To solve this problem, China needs to increase the productivity of the workforce, transitioning from a labor-intensive economy to one of innovation and technology-driven growth," Xiaobing Wang, research director at the Manchester China Institute, told DW. "If not, China will fall into the middle-income trap."

The middle-income trap is where newly industrialized countries like Brazil and South Africa fail to capitalize on their initial growth spurt and the growing wealth of the population is curtailed.

China was declared an upper middle-income nation in 2010 and, within a year or two, is on course to become a high-income country. China's gross domestic product (GDP) is set to overtake the US by 2035, Goldman Sachs wrote in a report last month, much sooner than a previous forecast of 2050.

First though, massive reforms to public institutions, the education system and the country's business culture are needed to avoid much lower economic growth, which averaged 6.19% over the past decade. 

Can China's leaders steer a new course?

But that kind of seismic shift will be difficult for a leadership that is used to authoritarian rule, as witnessed during the pandemic. Beijing's zero-COVID policy forced lengthy lockdowns and draconian quarantine rules for almost three years to try to keep the virus at bay but ultimately failed. Many China watchers struggle to see how China's leaders would be willing to adopt more liberal policies.

"You have to encourage innovation, encourage people to think differently ... and allow them to accumulate new skills so that they contribute to this growing economy. You must also have very good intellectual property rights protection. China is improving on those fronts, but they are not doing enough," Wang said.

Demographer Yi believes China's population began to decline four years earlier than Beijing admitted and has already dropped to 1.28 billion. Other economists, however, think that concerns over the falling birthrate are overplayed. After all, they say, China still has a large working-age population and a statutory retirement age of 60 for men, and 50 or 55 for women.

"China's retirement age is still relatively low," Doris Fischer, chair of China Business and Economics at the University of Würzburg, told DW. "So they can ease the pressure [on the labor market] by raising the retirement age."

China's pension system is not as generous as those in the West, so the government is less likely to be overburdened by a fast-aging population as most people provide for their own retirement — hence the high savings rate.

Financial incentives haven't worked

China's leaders have offered tax deductions, longer maternity leave and housing subsidies to encourage people to have more babies and President Xi Jinping also said in October the government would enact further supportive policies. The measures, however, have so far done little to arrest the long-term trend.

Chinese parents complain of burnout from stressful jobs with long working hours — dubbed 996 as people work from 9.00 a.m. to 9.00 p.m., often six days a week. The pressure to ensure children get a good education is also huge and expensive, especially when the costs of private tuition and extra-curricular activities are factored in.

The burden of child-rearing and elderly care still falls solely on Chinese women, who are increasingly taking a stand.

"It's a very realistic assessment for women to say 'I haven't met a man that will support me in this task of combining work with child care or elder aged care and so I just won't marry,'" Fischer said, who said the government must increase childcare provision for working parents.

The growing phenomenon of tang ping, or lying flat, does not bode well for China's population decline as many disenfranchised younger Chinese workers have quit the rat race, preferring a simple life over having children and buying their own home.

"Whether or not the Chinese government can successfully address all of these challenges is the key to the growth of the next decade," Wang told DW.

Edited by: Rob Mudge