Two children in China

China’s Two-Child Consumption Engine

The impact of China's new two-child policy is likely to be just as far-reaching as that of its one-child policy – and, overall, much more positive. One key reason is that an increase in the number of children per household will force a reduction in the aggregate savings rate, thereby fulfilling a long-standing macroeconomic goal.

LONDON – The announcement in October that China is terminating its one-child policy marks the end of a 37-year historical aberration that has accelerated the country’s demographic aging by decades. The social and economic consequences of the authorities’ drastic population controls, which reduced the average fertility rate in urban households from about three in 1970 to just over one by 1982, have been dramatic. The question now is whether, and to what extent, the country’s new two-child policy will mitigate those consequences.