Commentary: China Needs to Pay Parents, and Pay a Lot

China’s new national childcare subsidy, granting families 3,600 yuan ($502) annually for each child up to age 3, represents a belated response to the country’s deepening demographic crisis. This initiative is a positive starting point, yet it falls far short of the scale needed to counteract China’s precipitous birth rate decline and looming population concerns [para. 1].

Centralizing the funding at the national level is a crucial improvement. Local governments have long lacked adequate resources to implement effective pronatalist policies. Moreover, given China’s mobile workforce and the benefits of a national taxpayer base, making population growth a national rather than a local funding responsibility is logical. This shift, initially hinted at in the 2025 Government Work Report, is now materializing through this policy [para. 2].

Nonetheless, the current subsidy is plainly insufficient. The government grants only 300 yuan a month for a child’s first three years, adding up to 10,800 yuan in total. This sum pales in comparison to the average cost of raising a child to age 17, which the 2024 China Child Rearing Costs Report pegs at 538,000 yuan (about $75,000). The subsidy thus covers merely 2% of this cost, and its exclusion of families with four or more children is seen as a missed opportunity [para. 3].

Demographic indicators are alarming: China’s annual births plummeted by half between 2016 and 2023, from 18.83 million to just 9.02 million—a drop that took Japan, a byword for low fertility, forty-one years to achieve. China’s total fertility rate, 1.01 in 2023, is less than half the replacement level. Even optimistic forecasts of a minor rebound in 2024 seem unlikely to reverse this trend as the number of women of childbearing age and marriage rates continue to decline [para. 4].

These developments portend grave economic consequences. China now has less than 7% of the world’s newborns but over a quarter of its elderly. The population’s rapid aging will intensify fiscal pressures—especially on pension systems—and shrink key consumer markets, sending negative ripple effects through both consumer and business sectors. The resulting expectation of lower future demand may further curtail domestic investment and accelerate capital and talent outflows [para. 5].

An aging population undermines national dynamism. As young people become scarcer, China’s capacity for innovation and entrepreneurship suffers. Additionally, social advancement stalls as older generations persist in positions of authority, restricting opportunities for the young and stifling creativity [para. 6].

To counteract this crisis, bold action is urged: substantial direct cash subsidies (1,000 yuan per month for one child, 2,000 for two children, and 3,000 for three or more), large tax breaks (a 50% reduction for two-child families, full exemption for three or more, capped at a limit), and mortgage interest rebates on housing. The estimated cost is 2% to 5% of GDP—a significant but necessary commitment for national well-being [para. 7].

Inflation fears from such spending are misplaced. China’s real challenge is deflation, caused by industrial overcapacity and weak employment. Direct subsidies could boost household consumption, reviving both short-term and long-term demand [para. 8].

Global and local precedents suggest generous incentives work. For instance, South Korea saw a sustained birth rate increase after augmenting parental subsidies, while Tianmen city in Hubei province bucked national trends with a 17% birth increase following aggressive local pronatalist policies [para. 9].

The central message: meager subsidies fail to move the needle, but investing robustly in families and children is crucial to reversing demographic decline and energizing China’s economy [para. 10].