China's "one-child-per-couple" policy began in 1979. It did not immediately reduce the number of births. In the eight years that followed, the annual number of births actually rose from 19.8 million to 25.4 million. In 1987, the number was 5.6 million higher.
The 1979 policy came 22 years after an increase in births that began in 1957. In the ten years from 1957 to 1967, the annual number of births rose by 5.6 million. In 1979, the oldest babies born in those ten years (ages 22 thru 12) were just beginning to age into their household formation years. Hence the rise in births from 1979 to 1987.
Births peaked again in 1987. That was 27 years ago. Consult the chart to see that 1987 is the beginning of a sustained downtrend in the annual number of births. The trend is slightly reversed 18 years later in 2005. The minor uptrend ends in 2014, after only nine years. The downtrend then resumes.
The number of young adults to reach the age of household formation is expected to decline for the next 18 years. This factor is negative for economic growth because there will be fewer people to increase spending when starting families.
Demographics are especially relevant with continued emphasis by China's leadership on a transition in the economy from resource-based to consumer-based. Less economic growth means less inflationary pressure and lower interest rates, especially if rates are allowed to float. This consideration led me to invest in renminbi-denominated bonds issued in Hong Kong. Now that I have a stake in China's economy it will be a wait-and-see approach.
In 1997, 30 years after births began to fall in 1967, China annexed Hong Kong. Currently, 27 years after births began to fall in 1987, China opened a free trade zone in Shanghai. Whether Shanghai becomes the magnet for foreign investment that Hong Kong was remains to be seen. China's leadership assess foreign interest in a consumer-based economy, while expected to decrease with declining household formation, remains large enough to draw investment.