James Liang Applauds Birth Subsidies, Calling for Urgent Scale-Up of Pro-Birth Policies

Leading Demographer Warns Current Subsidies Too Small, Proposes Multi-Trillion Yuan Fertility Support Program as Essential Infrastructure for National Competitiveness

China took a decisive step in demographic policy when it finally rolled out long-awaited childbirth subsidies on July 28th, providing 3,600 RMB ($500) for children under three. Today, the State Council published "Opinions on Gradually Implementing Free Preschool Education," announcing that children in their final pre-school year will receive free childcare and education at public kindergartens, with private kindergarten students receiving equivalent fee reductions based on local public kindergarten rates.

I’ve made a translation:

State Council's Opinion On Gradually Implementing Free Preschool Education

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And for today's episode, I bring you the latest commentary from James Liang, one of China's most prominent and probably most vocal demographers who has advocated for such subsidies for years. Liang bridges social science and business as both a researcher and the executive chairman, former CEO, and co-founder of Trip.com Group, China's largest online travel agency.

He argues that China's newly announced national childcare subsidies, while a positive step toward comprehensive fertility benefits, remain insufficient to address the country's accelerating demographic crisis. With China's birth population having plummeted by half in just seven years—a decline outpacing even Japan's notorious demographic collapse—Liang contends that the current 3,600 yuan annual subsidy represents merely 2% of actual child-rearing costs. He advocates for a massive expansion of fertility support that could cost 2-5% of GDP annually. Liang frames this not as a fiscal burden but as essential "new infrastructure" investment, arguing that in an era of economic overcapacity, supporting families to have children represents both the most effective stimulus for domestic consumption and China's best hope for maintaining long-term innovation capacity and economic vitality.

James Liang

He also points out what I consider to be a critically important issue: under the backdrop of "compressed modernity" as depicted by Byung-Chul Han, aging societies give rise to profound "generational conflicts"—when the elderly control the vast majority of resources while maintaining conservative mindsets, young people lack channels for upward mobility, thereby undermining the innovation and vitality of society as a whole. Furthermore, the rapid social transformation brought about by compressed modernity means that different generations lack shared life experiences and common value foundations, making mutual understanding increasingly difficult and consequently breeding resentful emotions that tear at the social fabric. This generational antagonism has already shown early signs in cyberspace: young people have created popular slang terms like "laodeng" (老登, lǎodēng)—a derogatory term mocking middle-aged and elderly people who display paternalistic attitudes known as "diewei" (爹味, diēwèi, literally "fatherly flavor")—as well as sharp criticisms of vested interest groups, all of which reflect the intensifying trend of intergenerational tensions.

Below is Liang’s full piece:

National Childcare Subsidies Are the Starting Point for Comprehensive Fertility Benefits

Central Government Should Be the Primary Provider of Childcare Subsidies

In recent years, multiple local governments have successively introduced childcare subsidy policies. We believe that childcare subsidies should be primarily funded by the central government, with local finances serving as supplementary support. The reason is that most local governments do not have sufficient financial resources to subsidize childbearing; only the central government has such financial capacity. Moreover, populations are mobile, and local governments are not necessarily the beneficiaries of increased birth rates. Children may work elsewhere after growing up, contributing to the entire nation but not necessarily to their birthplace. For a city, increasing population through attracting migrants is more cost-effective than subsidizing births.

This year's "2025 Government Work Report" from the Two Sessions mentioned "formulating pro-birth policies, providing childcare subsidies, vigorously developing integrated nursery-kindergarten services, and increasing the supply of inclusive childcare services." This indicates that the central government will become the primary provider of childcare subsidies, while existing local childcare subsidy policies will serve as supplements and enhancements to balance regional differences.

The national childcare subsidy policy introduced this time signals the beginning of comprehensive fertility benefits, which is encouraging and praiseworthy. However, compared to the high costs of child-rearing, the amount of this national childcare subsidy is still too low: 3,600 yuan per child per year, equivalent to 300 yuan per child per month, and only subsidized until age 3, totaling just 10,800 yuan over three years. Additionally, the exclusion of fourth and additional children from the subsidy scope is also a shortcoming.

According to the "China Birth Cost Report 2024" published by YuWa Population Research, the average cost of raising a child aged 0-17 nationwide is 538,000 yuan. The total three-year childcare subsidy amount only represents 2% of the average cost of raising a child aged 0-17.

A rough calculation of childcare subsidies: assuming 10 million births annually and each child receiving 3,600 yuan per year, the subsidy amount for the current year's births would be 36 billion yuan. If subsidizing all infants and toddlers under 3 years old, the annual childcare subsidy would be approximately 100 billion yuan.

We recommend providing financial support to families based on the number of children, with specific policy suggestions as follows:

First, cash subsidies: provide 1,000 yuan monthly for each first child, 2,000 yuan monthly for each second child, and 3,000 yuan monthly for each third child and beyond, until the child reaches 16 or 18 years old.

Second, income tax and social insurance reductions: implement 50% reduction in personal income tax and social insurance for families with two children, and complete exemption from personal income tax and social insurance for families with three or more children (with a cap for particularly wealthy families).

Third, housing purchase subsidies, specifically through mortgage interest rebates. For example, subsidize 50% of mortgage interest for families with two children, and fully subsidize mortgage interest for families with three or more children (not exceeding a capped limit).

The above subsidy amounts would account for approximately 2%-5% of GDP. Annual subsidies of several trillion yuan may seem substantial, but they are necessary to raise fertility rates to replacement level.

Some worry whether large-scale birth subsidies would cause inflation. In fact, this concern primarily depends on two key factors: the degree of social capacity utilization and employment market saturation. Currently, China faces a situation of overcapacity in some industries coexisting with insufficient employment. Consumption stimulus policies can effectively activate idle production resources and labor, achieving optimal allocation of economic resources. Notably, China currently faces not inflationary pressure but deflationary challenges with negative price growth, making deficit fiscal policies to stimulate the economy particularly necessary. Large-scale financial support for child-rearing families would increase demand for infant and toddler products in the short term, and in the long term would increase demand for various products and services including appliances, automobiles, housing, education, telecommunications, and tourism. This additional demand can stimulate development in related industries, help absorb excess capacity, and increase employment opportunities. In the long term, population growth can enhance China's innovation capacity and competitiveness.

China Urgently Needs to Reverse the Declining Trend in Fertility Rates and Birth Numbers

China's birth population declined from 18.83 million in 2016 to 9.02 million in 2023, a reduction by half in just 7 years. In Japan, which has fallen into severely low fertility rates, it took 41 years for births to halve from 1.5 million in 1982 to 750,000 in 2023.

Although China's birth population recovered somewhat in 2024, due to declining numbers of women of childbearing age, reduced marriages, and low fertility intentions, the birth population is expected to resume its downward trend in 2025. Based on seventh census data projections, the number of women aged 15-49 in China will decrease by over 16 million in 2025 compared to 2020, with women aged 20-39 decreasing by over 14 million. According to Ministry of Civil Affairs data, only 6.106 million couples registered for marriage nationwide in 2024, a decrease of 1.576 million couples from the previous year, representing a 20.5% decline.

Regarding fertility rates, China's fertility rate in recent years has been only about half the replacement level, with the total fertility rate in 2023 at just 1.01, less than half the replacement level.

Currently, China's birth population accounts for less than 7% of the world's total, while its elderly population exceeds 25% of the world's total. Severe population decline will intensify aging, with the working population continuously decreasing relative to the elderly population requiring support, leading to increased social pension costs and taxes, placing increasingly heavy tax burdens on the working population. Predictably, without significantly improving fertility rates, China will become one of the countries with the highest aging and pension burdens within the next 20 years, and this will continue to worsen, seriously hampering national finances and economic vitality.

At current fertility rates, the birth population will shrink at a rate of halving every generation, or every 30 years. This trend will successively cause serious negative impacts on all industries, starting with baby formula, children's products, and childcare services, followed by education, food, and clothing, then housing, furniture, home appliances, consumer electronics, automobiles, tourism, and entertainment, and finally healthcare, elderly care, and funeral services. The impacts on these consumer-facing industries will gradually transmit to business-facing industries. These impacts include not only actual demand shrinkage but also declining expected demand, leading to sluggish domestic investment intentions and accelerating outflows of capital and affluent populations.

Long-term low fertility rates negatively impact innovation capacity and technological development. Compared to situations with stable populations, rapidly aging and shrinking societies experience slower technological development and eventually stagnate and regress. The fundamental factor affecting innovation is population. Population size is a basic variable in innovation competition; the larger the population, the more R&D personnel can be deployed. This relationship between larger populations and stronger innovation capacity is not linear but has increasing returns effects. That is, larger populations not only have stronger overall innovation capacity but also stronger per capita innovation capacity, known as scale effects. Additionally, population age structure affects innovation capacity. Generally, the thirties are the most suitable age for entrepreneurship, so if a country has many highly educated young people around age 30, this greatly helps its innovation, especially disruptive innovation. Conversely, if a country is rapidly aging, potential young inventors and entrepreneurs decrease. Aging societies also have blocking effects, where elderly people impede young people's innovative vitality. When elderly people occupy too many important positions and resources in enterprises and society, this inevitably affects young people's promotion and training opportunities, thereby weakening their innovation and entrepreneurial vitality.

Therefore, China urgently needs to introduce strong fertility support policies to reverse the declining trend in fertility rates and birth numbers. Providing childcare subsidies is an important component of fertility support policies.

Financial Subsidies for Childbearing Are Effective, But the Scale Must Be Sufficient

From international and domestic experience, childcare subsidy policies help increase birth rates, but the scale must be sufficient.

Data released by Statistics Korea shows that from July 2024 to March this year, South Korea's monthly birth population maintained growth for nine consecutive months, and the fertility rate in the first quarter of 2025 was also higher than the same period last year. According to media reports, this represents a "positive sign" for South Korea facing population challenges.

The recovery in South Korea's birth population is related to fertility subsidy policies. On January 11, 2024, South Korea's Ministry of Health and Welfare announced a significant increase in subsidies for parents of children under two years old, hoping to further encourage childbearing. According to South Korea's JoongAng Ilbo, under the new policy, parents with infants under one year old can receive 1 million won monthly (approximately 5,000 yuan), while parents raising children aged 1-2 can receive 500,000 won monthly.

On July 23, Hubei Daily published an article titled "Using Policy 'Keys' to Unlock the Birth 'Code' - Tianmen's Exploration in Solving Population Growth Challenges," revealing the following data: in 2024, Tianmen City's birth population increased by 17% year-on-year, marking the first "turnaround from decline to growth" in eight years; this year continues the positive trend, with birth population growing 5.6% year-on-year in the first half.

Compared to the same period last year, birth registration and fertility registration data published by most regions in the first few months of this year showed varying degrees of decline. So why did Tianmen City's birth population grow against the trend in the first half of this year? According to Tianmen City Party Secretary Ji Daoqing: "Starting from September 2023, we continuously improved our fertility support policy system, introducing integrated support measures covering marriage, pregnancy, childbirth, childcare, education, and housing, establishing a population service system covering all demographics and the entire life cycle." Ji Daoqing believes that accelerating the construction of a fertility-friendly city requires genuine financial investment to create a social atmosphere that respects, encourages, and protects childbearing. Under Tianmen City's current fertility encouragement policies, when various birth incentives and subsidies are combined, having a second child can receive up to 280,000 yuan in comprehensive rewards and subsidies, while having a third child can receive up to 350,000 yuan.

International and domestic experience shows that financial subsidies for childbearing are indeed effective. If fertility subsidies appear ineffective, it's because the subsidy scale is too small and needs to be increased.

Of course, financial subsidies for childbearing are just one of many fertility support policy measures. Improving fertility rates is a systematic project requiring government departments and all sectors of society to jointly build a fertility-friendly society. Recently, the State Council held an executive meeting to deploy measures for gradually implementing free preschool education. Implementing free preschool education will significantly reduce family education costs, alleviate economic pressure from child-rearing, and improve young people's fertility intentions.

Currently, China's economy faces overcapacity and investment saturation, making it difficult to find projects with high returns and good long-term benefits. Only children represent the best "new infrastructure" investment. Through central government finances providing more benefits to families raising children, this both helps improve fertility rates and expands consumption while promoting economic development - a win-win solution.