What China’s Three-Child Policy Means for Foreign Companies

Couples in China will be allowed to have up to three children, continuing the country’s path away from its long-standing one-child policy. The relaxation is part of China’s efforts to reverse its decline in births, and will be accompanied by other support measures.

Responses to the announcement have been an almost universal chorus of “it won’t work.” According to skeptics (i.e., almost everyone commenting on the issue), allowing Chinese parents to have more children will not make much of a dent in the country’s declining birthrates. They point to the costs of raising kids, both in terms of money and time, as well as changing mindsets, especially among women.

Yet we know what happens when the Chinese authorities put their minds to something. Look no further than the sometimes brutal lengths to which officials across China went in enforcing the one-child policy itself. We can therefore expect China to employ all available levers (both carrots and sticks) to achieve its objective of more births.

One area of specific concern for companies, especially foreign ones, is how China will adjust labor and other laws in support of its new policy. Chinese mothers are entitled to 98 days of maternity leave, which local laws turn in practice to anywhere from 128 to 365 days. What if that one-year period becomes the national standard (or that of the province where your company operates)?

For its part, paternity leave is established at the local level, and can be as short as seven days. What if longer periods of paternity leave are mandated? China could also make it harder for companies to fire pregnant employees, and perhaps extend similar protections to expecting fathers as well.

Companies might also be required to better accommodate parental needs, for example by offering more flexible work schedules and childcare facilities. In the case of employers that provide housing to staff, there might be a push for them to offer family units, in particular to migrant workers who often leave their children behind in their hometowns, in the care of family members.

Changes such as these could well represent a net benefit to Chinese society, but they almost certainly would have significant impacts on the bottom lines and operations of companies operating in China. Foreign companies in particular will need to keep close tabs on requirements, as they can expect stricter oversight from the authorities.

At the same time, it is also worth considering what happens if the measures ultimately fail to increase China’s birthrates. How will that impact your business? One likely outcome is an increase in already rising wages and employer-mandated retirement benefits. Outsourced manufacturing could face greater pressures to move to younger, demographically growing countries like Vietnam, the Philippines, or Mexico. Also, as China’s population declines and its economy correspondingly stagnates, you should expect consumption to decline or stagnate as well, making China a less attractive market for some companies. Of course, this is all relative: Though China’s population may be about to peak, it is still expected to have twice the U.S. population in 2100.

What else do you think China could roll out to become a more baby-friendly place? What do you see for China’s demographic future and its business impacts?

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China Business