By Liyan Qi 

China may have blunted the pandemic's impact on its economy, but a shortfall in babies is clouding its growth horizon.

In the short term, the Chinese economy looks comparatively strong --helped by its quick stamping out of the virus's spread and heavy state investment--and some economists earlier this year predicted that China could overtake the U.S. as the world's largest economy by 2028, years earlier than expected.

But the world's most populous country is losing when it comes to demographics. Ahead of the results of China's once-a-decade census, there have been several indications that fewer babies were born in the country in 2020 than in any year since 1961, when China suffered mass starvation.

A report from Capital Economics this month says it is possible that slowing productivity growth and a shrinking workforce would prevent China from ever overtaking the U.S., or that if it does, the U.S. would regain the top spot again, helped by immigration that keeps refilling its supply of workers.

Mark Williams, a London-based economist at Capital Economics, compared it with il sorpasso, Italy's moment of pride in the late 1980s when it overtook the U.K., only to drop back again.

China's workforce is expected to shrink by more than 0.5% a year, the Capital Economics report said, as fewer young people replace a growing number of retirees. In the U.S., by contrast, the workforce is expected to expand through the next 30 years, supported by higher fertility than in China and by immigration.

The median estimate in a Wall Street Journal survey of demographers and economists was for a 15% drop in 2020 births from 14.65 million in 2019. The most restrained estimate was for a 10% drop.

When China published on Sunday the estimate for its 2020 per-capita gross domestic product, the equivalent of about $11,200, demographers said the numbers indicated that China's population rose only slightly last year. Details on total population, births and deaths aren't expected until China releases census results in April.

Several cities have already reported big birth declines. Wenzhou, Hefei and Ningbo, with populations of around eight million to nine million each, said births last year fell 19%, 23% and 12%, respectively.

The Ministry of Public Security said earlier this month that a little over 10 million newborns were registered under China's household-registration system in 2020, down 15% from 2019. Not all babies are registered with the local police, but the data was still a harbinger of a big drop in official birth numbers.

Demographers say the pandemic probably contributed to suppressing births, adding to problematic fundamentals including a declining number of women of childbearing age and a reluctance to have two children among many couples who grew up without siblings under the one-child policy.

When the pandemic hit last year, Li Yiyi, the 32-year-old mother of a 3-year-old from Tianjin, a port city in northern China, was on the fence about having a second child. Then, her husband, an IT technician at a tourism company, took a pay cut as businesses struggled to stay afloat, and Ms. Li decided to go back to work.

With her son in preschool, she is now working as an administrator at a logistics company. A second child is no longer on the horizon. "We were hesitating for years. I think we've finally made up our mind: One is enough," she said.

Births at maternity hospitals in 20 Chinese cities declined 24% during the first 10 months of 2020, Credit Suisse said in a report linked to on its website last year.

The findings "foreshadow rising pressure on policy makers to remove remaining family-planning controls and switch to proactively support the birthrate," the report says.

The abolition of the one-child policy in 2016 set off expectations for a boom in second children. The number of private obstetrics-and-gynecology hospitals in China rose nearly 40% in 2016 from 2013, data from the National Health Commission showed. But a baby bump in 2016, when births rose 7.9% to 17.86 million, proved short lived. Every year since, births have declined.

Doctors say many hospitals are trimming their pay and downsizing maternity wards. A pediatrician at a women and children's hospital in Nanjing in eastern China said the number of new births at the hospital shrank by about one-fifth in 2020 from 2019. "I worry I will be jobless one day," the doctor said.

To increase births, some local governments across China have started to quietly allow families to have a third child, rather than the officially permitted two. In a Feb. 18 statement, the National Health Commission said it would let local authorities in China's economically depressed northeast, where birth rates have been especially low, explore lifting birth restrictions on a trial basis.

But even if the restrictions are lifted nationwide, it will at this point have little effect, demographers say. Once births start to drop, it is hard to turn the trend around, what is referred to as the "low-fertility trap," introduced by Austrian demographer Wolfgang Lutz and others in 2006. "Over the coming years, births will probably keep dropping," said He Yafu, an independent demographer based in Guangdong.

Chinese leaders haven't said whether legislators would discuss the demographic problem during an annual session that starts Friday. According to a report in 21st Century Business Herald, a business-news daily, some policy advisers to the Communist Party will propose measures to encourage more births, including extending maternity leave to six months from the current three, and subsidies for housing and education expenses for second children.

Even if subsidies or other incentives persuade Chinese couples to have more than one child, birth rates are likely to remain low because of a lingering effect of the one-child policy: The number of women ages 15 to 49 has been falling by an average of more than five million annually from 2017 to 2019, according to official data.

"The low fertility in China is here, is real and will continue," said Cai Yong, a sociologist at the University of North Carolina at Chapel Hill.

China has said that automation would partly offset the effects of a decrease in workers. David Dollar, a Brookings Institution economist, voiced doubts about that assumption. "It's going to be difficult to coordinate the actual changes in automation with the declines of the labor force," he said.

(END) Dow Jones Newswires

February 28, 2021 00:15 ET (05:15 GMT)