Zhao Yanjing on Fertility 

Zhao Yanjing, “Fertility, Elder Care, Employment, and Urban Planning”[1]
 
Introduction and Translation by David Ownby
 
Introduction
 
Zhao Yanjing is a professor of urban planning at Xiamen University in Fujian, and a frequent commentator on national and international affairs (see his Aisixiang profile here).  I don’t think he is particularly famous, but he writes interesting articles on timely topics in a very feisty style, adopting a “truth-telling tone” similar to that of Sun Liping in Sun’s blog posts (see here for an example of Sun in truth-telling mode).  I first noticed Zhao at the beginning of the pandemic, because he wrote an interesting piece that I translated on how China should “get its narrative” right on the virus. 

This month (May 2022) I noticed a piece by Zhao on the crisis in China’s real estate market, and translated it because it was a timely commentary on a topic that is not often treated in the sources I read.  While reading up on Zhao, I discovered that remarks he had made at a conference in May 2021 to the effect that people who have more children should receive benefits in terms of housing and pensions (or, as his detractors put it, “let’s punish people who don’t have children”) went viral on the Internet in China some months later, prompting him to write the piece translated here.
 
Zhao’s text reads like the summary of a Master’s-level class on the intersection of demographics (or fertility), pensions, taxes, and financial instruments (the link to urban planning is that much of China's economic growth in the past few decades has been fueled by land sales, managed by local governments, which presumably involves urban planners).  In any event, the goal of Zhao’s argument is to educate those online critics who took him to task for wanting to “punish” those who decide not to have children.  He points out that, however much one generation puts into its pension plans, most of the post-retirement payout actually comes out of the taxes of the next generation. 

The rise of financial instruments, coupled with the increasing price of raising children, has led people to believe that they can have fewer or no children and still enjoy a decent retirement, but Zhao argues that most pension systems that have gone down this road have found it to be a dead end, because the current working generation always has to support the older generation, at least to some extent.  At the very least, Zhao insists, China needs to get more people into the labor force earlier (pay those grad students!) and push up the retirement age—which is among the lowest in the world.
 
And of course, above and beyond the question of pensions, populations need to reproduce themselves, if only to generate the cash flow to purchase the robots whose labor will replace them.  And even then, someone will have to work to pay for the maintenance on the robots.  So Zhao’s argument to young people thinking about not having children is to consider their trans-generational duties to society, and to the state, to think more clearly about the incentives they need to put into place to achieve the desired outcomes. 

Translation
　　
One, Why Should Urban Planners Care about Population?
 
In May of last year, I gave a speech at the "2021 Blue Chip Annual Conference" in Beijing.  Someone took the following remark out of context, and it went viral on the Internet:  "Zhao Yanjing, a professor at Xiamen University, proposed linking having children with affordable housing and pensions, and punishing those who do not have children.” 

I go to many meetings like this every year, and often forget about them as soon as they’re done. Because of the pandemic, there were not that many participants at the meeting in May, so the scope was limited, nor was there much social impact afterwards.  I didn't expect that after so much time had passed [the media noticed Zhao’s comments in August], this would suddenly become a hot topic 爆款. In any event, I’ll take advantage of it to hype myself 蹭一下自己的热度 and talk about my thoughts on this issue. 
 
Many people don't understand why I, as a city planner, would want to talk about population in a forum like this one. Many people think that urban planning is about physical planning, but in fact, the first step in urban planning is to analyze the current population situation and to have a sense of how it is trending. The size of the population, the rate of population increase or decrease, and the social composition of the group (age, culture, and even ethnicity) can have a decisive impact on the choices you make in terms of urban spatial structures and the provision of public services.

Demographic errors in urban planning can have a long-lasting impact on the public finances of the city and the welfare of its residents. One might even say that demographic research from the perspective of urban planning has a stronger sense of “déjà vu” than does pure demography. A few days before the forum in Beijing, the Bureau of Statistics had just released the latest census information, and it was only natural for me to interpret the results from an urban planning perspective. 
 
The reaction to my speech at the forum was surely due in part to the fact that the online media took the remarks out of context and that online readers did not read the original text, but it was mainly due to the public's simplistic understanding of reproductive rights.  Most people consider having children to be completely a matter of individual free choice, as expressed by online comments such as, "all children should be the expression of the love of the previous generation, not the product of [individual, personal] interest," or "linking having children with public benefits such as pensions and affordable housing represents the ‘hijacking’ of the autonomous individual choice by public power.”  For the public, which has only recently been liberated from the one-child policy, any new public  intervention on matters of personal choice is a very sensitive matter. 
 
Two, What are the Real Reasons for the Decline in Fertility? 
 
For humanity in general, birth, old age, sickness, and death are part of the objective life cycle. In order to "smooth out" the peaks and valleys in the quality of life over the course of life cycle, humans invented the family as a risk-sharing organization. The family system is actually a contract:  the older generation raises the children, and the children provide for the older generation toward the end of life. The more children a family has, the better the hedge against premature death in an era of high mortality, and the more the burden of old age is shared equally by each child.

Thus, from the very beginning, having children comes with a self-interested motive, and was not simply an "expression of love.” Some say that fertility is declining because the cost of raising children today is too high. While this is true, it does not explain why fertility declines as countries get richer. It stands to reason that countries with better welfare conditions, which reduce the “utilitarian” nature of love, should have more children, but the truth is that they have smaller families and lower fertility rates. This illustrates that having children is never a mere expression of love, and suggests instead that there are powerful, if hidden, utilitarian motives involved. 
 
Today's declining fertility rate is mainly due to the emergence of modern financial instruments that have replaced the original function of the family. In traditional culture, "filial piety" is the core social norm, and it is the "contract" of almost all families that we support our parents and our children support us. But as the economy develops and capital and money increase, finance can better replace these functions of the family.

In particular, with institutionalized health care, social services, and pensions, people have come to the erroneous conclusion that producing the next generation is no longer necessary, and that investing in financial products can be a more reliable—and better—alternative to investing in children.  Only when these conditions are fulfilled will the high cost of child-raising lead to a decline in the desire to have children. In other words, financial sophistication is the root cause of fertility decline. This explains why financially sophisticated countries have lower fertility rates than poor ones. 
 
Three, Do Financial Instruments Really Replace the Function of Intergenerational Family Transactions?
 
From a superficial perspective, our pensions, social services, and health care are all paid for by the individual, but in reality, the essence of all finance is a transaction between the present and the future. The same is true for pensions and social services. As everyone knows, China's pension system is a combination of social planning and individual retirement accounts, which requires coordinated cross-generational planning:  the money we are putting into our retirement accounts now supports our parents' generation, and our future pensions will be paid by our children's generation.

The money we pay into our pensions plans reflects our duty to support our parents, while raising our children is investing in our own retirement. One might say that our current pension system has not really broken away from the intergenerational family insurance model. All that has happened is that the original "family" is now expanded to the "society." 
 
So the question arises: if some families have lots of children, some families have fewer children, and some families have no children at all, how will future pensions be paid?  In the current system, the amount of pension you receive after retirement is not related to whether you have children or not, or how many or how few. This means that if you don't have children, you are effectively relying on other people's children to support you! In other words, the modern pension system implicitly "penalizes" those who have more children. Once the act of raising children enters the zone of negative returns, families will disintegrate and people will refuse to have children. When this happens, the intergenerational planning behind pensions will become a sort of Ponzi scheme. 
 
Financial instruments (social services, pensions) by their nature are an exchange between the present and the future, and they can substitute for but not eliminate the function of exchange across generations. But because both the money you pay in while working and the payout you receive after retirement are based on the individual, they give a false market signal. If the original pension system was based on the idea that "your children support you," the idea behind the modern pension system is that "everyone's children support everyone." 

It is this shift that decouples the cross-generational support relationship and creates an erroneous market signal, leading people to think that they can take care of themselves when they get old, because they are free from the reliance on the next generation to support them. One might say that the root cause of the general decline in fertility rates in financially sophisticated countries is a mistake in the design of the pension systems. 
 
Four, Is Having Children Really an Individual Choice that has Nothing to do with Others? 
 
In today's world, where the cost of raising children is getting ever higher, if you choose not to have children, this means that when you get old, you will have to stick your chopsticks into the bowl of a family that chose to have children. When pensions are coordinated and distributed by the government, public services are tilted somewhat more toward families with more children, not as a public reward or penalty for individual choice, and not as a state "hijacking" of children, but as a matter of basic social justice and fairness. As for why we need to link having children with public services, social service, and housing, etc., it is simply because this is the main measure by which the government distributes social wealth. 
 
People might ask:  why can't we just support ourselves through our personal pension accounts? In fact, this is exactly the approach taken by many countries with bankrupt pension systems. China started to introduce individual retirement accounts in 1993. But the truth is that even if the individual account is in good health and can be fully paid out, it does not allow for a dignified retirement. This is especially difficult to achieve in a rapidly evolving society. Imagine our parents, who retired with a few hundred RMB a month with no problems; today, those few hundred RMB would not be enough even to meet minimum subsistence requirements. This was true for our parents’ generation, and it will be true for us as well. If our pension stays at the level it was at the moment of retirement, then retirement will be a march toward poverty. 
 
And it’s not a question of inflation. Even if the prices of pork, vegetables, and utilities remain exactly the same, the market will continue to introduce new services and goods like cell phones, 4G, and subways…For the general public, these new products are not luxuries, and some even become necessities, which our original pension planning did not take into account.  

In anticipation of these future living standards, we will have to sacrifice today's consumption to contribute unusually high investments to private pension accounts. While a few wealthy individuals may be able to buy any number of commercial insurance policies, most families will not be able to afford such high pension contributions. And the squeeze on current consumption would in turn lead to a shrinking market and overproduction. 
 
This means that a dignified retirement inevitably requires collective coordination across generations. Even if one day Chinese pensions enter the stock market, as in the United States, we would still need the labor of future generations to produce cash flow.  That labor can be domestic or it can be foreign, but once it starts to diminish, the stock market will run out of gas and pensions will become unsustainable.  So to return to the original question, which was whether having children is a matter of individual choice or whether it relates to other people’s welfare, this is what people have a hard time understanding, and the main reason why my remarks at the Blue Chip conference became a hot topic on the Internet.　　 
 
Five, Redistribution of Wealth in the Modern Economy
 
From a base-level perspective, all modern, growing countries have entered the credit-money era. Credit-money is essentially debt, a valuation of future earnings. Pensions must be tied to capital, not cash, so as not to deplete in value in the process of credit expansion. The chart below [not reproduced] was compiled by Professor Jeremy Siegel of the Wharton School of Business, and represents the difference in wealth resulting from holding different forms of assets over a 200-year period, from 1801 to 2001. If you are holding gold, your wealth barely grows; if US dollars, you might not be able to keep up with inflation; it is only stocks that will allow you to keep up with the growth of wealth and not lose relative social status. This is why U.S. pensions are in the stock market.
　　 
In China, the core capital market is not the stock market but real estate. Because of the huge difference in housing prices in different cities, the fact that housing capital is still based on physical transactions and not securitized, and various government restrictions on the real estate market, pensions cannot enter the real estate market, which means that it is impossible for China to rely on individual pension accounts (equivalent to cash holdings) to keep up with the growth of wealth. This means that if pensions are kept in the bank, as they are now, in cash, they will definitely "shrink" with the growth of the economy. 
 
If trans-generational coordination is necessary, the difference in population size between generations will have a huge impact on pension standards and contribution burdens. Our generation, born in the early 1960s, represents the peak moment of population growth in modern China, which means that we can manage to raise the pension standards for the somewhat smaller generation of our parents, making up the gap through cross-generational transfer.  But once the population of the subsequent generation begins to decline, those joining the labor market will have to significantly increase their contribution rates in order to support us, or else cover the gap by incurring debt. If the population decline continues into the next generation, the debt will become a Ponzi scheme. This has happened to pensions in developed countries. 
 
Now we can answer the question asked at the outset, whether you still think that having children is a personal choice.  Do you still think that parents who raise the children who will contribute to the future pensions of all of us should not receive a bit more compensation in terms of public welfare?  Do you still think that having children should not be linked to public benefits like pensions and affordable housing? I think you will have come to the same conclusion as I did at the Blue Chip annual meeting. The question to ask about my solution is not whether we should offer more benefits to families who have more children, but whether such benefits will be enough to solve the problem. 
　　
Six, Trans-Generational Consequences of Delayed Employment 
 
In order to avoid family disintegration and to solve the problem of "leftover women 剩女,"[2] Singapore has introduced a series of incentives ranging from housing, taxes, and school subsidies that are far more radical than ours, but this has not stopped Singapore from aging. This is because even if families resume having children, if the age of marriage increases (an inevitable result of higher levels of women's education) then after a few generations, a generation of people will have disappeared.

This means that the ratio of "years of employment" to "life expectancy" for society as a whole must also be included population policy considerations. Because, in the end, the pension burden is composed of two parts of the population—the contributors on the one hand and the non-contributors + those receiving their pension on the other—and the above-mentioned ratio determines whether pensions can stay at equilibrium, given unchanging pension contribution and withdrawal rates.
 
This relates to another controversial recommendation I made at the Blue Chip Forum: "start to work early, and retire late." In a future situation where the number of people paying in to support the pensioners will inevitably be reduced, this will be an even more effective way to adjust the population structure and reduce the ratio of those drawing their pension to the total population. 

Assuming that the total population remains unchanged, a 10% increase in the contributing population, i.e., those who are employed and paying into the pension fund, is equivalent to a 20% population increase in terms of the pension, because—given the later retirement age—the number of those drawing their pension will decline by 10%. Clearly, the relationship between the age at which pension-contributions begin and the age at which pension payouts begin is an important factor in achieving a balanced pension. 
 
Our current problem is that this relationship is not only not improving, but is getting worse. This is due to three main reasons:  first, the increase in education levels (especially for women); second, increasing life expectancy; and third, the unchanging retirement age. This means that if pension contributions remain the same, the later employment age and the increase in life expectancy will by themselves lead to a widening pension gap.  This is particularly true because the education of the labor force is no longer asset-light but asset-heavy, while the depreciation period has shrunk.  This cannot be said to be a huge waste in modern society.
 
Seven, Early Employment and Delayed Retirement
 
One possible option for early employment is to include graduate students (including doctoral students) in the employment category. In fact, many graduate students are doing supporting work for the projects and research undertaken by their supervisors. These projects and research are funded, and it should be possible to pay benefits[3] to the graduate student. Early employment will not only help expand the tax-paying (pension-contributing) population as a percentage of the total population, but also has the potential to allow parents to have children at a younger age. If the normal interval between generations is 25 years, a five-year delay in childbearing would mean one less generation every five generations, even if the number of children remains the same.
 
Delaying retirement is even more important today when education is taking longer and longer. Increasing the level of education for the labor force means that education is becoming increasingly asset-heavy, which means that depreciation takes longer.  To take me as an example, when I went to college, the country was much poorer than it is now, but covered virtually the entire cost of my education. I also later did my PhD in the UK at public expense.

​I am still in good health, and at the least I have more experience in my field of expertise than university graduates just starting out. As a person who relied on other taxpayers to pay for my PhD, by rights I should pay more into my pension than others, but according to regulations, I will have to retire soon,[4] which will force me to abandon my position as a pension-contributor and become a “social beggar” drawing my pension. 
 
In today's world of capital abundance and labor shortage, early retirement means a huge waste of social capital, and the higher the level of education, the greater the waste. Delaying retirement is fundamentally different from getting people into the work force at a younger age. The latter increases the number of novices who lack experience, while the former increases the number of skilled workers who have already been trained. The latter requires a huge amount of on-the-job learning to truly become a high-value worker. It is this category of high-value workers that cities and companies are really competing over.
 
This does not mean that we must force everyone to postpone retirement, but at least we could design a voluntary selection mechanism, in which you can choose to retire at any point after 60, your pension being linked to how much you have paid in—the longer you have paid in, the higher your pension. Now that the average life expectancy in China is about 77 years, those who choose to retire at 60 can continue to receive the basic pension, while if you keep paying into the pension until you are 70, you can receive a higher standard of health care and services for the remaining six years than those who choose to retire at 60. In other countries there are people who volunteer in nursing homes after retirement to earn “points” for when it will be their turn, which is actually a voluntary delayed retirement system.
 
Eight, Demographic Issues in Urban Planning
 
The problem of aging is a worldwide problem that has not been completely solved by developed countries even today.  One important reason for this is their lack of understanding of the financial reasons behind low fertility trends. Broadly speaking, there is a relationship between capital and labor:  if labor grows faster than capital, there will be a shortage of capital and a surplus of labor. An increase in population will lead to a decline in per capita capital ownership, producing what we call an "involution.” Only family planning can delay the collapse of the economy, but if capital growth is faster than labor growth, there will be a labor shortage, even if the population is larger today than in the past.
 
For example, in China's rural areas, the main capital is arable land, and if the population increases faster than the growth of arable land, the amount of per capita arable land will decrease, producing an "involution." If everyone has a lot of children, capital will soon be depleted. So in this situation, only family planning can postpone economic collapse. But on the other hand, since 2004, capital has grown faster than labor, and non-agricultural industries have absorbed a large amount of labor power. Even if China's total population is twice as large as it was before family planning, there is a general labor shortage in rural areas. 
 
The design of systems such as pensions and social security is a product of capital surplus. The replacement of family functions by finance will cause an irreversible decline in households and even fertility. Only by offsetting such financial replacement can the decline in fertility be slowed. After the introduction of land auctions in China in 2004, the growth in capital rapidly outpaced population growth, breaking through the centuries-old capital deficit in one fell swoop, and in just a decade or so, China became a country with a capital surplus. The dramatic shift took the fertility policy by surprise. In a certain sense, the change in population trends has been closely related to urban planning from the very beginning. 
 
In the face of such a shift, urban planning had to respond quickly. As the urbanization of China’s nears its conclusion, it is increasingly difficult for traditional urban planning to make judgments concerning urban growth and decline. At the same time, the structure of the current population contains information about the future city trends. Urban planning must discover new analytical tools to capture this information. By designing new systems, the link between the interests of individual fertility and collective old age can be reestablished. In line with this, the demographic analysis of urban planning has to change accordingly. 
 
For example, as opposed to demographic classification by age, urban planning should place employment (tax) age at the core of urban demographic analysis. The relative ratios of the dependent (pre-employment) and pensioner (post-retirement) populations to employment age population have profound implications for the financial sustainability of cities, as well as for their growth and decline. And these variables are largely "programmable." Because demographic change is slow, the consequences often emerge too late, which requires urban planning in particular to diagnose and put in place preventive measures early on. In an age of population management, urban planning faces a completely different set of problems. Innovative approaches to urban demographic analysis are crucial to the transformation of the discipline of urban planning.

Notes

[1]赵燕菁, “生育、养老、就业与城市规划,” published on the Aisixiang website on January 13, 2022. 

[2]Translator’s note:  The term “left-over women,” which many in China find insulting, refers to women who remain unmarried, most often referring to those who do not marry in their twenties.

[3]Translator’s note:  The Chinese term is wuxian yijin 五险一金, meaning employers’ contributions to five kinds of insurance and to a housing fund.

[4]Translator’s note:  I cannot locate Zhao’s date of birth online, but he graduated from university in 1984, which means he was probably born in 1963.  China’s official retirement age is 60 for men and 55 for women (and 50 for women in blue-collar jobs), which presumably means that Zhao should retire next year, in 2023.