CNBC AI News, July 29th – Beijing has unveiled its national childcare subsidy program, set to roll out on January 1st, 2025. The scheme offers ¥3,600 annually for each child, regardless of whether it’s the first, second, or third, until the child reaches the age of three.
Following the announcement, Trip.com CEO James Liang, a vocal advocate for boosting China’s birth rate, published an article emphasizing the potential economic benefits. Liang argues that “large-scale subsidies for families with children will initially increase demand for baby products. In the long run, this will cascade into heightened demand for appliances, automobiles, housing, education, telecommunications, and tourism.” He believes this surge in demand can stimulate relevant industries, absorb excess capacity, and create more employment opportunities. Furthermore, a larger population fosters innovation and enhances China’s long-term competitiveness.
The core argument revolves around the pressing need for substantial pro-natal policies to reverse the declining birth rate and population growth. Childcare subsidies are presented as a critical component of this strategy.
Drawing on both international and domestic experiences, the article highlights the potential of these subsidies to improve birth rates, provided the financial commitment is significant enough. It positions children as the best “new infrastructure” investment, particularly in an economy grappling with overcapacity and saturated investment opportunities. Channeling central government funds to families raising children stands to not only boost birth rates but also stimulate consumer spending and drive economic expansion – a win-win solution, according to the analysis.
However, the proposed subsidy appears modest in the face of daunting childcare costs. Yuwa Population Research’s “China Childbearing Cost Report 2024” estimates the average cost of raising a child from 0-17 years old at ¥538,000. The three-year subsidy covers a mere 2% of these expenses.
A rough calculation suggests that if China maintains an annual birth rate of 10 million, the subsidy would require an annual expenditure of ¥36 billion. Extending this to all children under three would bring the total to approximately ¥100 billion per year.
The article proposes a tiered system of support based on the number of children in a family:
1. Direct Cash Subsidies: Families with one child would receive ¥1,000 per month; families with two children, ¥2,000 per month; and families with three or more children, ¥3,000 per month, until the child reaches 16 or 18 years of age.
2. Income Tax and Social Security Reductions: Families with two children would benefit from a 50% reduction in individual income tax and social security contributions. Families with three or more children would be entirely exempt (subject to a cap on wealthy families).
3. Housing Subsidies: Implemented through mortgage interest rebates. For example, 50% of mortgage interest could be subsidized for families with two children, and 100% for families with three or more (capped at a specific limit).
The estimated cost of these comprehensive subsidies ranges from 2% to 5% of China’s GDP. While appearing substantial, this level of investment is deemed necessary to restore the country’s birth rate to a sustainable level.
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