China’s Baby Bonus: Can Cash Incentives Convince Young Chinese to Have Kids?

(Na Bian/Bloomberg)

As China prepares to roll out a nationwide child-care subsidy next year, policymakers are betting that modest cash incentives will help reverse one of the country’s most worrisome long-term trends: its shrinking population.

The central government is planning to provide 3,600 yuan ($503) a year for each child under age three, starting in 2025, according to recent Chinese state media reports. The move marks the first national-level effort to directly support families with newborns, following years of local experimentation and mounting concern over declining birthrates.

If the subsidy amount seems paltry by American standards, keep in mind that China’s nominal per capita income this year was just $13,687, according to IMF estimates.

China’s population has contracted for three consecutive years, with just 9.54 million births in 2024—down from nearly 19 million in 2016. The drop poses a structural threat to the world’s second-largest economy, where fewer young people mean a shrinking workforce, waning productivity, and growing pressure on the pension system.

But whether the few hundred dollars a year will convince reluctant young couples to start families is far from certain.

“I can see the government is trying, but it’s not enough to change my mind,” said Liu Wen, a 28-year-old marketing analyst in Hangzhou. “The cost of raising a child here isn’t just diapers and formula—it’s school, housing, and our own careers. A subsidy won’t fix that.”

That sentiment reflects a broader challenge facing Beijing. While the new program represents a shift in the central government’s willingness to fund pronatalist policy, analysts say its size may be too small to shift behavior in a meaningful way.

Goldman Sachs estimates the total cost of the program at around 100 billion yuan ($14 billion) annually in a steady state, or less than 0.1% of GDP. Because the subsidies will also retroactively cover children born before January 2025 who are still under age three, Goldman projects a larger 250 billion yuan expenditure in the second half of 2025. Even so, the impact on growth is expected to be modest—adding about 25 basis points to GDP in late 2025 but fading quickly thereafter.

“International experience suggests that a program of such size may not boost birthrates by much,” Goldman analysts wrote in a recent report, adding that the move reflects “China’s new policy thinking and long-term planning to counteract cyclical and structural growth headwinds.”

Michelle Lam, Greater China economist at Société Générale, said in a note that the measure was “tiny” in scale but notable for signaling “a change in mind-set and [paving] the way for more stimulus to come.”

Indeed, the symbolic weight of the policy may matter more than its near-term effect. For years, central authorities avoided the direct handouts common in other advanced economies, preferring tax breaks or indirect support. Now, China appears to be embracing a more direct approach, with the central government reportedly funding up to 95% of the program in less-developed regions.

Some local governments have already gone further. Hohhot, the capital of China’s Inner Mongolia region, offered couples 50,000 yuan for a second child and 100,000 yuan for a third earlier this year. Cities like Hefei, Tianmen, and Panzhihua have also implemented targeted programs, with mixed results. Goldman notes that Tianmen saw a temporary reversal in birthrate declines after launching its subsidy in 2023, while Panzhihua managed to slow the drop.

Still, experts caution that financial incentives alone are unlikely to reverse deeper societal trends. China’s marriage rate hit a nearly 50-year low last year, and many young people cite job insecurity, high housing prices, and burnout as reasons to delay or forgo parenthood entirely.

That’s especially true in major cities, where career pressure and the high cost of living collide. “I’m still trying to pay off my own student loans and save for a down payment,” said Zhang Rui, a 32-year-old software engineer in Shanghai. “How can I think about a baby right now?”

Beijing has started to acknowledge these structural obstacles. In his annual government work report this March, Premier Li Qiang pledged to expand child-care services and reduce the burden on working families. But details remain sparse, and the pace of implementation is uneven.

For investors, the implications go beyond demographics. A sustained drop in births could weigh on long-term growth, consumer demand, and labor supply, while also reshaping sectors from education and housing to healthcare and insurance.

The question now is whether China’s latest policy shift marks the beginning of a broader family support agenda—or merely a symbolic gesture.

Either way, the stakes are clear. United Nations projections suggest China’s population could fall to 1.3 billion by 2050 and below 800 million by 2100. Without a meaningful rebound in fertility, China’s economic future may rest on a shrinking base.

For now, though, most young families seem unconvinced that a few thousand yuan a year is enough to tip the scales.

Write to editors@barrons.com