In a significant policy shift, China has terminated a tax exemption on contraceptive medicines and devices that had been active for over three decades. The change, effective from January 1, means condoms and birth control pills are now subject to a 13% value-added tax, aligning them with most consumer goods. This move is widely seen as part of Beijing's broader strategy to counter its persistently low birth rates and encourage childbirth.
Addressing a Demographic Crisis
The decision arrives as China confronts a stark demographic challenge. The nation's population shrank for a third consecutive year in 2024, with experts warning the downward trend is set to continue. This decline has propelled India past China as the world's most populous country. In response, authorities have rolled out various incentives to promote larger families.
These measures include exempting childcare subsidies from personal income tax and launching an annual childcare allowance. In 2024, the government also encouraged universities to provide "love education" to foster positive attitudes toward marriage and family. At the recent Central Economic Work Conference, top leaders pledged to stabilize birth rates by promoting "positive marriage and childbearing attitudes."
From One-Child Policy to Fertility Push
China's current predicament marks a dramatic reversal from its past. For decades, the government enforced a stringent "one-child policy" to curb rapid population growth. Although never formalised into law, the policy, implemented after Mao Zedong's death, led to severe consequences for violators, including forced abortions, sterilisations, and heavy fines.
The preference for male offspring, particularly in rural areas, resulted in a severely skewed sex ratio due to selective abortions. This has created a lasting social issue, with millions more men than women, raising concerns about long-term stability. The government's focus has now completely inverted, from restricting births to desperately trying to increase them.
The Looming Burden of an Ageing Population
The end of the contraceptive tax break is a direct response to alarming demographic data. China's total fertility rate remains critically low, at just 1.18 children per woman in 2022, despite a minor increase that year. More pressing is the rapid ageing of the population.
Currently, over 310 million people, or 22% of the population, are aged 60 or older. Forecasts suggest this proportion will exceed 30% by 2035, placing immense strain on the pension and social security systems. The shrinking workforce and declining number of young consumers threaten economic vitality, even as China invests heavily in infrastructure and defence.
The demographic shift is so pronounced that some vacant schools and kindergartens, a result of fewer children, are being converted into care homes for the elderly. The revocation of a tax break on contraceptives, a symbolic relic of a bygone era of population control, underscores the depth of China's new demographic reality and the urgency of its response.
