Can China's Condom Tax and Cheaper Childcare Reverse Falling Birth Rates?

The new 13% sales tax on contraceptives in China, effective from 1 January 2024, aims to address the nation's declining birth rates amid an ageing population. While childcare services are exempt from this tax overhaul, the move has drawn criticism and raised concerns about unintended consequences, such as increased unwanted pregnancies and higher rates of HIV. This policy change reflects China's ongoing struggle to encourage couples to have children, alongside other initiatives like extended parental leave and financial incentives.

Last updated: 05 October 2023 (BST)

What’s happening now

As of January 2024, China will implement a 13% sales tax on contraceptives, including condoms, birth control pills, and devices, while exempting childcare services from value added tax (VAT). This tax overhaul, part of a broader initiative to stimulate birth rates, comes at a time when the country is grappling with an ageing population and economic challenges. The government hopes that these measures, which also include extending parental leave and providing cash handouts, will encourage young couples to marry and have more children.

Key takeaways

A 13% tax on contraceptives will be implemented from 1 January 2024.
Childcare services will remain exempt from this new tax.
China's birth rate has significantly declined, with only 9.54 million babies born in 2024.
Policy changes also include extended parental leave and cash incentives.
Concerns are raised about the potential for increased unwanted pregnancies and HIV rates.

Timeline: how we got here

The recent tax overhaul is part of a series of policy changes aimed at addressing China's declining birth rate, which has been a growing concern for several years. Here’s a brief timeline of relevant events:

1994: The introduction of various tax exemptions during the enforcement of China's one-child policy.
2021: China officially ends its one-child policy, allowing couples to have up to three children.
2022: The Chinese government begins proposing measures to boost birth rates, including financial incentives and parental leave.
Late 2023: Announcement of the new sales tax on contraceptives and the exemption of childcare services from VAT.
1 January 2024: The new tax on contraceptives will come into effect.

What’s new vs what’s known

New today/this week

The announcement of the 13% sales tax on contraceptives is a new step in China's approach to managing its declining population. This tax is part of a broader strategy aimed at encouraging higher birth rates through a mix of financial policies and social incentives.

What was already established

China's demographic trends have been concerning for years, with a shrinking population and declining birth rates prompting various policy discussions. The government's attempts to incentivise childbirth, including the easing of the one-child policy in 2021, have been in place for some time but have not yielded the desired results.

Impact for the UK

Consumers and households

UK consumers may find parallels in their own government's approach to family planning and childcare support. As many countries face similar demographic challenges, including low birth rates, the UK may observe China's policy outcomes and adapt its strategies accordingly. The potential increase in costs for contraceptives could resonate with UK discussions on healthcare affordability and access to reproductive services.

Businesses and jobs

For businesses, particularly in the healthcare and retail sectors, the implications of China's tax changes could influence market dynamics. As demand for contraceptives may fluctuate due to the increased costs, businesses may need to adapt their pricing strategies. Additionally, the focus on childcare services and parental leave could create new opportunities for sectors involved in family support services.

Policy and regulation

UK policymakers might take note of China's experience with tax reforms aimed at demographic changes. The balance between incentivising childbirth and ensuring affordable access to reproductive health services will be crucial for the UK as it navigates similar challenges in its own population dynamics.

Numbers that matter

9.54 million: The number of babies born in China in 2024, a stark decrease from previous years.
40%: The percentage of China's tax revenue made up by VAT in 2022.
£742 billion: The equivalent of nearly $1 trillion, which is China's VAT revenue as of last year.
5–20 yuan: The expected increase in the cost of condoms due to the new tax.
1 child: The current average number of children families like Daniel Luo's are choosing to have.

Definitions and jargon buster

VAT (Value Added Tax): A type of indirect tax that is imposed at each stage of production on goods and services.
Contraceptives: Products or methods used to prevent pregnancy, including condoms and birth control pills.
Demography: The statistical study of populations, including the structure, distribution, and trends in births and deaths.

How to think about the next steps

Near term (0–4 weeks)

In the immediate future, consumers should prepare for the new prices on contraceptives starting 1 January 2024. It may be worthwhile to consider purchasing supplies beforehand to mitigate cost increases.

Medium term (1–6 months)

Over the next several months, watch how the public reacts to these tax changes. Monitoring birth rate statistics and contraceptive sales may provide insight into the effectiveness of the policy.

Signals to watch

Changes in birth rate statistics following the implementation of the tax.
Consumer sentiment regarding the affordability of contraceptive products.
Government responses to public feedback and potential adjustments to tax policies.

Practical guidance

Do

Consider stocking up on contraceptives before the tax takes effect.
Stay informed about potential government policies aimed at boosting birth rates.
Engage in discussions about family planning and reproductive health with healthcare providers.

Don’t

Don’t ignore the potential impact of cost increases on family planning choices.
Don’t hesitate to seek out available resources for reproductive health education.
Don’t overlook the importance of community support for families and parents.

Checklist

Evaluate your current contraceptive supplies and consider purchasing ahead of the price increase.
Research available financial support for families and childcare services.
Stay updated on demographic trends and government policies related to family planning.
Discuss plans for family expansion with partners and healthcare professionals.
Engage with local community resources for parenting and family support.

Risks, caveats, and uncertainties

While the new tax on contraceptives aims to address declining birth rates, it raises concerns about affordability and access. Critics argue that the policy may lead to increased unwanted pregnancies and higher rates of sexually transmitted infections, including HIV. The effectiveness of the tax overhaul in reversing demographic trends remains uncertain, as many factors influence people's decisions about family planning that go beyond economic incentives.

Bottom line

The introduction of a sales tax on contraceptives in China reflects the government's attempts to stimulate birth rates amidst a declining population, but it also highlights the complexities of family planning decisions. For many young couples, the challenges of raising children extend beyond financial considerations, encompassing societal pressure, work-life balance, and personal choice. As China navigates these issues, broader lessons may emerge for other nations facing similar demographic challenges.

FAQs

What is the new sales tax on contraceptives in China?

The new sales tax on contraceptives in China will be 13% starting from 1 January 2024, affecting products like condoms and birth control pills.

Why is the tax being implemented?

The tax aims to address China's declining birth rates and is part of a broader strategy to encourage couples to have more children.

What other measures is China taking to boost birth rates?

Besides the tax reform, China is extending parental leave and providing financial incentives, such as cash handouts, to encourage family growth.