China's National Bureau of Statistics (NBS) announced on Wednesday that the country recorded its lowest birth rate since the founding of Communist China in 1949. With just 6.39 births per 1,000 people in 2023, down from 6.77 the previous year, the declining birth rate marks a deepening demographic challenge for the world's second largest economy.

The NBS reported that a total of 9.02 million babies were born in China last year, compared to 9.56 million in 2022. The overall population also saw a decline, dropping by 2.08 million people to reach 1.409 billion.

Economists believe that the sharp decline in births in 2023 may be partly attributed to the lockdowns imposed during the COVID-19 pandemic. However, they expect to see a rebound in new births in 2024, although the structural down-trend in birth rates remains unchanged.

The demographic shift in China comes at a time when the country's economic growth is faltering. Despite an expansion of 5.2% in 2023, which marks an improvement from the previous year, it is still one of China's weakest economic performances in over three decades. The disappointing growth figures led to a reaction in the stock markets, with Hong Kong's Hang Seng Index closing down 3.7% and the CSI300 falling 2.2%.

The shrinking population poses significant challenges for Beijing, particularly amidst an ongoing property downturn and subdued consumption. It will force the government to make structural changes to the economy and rethink sectors such as healthcare and housing. The declining birth rate also exacerbates the issue of an aging population and a shrinking workforce, making it increasingly challenging to fund healthcare and pensions for elderly citizens while maintaining economic growth.

To address some of these challenges, the State Council released guidelines to strengthen the "silver economy," emphasizing the need for tailored services and products for the elderly across sectors including housing, healthcare, and finance.

Despite the overall gloomy data, there was a slight boost in China's GDP growth in the fourth quarter, which expanded by 5.2% compared to the previous quarter's growth of 4.9%. However, experts caution that this boost may not be sustainable, citing the release of pent-up demand during the holiday season and a low base effect from 2022.

As China continues to grapple with the repercussions of the ongoing pandemic and economic pressures, the government's efforts to encourage more married couples to have children have not yielded the desired results. Factors such as fewer marriages, economic slowdown, high unemployment rates among young people, and the impact of the pandemic have discouraged people from starting families.

The declining birth rate reflects a significant demographic shift that will have far-reaching implications for China's society and economy. Beijing will have to implement crucial reforms to address the challenges posed by a shrinking population, aging workforce, and economic downturn. The country's ability to navigate these challenges will be crucial for its future development and global standing.