Money Growth and Inflation
Can reproduction drive demand? As of October, the question shall be answered as the Communist Party of China have ended their one-child policy on child birth and allowed all married couples to have two kids. Such change in policy was directed to alleviate the demographic squeeze noted in the Chinese population, where they are experiencing an aging population along with a stagnant or shrinking work force. At the same time, with an increase in permitted child births, as any new parent knows- babies mean buying lots of stuff.
With couples now being allowed to have a second child, such change could create an increase in spending within 9 months, if not sooner. The stock market, being forward-looking, would then proceed to bid up on shares of diaper makers, baby-bottle manufacturers, and skin-care products (Barrons, 7). Couples may also feel the need to move into bigger living quarters to ensure they have space for another child. On top of that, comes the decorating period with different colored themes to prepare for the babies arrival. Down the road, spending of families will continue to increase as they have tuitions, tutoring, sports teams, camps, computers, phones and all the other activities that come with having children. Having more children means forking out much more money into the economy. So with years to come, China’s economy is looking to boom, as a result of the communist’s countries’ new policy. The question is, could this become a good thing or a bad thing?
With having a rapid increase in spending, inflation could become an issue. Inflation means there is a continuous increase in the price level. The main causes of inflation are either excess aggregate demand (economic growth too fast) or cost push factors (supply side factors). In the case of Chinese economy, they could likely experience inflation down the road due to the rapid growth in their economy. As previously noted, one of the goals of allowing families to have a second child was to alleviate the stagnant or shrinking work force. As the babies being born age with decades to come, the economy will begin to reach full employment. An increase in aggregate demand will in turn lead to an increase in the price level. As firms begin reaching their full capacity, they respond by putting up prices, leading to inflation. Also, near full employment, workers can get higher wages which increases their spending power. The introduction of the new reproduction policy creates an entire cause and effect relationship on their country as a whole.
Many demographers have believed the change in policy is years overdue, but the party officials continued to overlook the change. China itself holds an authoritarian political system controlled by the Chinese Communist Party (CCP). Having such regime, means their rulers are chosen in a way that does not seek input from a freely participating electorate and in which the state does not respect basic human rights. With that being said, not matter what demographers thought was best for the country, all ruling is set in the hands of a very strict ruler. What they say goes.
“Demographics is destiny”, says economists. The Chinese are trying to alter their demographically dictated future by allowing couples to have more babies, which in the short run could help its economy and quite possibly hurt it in the long run (Barrons, 7). For the rest of the world, spending and investing will be increasingly about paying for health care for an aging population. In all, reproduction can definitely be a driving factor towards demand. Demand for supplies now, and demand for positions in the work force down the road. China allowing families to have two kids will definitely create change in their economy, and with time we shall see how that change will play out.

Works Cited:
Forsyth, Radall W. "China's New Economics: Two for the Money." - Barron's. N.p., n.d. Web. 02 Nov. 2015.

Article Link:
http://www.barrons.com/articles/chinas-new-economics-two-for-the-money-1446267623