120 billion every year! The macro impact of childcare subsidies

On July 28, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the "Implementation Plan for the Childcare Subsidy System," indicating that starting from January 1, 2025, the national basic standard will provide a childcare subsidy of 3,600 yuan per child per year until the child reaches the age of 3. The subsidy amount will be shared by central and local finances, with the central government providing proportional assistance to the eastern, central, and western regions. Local governments may raise the standard according to their financial capacity, with the additional funding borne by local finances. As an important national livelihood policy, the direct cash subsidy to childcare families across the country will help alleviate the financial pressure of childcare expenses and has positive significance for preventing further declines in the birth rate and boosting overall consumption. We assess the impact of national-level birth subsidies on macro totals, families receiving subsidies, and the income boost for potential childbearing families: At the national macro level, referring to the national basic standard, we estimate that the annualized amount of birth subsidies for the three years from 2025 to 2027 will be approximately 120 billion yuan, accounting for about 0.1% of the nominal GDP in 2024 and about 0.2% of the total resident consumption in 2024, with a relatively mild effect on overall GDP and resident consumption. Among them, for infants born before January 1, 2025, who are under 3 years old, we calculate the subsidy based on the number of months eligible for subsidies, assuming that the number of births is evenly distributed across months, and the growth rate of newborns from 2025 to 2027 continues the annualized decline of 3.5% from 2021 to 2024 (Charts 1-3). For targeted subsidy families, the proportion of birth subsidies to the annual disposable income of this group is about 3%. The targeted spending of subsidized families may have a more significant boosting effect, likely driving growth in childcare-related expenditures, but compared to policies in overseas countries, there is still room for further improvement—for example, Germany announced a monthly subsidy of 219-250 euros for newborns starting in 2021, continuing until the age of 18, while in Japan, each newborn can receive a total of approximately 2.34 million yen in monthly allowances from birth until high school graduation (Chart 6). Based on the annualized growth rate of newborns from 2021 to 2024 and the average household population data from the seventh national census, we estimate that in the next three years, families with children under 3 years old nationwide may reach 82 to 86 million households, accounting for about 6% of total households, with the annualized birth subsidy amount of 120 billion yuan accounting for about 3% of the total disposable income of this group (Chart 4). 3. In terms of the incentive effect for childbearing families, we estimate that the proportion of fertility subsidies to the disposable income of two-person households is about 4-5%. However, the effects vary for families at different income levels, with the incentive effect being more pronounced for low- and middle-income groups—for the bottom 20% of low-income households and the bottom 20% of lower-middle-income households, the fertility subsidy accounts for approximately 19% and 8.3% of their annual disposable income, respectively, which is significantly higher than the average level and may present a more effective incentive effect. In contrast, for the top 20% of high-income households, the fertility subsidy accounts for less than 2% of their annual disposable income, resulting in a relatively mild effect (Chart 5). In summary, the annualized amount of fertility subsidies accounts for a low proportion of total household consumption, but structurally, the incentives for low-income families are more evident. Drawing on the experiences of overseas countries in boosting fertility rates, in addition to cash subsidies, it is also necessary to further strengthen social security in areas such as childcare, education, and housing support. Since 2023, some local governments in China have already introduced fertility subsidy policies aimed at alleviating low birth rates and aging pressures, but the coverage is relatively limited. This year, national-level fertility subsidies may play a more positive role in alleviating family childbearing pressures. Combining international experiences, if the coverage of subsidies can be expanded in the future, along with further improvements in childcare facilities and reductions in education costs, and the establishment of a multi-tiered social security support system, it will more effectively enhance the willingness to bear children. Risk Warning and Disclaimer The market has risks, and investment requires caution. 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