Support measures for China’s three-child policy include tax deductions, expanding childcare services, and optimizing the leaves policy to support childcare. The moves are meant to boost births and address the country’s demographic imbalance. Businesses in China should pay attention to how these measures could affect their HR and payroll policies. Service industries, in turn, can assess new market opportunities.
On July 20, 2021, the Communist Party of China (CCP) Central Committee and the State Council unveiled the Decision on optimizing the family planning policy to promote the long-term and balanced development of the population (“the Decision”).
According to the document, China will revise the law on population and family planning to legitimize the country’s three-child policy, which was introduced on May 31, 2021 to allow all Chinese couples to have a third child.
Besides, the government will abolish fines and other penalties for couples who violate the family planning law, which means couples can have more children than allowed. Previously, illicit births could incur a fine or, in the case of civil servants, result in dismissal from office.
The Decision also contains supporting measures covering the aspects of childbearing, parenting, education, taxation, housing, and women’s rights in employment – to encourage births.
While specific implementation measures have yet to be worked out, potential future measures could affect human resources (HR) and payroll policies of companies in China.
They are also likely to unlock market opportunities in areas of pregnancy and day care services, elder care, healthcare, and related facilities.
According to the Decision, China will consider allowing nursing expenses for children below three-years-old to be deductible when their parents pay individual income tax (IIT).
At present, under China’s Individual Income Tax (IIT) Law, education expenses for children can be deducted before tax at a fixed amount, which is RMB 1,000 (US$154) a child per month. However, the tax deduction policy only applies to taxpayer parents with children over the age of three.
Now, the Decision has proposed to amend the country’s IIT law, to add the childcare expenses for babies under the age of three as a special additional deduction item for IIT.
In recognition of the parenting dilemma of dual-earner families, the Chinese policymakers is determined to bolster the country’s inclusive daycare services.
The document calls for promoting the development of affordable and quality childcare institutions as well as community-based facilities for babies and young children, encouraging eligible kindergartens to admit children aged 2 to 3 years, and fostering intelligent childcare services.
China already introduced tax concessions for the childcare industry in 2019. From June 1, 2019 to the end of 2025, business earnings of China’s elderly care, childcare, and domestic services are exempt from value added tax (VAT) and enjoy a 10 percent deduction in taxable income.
The Decision also directs China to optimize its maternity leave and maternity insurance system. Some provinces and cities may even pilot new childcare leave schemes.
Currently, China does not have a national regulation on childcare leave. However, female employees are entitled for 98 days of basic maternity leave by law as well as extra days granted by the local region. Male employees may enjoy paternity leave at the same time, ranging from seven days to one month, depending on the local regulations. Thus, maternity leave and paternity leave policies vary from region to region.
Further, the Decision mentions that China will also explore a geriatric care leave regime, allowing only-child employees to spend more time to take care of their parents.
China also appears determined to “protect the rights of women in employment”. In 2019, China vowed to make more firms comply with existing anti-discrimination laws. The relevant laws ban employers from asking women about their child-rearing plans in job interviews and from stating a preference for male applicants when recruiting.
The Decision reaffirms women’s rights in employment. It also suggests to provide re-employment training public services for women whose career was interrupted by childbirth.
Besides, employers are also encouraged to formulate measures to help employees balance their work and life and to adopt a more flexible work system.
China started to impose its contentious one-child policy in the 1980s. Only several years ago did it begin to loosen the strict one-child policy. From 2016, Chinese couples were allowed to have up to two children, while parents from only-child families have been able to have two children since 2013.
On May 31, 2021, China abruptly shifted from a two-child to a three-child policy after data from the latest decennial census, released on May 11, showed that only 12 million babies were born in 2020, a drop of almost 20 percent from 2019.
By relaxing the restrictive family-planning policy, the politburo hopes to address the country’s plummeting birth rates.
However, China’s low fertility rate now has less to do with family planning policies, but more to do with other realistic plights – the high costs of housing, children’s education, the burden of caring for elderly parents, as well as crushingly long working hours. These factors are deterring young couples from having more babies, or from reproducing at all.
Further, as more well-educated women pursue careers, many are delaying marriage and motherhood.
Nevertheless, the latest relaxing measures can still impact the personal lives of millions of families in China and will have long-term implications for the country’s demographics and macro-economic profile.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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