(Image source: The Economist)
Some western scholars (such as on Freakonomics and on Real Time Economics Blog) are now blaming the one-child policy in China as a reason of the global economic recession. Let’s see how the logic flows.
- Preferences for sons together with the one-child policy and together with the inexpensive ultrasounds technology, many couples in China choose abortion based on the gender of the unborn children.
- (1) leads to the surplus of unmarried men.
- The marriage market becomes highly competetive. In order to get a wife, Chinese men now have to compete more vigorously.
- Due to (3), families with sons have to save more so that their sons can look more attractive in the future. [According to the research by Shan-Jin Wei and Xiaobo Zhang, published on the National Bureau of Economic Research, in the areas where high boys/girls ratios are high, the saving rates are higher, too.]
- (4) is the reason of the jump of savings in China over the last 2 decades. In 2007, a household in China saves 30% of their income on average, while this figure was 16% in 1991.
- (5) leads to the surplus of cash of the Chinese. Meanwhile, half of the world away, Americans are more interested in spending. The purchasing demand in America is always high. The current Fed chairman, Mr. Bernanke,chairman pointed out that the surplus of cash in China lead to easy and huge long-term debts, with low interest rates, by the Americans.
- Obviously, these low interest rates would gradually propagate into financial activities in the US and over the world. Most notable is in the mortgage business. [Last March, Alan Greenspan defended the Fed on the Wall Street Journal that the Fed was powerless to prevent the housing bubble due to "the decoupling of monetary policy from long-term mortgage rates".]
- Due to the low interest rates and hence easy loans, Americans were more more encouraged to buy houses. This gives rise to the high housing prices trend and bad financial investments from housing. The housing bubble started from here.
- The bubble could not grow forever and finally bursted when the interest rates starated to rise and the prices started to drop. This housing burst is the source of the credit crisis and later on the global economic recession.
Phew, this kind of reasoning is like blaming the butterfly in Brazil for causing the tornado in Texas [see butterfly effect] 
. On the other hand, with the population of 1.3 billion, it is increasingly visible that whenever the Chinese sneezes, the whole world catches cold.
