HONG KONG (Reuters) - Children are the most worthy investment for China's economy to help stimulate consumption and expand domestic demand a Beijing policy institute said, after the country posted its first population drop in more than six decades last year.

China, the world's second-largest economy, has struggled to mount a strong post-pandemic recovery and any decline in its future workforce and consumer demand could have a profound impact on its economy.

"In the current Chinese economy, children are the best investment. Infrastructure investment is becoming saturated, manufacturing has overcapacity ... but investment in the number of children is not enough," said the policy paper by the Yuwa Population Research Institute published on Tuesday.

The paper urged authorities to "urgently" reverse a rapid decline in the number of newborns.

China's advantage will shrink in the future as the young population shrinks rapidly, while economic measures such as cutting interest rates, activating the capital market, and optimising real estate regulation have not helped to bolster economic growth and the recovery remains weak, it said.

In order to boost the economy, the Yuwa report recommended that maternity subsidies be distributed at a national level rather than by local governments and targeted measures be implemented to reduce the large cost of childbearing and rearing.

Local governments have announced a series of measures to help lower childcare costs in recent years but many policies have not been implemented or remain on paper due to insufficient funding and lack of motivation by local governments, it said.

"Nowadays people are unwilling to get married and have children ... Because the cost of childbearing is too high, the difficulty for women to balance family and work, the average fertility willingness of Chinese people is almost the lowest in the world."

Current subsidies are still insufficient, lower than most European countries it said.

China reported a drop of roughly 850,000 people for a population of 1.41175 billion in 2022, marking the first decline since 1961, the last year of China's Great Famine.