China's fertility rate stands at 1.3 - below the level needed to maintain a stable population, the National Bureau of Statistics revealed.
China had pursued a one-child policy for more than three decades to curb rapid population growth, but introduced a two-child limit in 2016 as the country faced a shrinking labor force amid an increasingly graying society.
China announced on Monday that each couple would be permitted to have up to three children, a major policy shift from the existing limit of two children, after census data showed a dramatic decline in births.
The decades under this family planning move led to under-reporting of female births, as well as a high rate of abortions of female foetuses, skewing the sex ratio.
Share prices in birth- and fertility-related companies surged.
China's child policy is a population planning policy that is initiated by central Government. Couples say they are put off by the cost of having children, disruption to jobs and the need to look after their own parents. The country now has over 1.4 billion people.
But experts warned there would be no quick fix to the demographic challenges after strict and sometimes brutal enforcement of the single child policy.
China's census, released earlier this month, showed that around 12 million babies were born past year - a significant decrease from the 18 million in 2016, and the lowest number of births recorded since the 1960s.
Early this month, a once-in-a-decade census showed that the population grew at its slowest rate during the last decade since the 1950s, to 1.41 billion, fueling concerns that China would grow old before it gets wealthy as well as criticism that it had waited too long to address declining births.
The country still has 34.9 million more men than women, making up just over 51.24 percent of the population.
It comes alongside a sharp drop in the number of working-age people, once again raising fears of a looming demographic crisis.