With China saying that two children are now the limit rather than one, investment bank Credit Suisse predicts three to six million extra babies a year from 2017 to 2022. Translate that into baby products and you could have a $55 billion bump in sales…if it happens.
Where are we going? To the impact of China’s family policies.
Baby Product Markets
If the current 1.5 per woman Chinese fertility rate increases then we could see a ripple of retail activity. Reflecting the possible impact, baby-related stocks spiked last week in Hong Kong, Shanghai and Shenzhen. The firms were what you would expect. A hospital group providing obstetrics, a car seat company, a maker of children’s skin care products each enjoyed a stock increase. In Japan, diaper makers upped their projections. Meanwhile, contraception stocks dipped.
We should note though that last week’s announcement follows a 2013 policy change that had little impact. Even though China said then that any family with a spouse that was a single child could have two children, there was no baby boom. Consequently, baby formula maker Mead Johnson said it expected no major impact on “…births or birth rates in China, consistent with what we have seen in previous rounds of relaxation.”
Our Bottom Line: Changing a Social Norm
A behavioral economist might say China has a social norm that could be tough to change.
Started more than 3 decades ago, the one-child policy has slowed the growth of the labor force and recently, for the first time, shrunk it.
With the number of male births far exceeding females, the Chinese government has skewed markets ranging from real estate to marriage.
Below you can see population projections for 2050. If the new two-child policy has little effect, then there will be relatively fewer individuals in the working population to support those who are no longer employed. Or as Philip O’Keefe, human development sector coordinator at the World Bank in Beijing said in 2013, “For the first time we are seeing a country getting old before it has gotten rich.”
Our conclusion? Accompanied by unintended consequences, China’s one-child social norm could be here to stay.
I’ve also heard commentary that it’s too little too late, even if it increases birth rate, because it will take About two decades for it to impact the skilled labor force, to spur growth in Chinese economy,