Condom sales slump as China announces end to one child policy
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Investors are betting on a bump in sales for companies with baby or child-related businesses after China’s ruling Communist Party announced that all married couples would be allowed to have two children. The economic repercussions travelled as far afield as New Zealand, where the currency of the dairy-exporting country surged.
Analysts at investment bank Credit Suisse estimated that the relaxed controls would result in an extra 3-6 million babies born annually in the five-year period starting in 2017. China, the world’s most populous country with nearly 1.4 billion people, has about 16.5 million births each year.
The one-child policy began in 1979 to curb a surging population at a time when extreme poverty was widespread in China.
The Credit Suisse report said that with the annual cost of raising a child estimated at 40,000 yuan ($6,330), the extra births would translate into an extra 120-240 billion yuan ($19-38 billion) in consumer spending a year, or 4-6 per cent of China’s total retail sales.
A nurse takes care of newborn infants at a hospital in Huai’an, Jiangsu province Photo: Patty Chen/Reuters
One of the biggest winners in the financial markets was China Child Care Corp., which makes hair and skin care products for kids. Its shares ended 40 per cent higher on Hong Kong’s stock exchange.
On the losing side, Japanese condom maker Okamoto Industries Inc., a favorite of Chinese visitors to Japan, slumped 10 per cent in Tokyo.
Formula makers in Hong Kong and mainland China rose strongly, led by Beingmate Baby & Child Food Co., which jumped 10 per cent on China’s smaller Shenzhen stock exchange.
“The one-child policy began in 1979 to curb a surging population at a time when extreme poverty was widespread in China.”
Japanese and other foreign brands are popular with Chinese buyers because they’re seen as being authentic and better quality. Those characteristics are prized in China following food and other product safety scandals involving domestic brands.
Some cautioned the increase in births may not be as big as predicted because of the expense of raising a second child and other factors.
“The rush for baby-related stocks may not necessarily bear fruit,” said IG analyst Bernard Aw in a report.
In New Zealand, the local dollar jumped as high as $0.6772, gaining nearly 1 percent from $0.6699 the day before. The country is a major dairy exporter and its milk powder and formula industry would likely benefit from a baby boomlet in China.
Some baby stocks started rising Thursday ahead of the official announcement on Chinese state media.
Goodbaby International, which makes strollers, car seats and cribs, rocketed 7.4 percent on Thursday and followed that up with a 2.3 per cent gain on Friday. Rumours had already been swirling in China that the policy would be adjusted at a meeting on China’s next five year plan that was held this week.
Questions & Answers
Q.How much additional consumer spending is predicted to result from the relaxed policy?
How much additional consumer spending is predicted to result from the relaxed policy?
The relaxed controls are estimated to generate an extra 120-240 billion yuan ($19-38 billion) in consumer spending each year. This translates to an increase of 4-6 per cent of China’s total retail sales.
Q.Why are some analysts cautious about the predicted increase in births and its impact on baby-related stocks?
Why are some analysts cautious about the predicted increase in births and its impact on baby-related stocks?
Some analysts, like IG's Bernard Aw, caution that the increase in births may not be as significant as predicted. This is due to the considerable expense of raising a second child and other influencing factors.
Q.Which company was negatively affected by the policy change and how much did its shares slump?
Which company was negatively affected by the policy change and how much did its shares slump?
Japanese condom maker Okamoto Industries Inc. Was negatively affected, with its shares slumping 10 per cent in Tokyo. The company is a popular brand among Chinese visitors to Japan.
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