China | Chinese baby stocks surge on easing of one-child rule

Chinese baby stocks surge on easing of one-child rule

October 30, 2015 1:45 PM (UTC+8)

 

Talk about a no brainer.

Who spends more money than parents? Grandparents!

The Chinese finally figured out the foundation of the market economy is purchases for kids. So, what’s the best thing to do to get the economy moving? Get people to spend money on their kids. And what’s the best way to do that? Encourage them to have more.

One is now two
One is now two

On Thursday, China’s ruling Communist Party reversed its one-child policy and said it would allow all couples to have two kids. The broad macro-economic reason given was that with a population aging quickly, there won’t be enough young people to support the oldsters. But the more immediate micro effect will be people buying stuff for all these new babies.

Just one day after the easing of the one-child restrictions, the stock prices for baby-food makers and other products catering to children saw a big uptick.

Goodbaby International Holdings, which manufacturers baby strollers jumped 9% and diaper-maker Hengan International leapt 3.3%.

Shares of infant formula maker Biostime International surged 12%, milk powder maker Yashili International climbed 9.6%, and dairy products maker China Mengniu Dairy also gained 6.7%.

Milk-powder maker Danone saw its shares hit a five-month high and Mead Johnson Nutrition jumped to a two-month high

The announcement on loosening the restrictions was perfect timing for baby food and milk formula companies which have been hard hit because of government campaigns to promote breastfeeding and China’s economic slowdown.

The US Department of Agriculture recently said global prices for whole milk powder fell in July to levels not seen since 2009.

Retail sales of baby food in China hit 68 billion yuan ($10.7 billion) in 2011, with baby-milk formula accounting for about 90% of the sales, the USDA said in a report last month, citing data from Euromonitor.

Of course, the western media had to find the worm in the apple. Reuters said the rising stock prices might be premature as analysts predict there won’t be a significant bump in demand from the policy change.

The analysts said there won’t be a baby boom because “small families are an engrained part of Chinese culture and adding more children is too expensive for many.” n China the cost of raising a child is 23,000 yuan ($3745) a year, according to Bloomberg. That’s $67,400 over 18 years. The cost of raising a child in the US is $245,000.

The analysts said the previous easing of policy in late 2013 had little effect. As of June, only 1.5 million of the 11 million eligible couples had applied for second child.

Asia Unhedged says poppycock.

People typically want to have a second kid, just to increase the odds of having a success, and to have someone take care of them in their old age. And most want to give their kid a brother or sister. And if a group of people has been denied the ability to do something for a long time, you can bet a lot of people are going to want to do it, just because.

Mead Johnson, one of the top five international baby formula brands in China, said it’s didn’t expect to see s significant rise in birth rates, but seriously, our guess is as good as theirs

Bunge, agrees with us and thinks Mead Johnson is completely wrong as well. The top global agricultural trader predicts the change will add millions more babies to China’s population over the long term.

The change is “good for demand, but it’s not necessarily steaks,” Bunge Chief Executive Soren Schroder told Reuters. “It’s the whole spread of basic food, starting with infant nutrition and then working its way up to poultry, pork, processed foods of various types.”

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