Analysts mixed on child-policy impact

Now that China is allowing women to have more than one child, some investors are betting that companies selling products and services for newborns and their mothers in the mainland may eventually find a booming market, but other analysts are urging caution.

The central government abandoned its one-child policy last week. The move followed steadily declining birth rates and changing demographics that have been reducing the working population.

Shares of companies like stroller and car-seat-maker Goodbaby International and infant-formula maker Yashili International rose in Hong Kong trading after the announcement on Oct 29. Stock prices of global dairy-related companies such as US-based Mead Johnson Nutrition and France's Danone rose on the news. And even the CEO of the Walt Disney Co, Robert Iger, saw bright prospects.

"It was good timing... Obviously kids are good for Disney," Iger told a conference in Shanghai, where the US company is preparing to open a theme park. Disney and Chinese partner Shanghai Shendi Group broke ground on the $5.5 billion park in April 2011. The opening was originally planned for this year, and was later pushed back to 2016.

The Wall Street Journal reported that a report from Citic Securities noted that the policy change could bring 6 million new births a year, creating a market that may be worth an estimated 353 billion yuan ($55 billion).

Analysts at investment bank Credit Suisse estimated that the relaxed controls would result in an additional 3 to 6 million babies born annually in the five-year period starting in 2017, according to The Associated Press. China, the world's most populous country with nearly 1.4 billion people, has about 16.5 million births each year.

The Credit Suisse report said that with the annual cost of raising a child estimated at 40,000 yuan ($6,330), the additional births would translate into an extra 120-240 billion yuan ($19-38 billion) in consumer spending a year, or 4 to 6 percent of China's total retail sales.

While shares of Mead Johnson Nutrition Co reached a two-month high on the announcement, the Glenview, Illinois-based company played down the news.

"We do not anticipate this policy adjustment will significantly impact births or birth rates in China, consistent with what we have seen in previous rounds of relaxation," Chris Perille, a spokesman for Mead Johnson Nutrition, one of the top five international baby formula brands in China, said in a statement sent to China Daily.

"The rush for baby-related stocks may not necessarily bear fruit," said IG analyst Bernard Aw in a report, according to AFP. Business Insider said Nomura analyst David Hayes told clients in a note that a significant increase in the share price of China baby food stocks was an overreaction.

"The market has in the past had a tendency to become overly excited about the implications on the policy relaxation in China, and we have seen a more balanced/better informed adjustment take place over the preceding few days/weeks," he was quoted as saying.

Sales of baby food and milk formula have slumped in China due to the economic slowdown and campaigns to promote breastfeeding. Global prices for whole milk powder fell in July to levels not seen since 2009, according to the USDA.

Paul Welitzkin contributed to this story.

paulwelitzkin@chinadailyusa.com