China Baby Boom or Bust?

After 35 years China ended its one-child policy. Companies with exposure to China’s baby market like Mead Johnson (MJN) and Procter & Gamble (PG) jumped in price on the news. A Chinese baby boom is around the corner. Or is it?

China already had special districts that were not a part of the one-child policy. They were small experiments set-up at the start of the one-child policy. The birthrates within these zones were as low as other zones that were subject to the one-child policy. However, these special zones did not experience the large gender imbalance nor the high infanticide and gendercide rates.

In 2006, families in the town of Jiangsu were permitted to have 2 children if one parent was a Dandu (an only child). How many signed up? One-tenth of those eligible did.

In 2013, the Dandu policy was applied across all of China. Only 35% of eligible couples signed up. Way below Chinese government expectations. The reason often cited for not participating was the high cost of raising a child.

As a country becomes wealthier, more educated, and less agrarian the average birthrate drifts lower. Pre-Cultural Revolution China had an average birth rate of 6 per family. Right before the one-child policy was enacted China’s birthrate dropped to 3. Then in part to boost per capita GDP Chinese officials wanted to slow population growth even further and the humanitarian crisis known as the one-child policy was born.

The irony is the one-child policy was designed to boost the Chinese economy but it may be its undoing as China’s population ages. Policy-makers finally realized this threat and the one-child policy was scrapped. China needs population growth. But now China and its citizens are much wealthier as a whole and the need and desire to have multiple kids has declined. The Chinese baby boom some investors are expecting may be a bust.

Information on China obtained from the book One Child: The Story of China’s Most Radical Experiment by Mei Fong

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