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Demographic Impact of China's New Two-Child Policy

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The general release of the second-child policy is not the first attempt of the Chinese government to encourage birth rate growth. In November 2013, the Chinese government had already released a second-child policy, but it only allowed couples containing at least one “only child” parent to have a second child. When releasing the policy, the Chinese government expected to see a high number of second child births. According to some experts’ predictions, there would be 2 million newborn second children in China. However, the Chinese people’s reaction to the policy didn't meet government expectations. According to the latest official data, of the 11 million couples who met the criteria, only 0.7 million couples applied to have a second child, and only 0.47 million more babies were born in 2014, less than 3% more than that in 2013. Conjecturing from the reactions to the previous second-child policy, the general release of the second-child policy is definitely expected to boost the overall birth rate but not necessarily robustly.

The high living cost is the main reason that stands in the way of couples having a second child. Especially in 1st and 2nd tier cities, people have very hectic lives and the living costs are much higher. Chinese parents would choose the best baby-related products they could afford to give their children, hence, baby-related products account for a big part of the family cost. Also in Chinese tradition, parents would help to buy a house for their children, but with the real estate prices soaring in China, it is already a struggle for people to buy one house, let alone buying a second house for the second child. Hence, couples would be more cautious when making the decision to have the second child.

Regarding any industries impacted by this decision, it is expected to have a higher impact in low tier cities and rural areas. As analyzed before, high living costs and hectic lifestyles will limit the desire of people in 1st and 2nd tier cities to have second child. Meanwhile, the previous policy already allowed couples from single-child families to have a second child, and most people in 1st and 2nd tier cities meet this criteria, but many from low tier cities and rural areas don’t. Therefore, allowing couples not from single-child families to have a second child will mostly open the door for them.

The new policy will increase the newborn baby population, which will enlarge the consumer base of all baby-related products, including but not limited to baby milk formula, baby food, nappies, baby cloth, dairy, baby and child specific personal care products, baby specific home care products, baby nutrition products, etc. While the Chinese economy is experiencing slowing growth in 2015 and could possibly continue to do so in following years, disposable income is likely to grow at a much slower rate. This means that consumers are likely to choose more value-for-money products that meets the quality standard but not premium products to support a second child. And for those parents who wouldn’t like to cut costs for their babies, they would choose more ways to purchase the same quality products, but through cheaper channels, such as online channels, cross-border purchase, etc. Meanwhile, as we expect that low tier cities and rural areas are more likely to have families who choose to have a second child, while their disposable income is lower than developed cities, they are more likely to boost the purchase of mid-priced baby products as well. The necessary products such as baby milk formula and nappies will benefit most, while the unnecessary products or less necessary products like baby cloth will benefit less.

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