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Health and Beauty We examine the trends underlying the growth of the global marketplace in health, beauty and hygiene. Our analysts will point the way forward by highlighting critical innovations and behaviours that are driving industry evolution.

The Beauty Implications of a Chinese Baby Boom

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The value of China’s baby and child-specific category has doubled over the last five years to around US$1.6 billion, making it the third biggest in the world after the US and Brazil. Spending could be about to grow much faster, however, as a result of a partial relaxation of family planning laws. Furthermore, the country’s gender imbalance could start to stabilise, triggering potentially huge increases in sales of women’s make-up, hair care and fragrances over the long term.

The nub of the amendment is that couples living in urban areas are now permitted to have two children if one of the parents is an only child. Previously, both parents had to be single children to qualify. It affects upwards of 100 million women of child-bearing age (18-44) and could lead to between 10-30 million additional babies over the next five years. The final number will depend not only on the desire of parents to have a second child but also on state bureaucracy, the latter because couples will still have to apply for permission for a second child. Overall, the potential upside is highly promising.

Beginning of the End for Population Control

China’s one-child policy (or in rural areas a two-child policy if the first born is a girl) has been in place for three decades. It was introduced so that population growth would not derail future economic power, but China’s working age population has become so squeezed that an ageing population is now a much bigger economic threat.

The dependency ratio – which compares the potential workforce with the population of children and retirees – rose in 2012 for the first time in 40 years. On current trends, the number of people over 65 will reach 222 million by 2020, compared with 93 million in 2000. The pressures on pensions and state healthcare are growing by the year.

What we are seeing now could be the start of a complete relaxation of the one-child policy, with new revisions phased in gradually over the next 10 years. Changes will have to be made slowly because, firstly, so many Chinese people are employed in regulating family planning and, secondly, the coffers of local authorities have grown used to windfall fines. In Beijing, for example, the fine for having an unauthorised second child was around US$50,000.

A Billion Dollar Boost

A change in the law, no matter how small, is a big deal for any company with a footprint in China’s baby and children’s consumer base. Indeed, shares of publicly listed companies making anything from diapers to pianos have jumped in recent weeks.

In beauty and personal care, the biggest beneficiary in the short term could be Johnson & Johnson, which accounts for around 30% of sales in the baby and child-specific category. There are a number of local players in the frame too, notably Prince Frog International Holdings, which owns the fast-growing skin care brand Frog Prince. This is a leading player in China’s second- and third-tier cities.

China’s current population of babies and toddlers (aged 0-4) is 67 million, of which around half live in urban areas. It is easy to see why 10, 20 or even 30 million additional babies could have a major bearing on market dynamics over the next five years. In terms of baby and child-specific products’ sales we could be talking about a potential windfall of over US$1 billion a year.

Even without the easing of the one-child policy, China had been forecast to become the biggest market in the world for baby and child-specific products by 2018. Its ascendency to the top of the global rankings is now likely to happen as early as 2015.

Girl Power

One of the key long-term impacts of the law change is that China’s gender imbalance will start to stabilise. Currently, there are 119 million boys aged 0-14, compared with only 96 million girls. This imbalance, one of the highest in the world, is a legacy of selective abortions. Doctors are not legally allowed to divulge the sex of an unborn baby, but it is easy for couples to find out.

According to state statistics, 336 million abortions have been performed in China over the last three decades, but that number excludes tens of millions of unofficial abortions. The reality is that boys are regarded as a bigger asset to family income.

As the population of girls grows in urban areas, the female consumer base for beauty and personal care will expand too, translating into billions of dollars of new business for manufacturers of skin care, hair care and colour cosmetics. A generation from now, this could propel China into becoming the biggest beauty and personal care market in the world.

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