Condom Companies Suffer As China Abandons One-Child Policy

China’s communist government announced it is abandoning the one-child policy it has had in place since 1979. The announcement of the end of the three-decade-old policy to stem unsustainable population growth came at the conclusion of the Communist Party’s four day annual summit in Beijing on Thursday (29 October, 2015). However, as it has been scrapped, there are some implications, of which is the surge in the sales of baby or child-care-related companies and the fall in the shares of condom companies.

In the late 1970s, the Chinese government realised the population growth of 1.9% annually was unsustainable. So, the one-child policy began to curb a surging population at a time when extreme poverty was widespread in China in order to ensure for a sustainable growth. After the introduction of the policy, the growth fell to 0.7% but the population is now ageing quickly. It is estimated that by 2050, 440 million people in China will be over 60 years old. The following is a timeline of the inception and ending of the policy:

1953 Chinese leaders suggest that the population should be controlled and approve a law on contraception and abortion, but the plan is later stranded by political upheaval and the 1959-61 famine.
1970 China’s population exceeds 800 million.
1975 China adopts the slogan “late, long and few”, encouraging couples to have one child, and urging them to have no more than two.
1979 The Communist party says couples should have no more than one child. A new marriage law says couples are obliged to practise family planning, placing a de facto limit of one child for each family.
1984 China adjusts the policy, allowing a second child for some families in rural areas and for couples who were both an only child, and in some other specified circumstances.
2001 New laws decreed to better manage the administration of the policy, including penalties for unapproved births. The laws allow local government to impose fines for additional children.
2013 China adds an exemption allowing two children for families in which one parent, rather than both, is an only child.
2015 One-child policy scrapped, allowing all couples to have two children for the first time in more than three decades

Analysts at an investment bank reported that the relaxed controls would result in an extra 3 million to 6 million babies born annually in the five-year period starting in 2017. China, the world’s most populous country with almost 1.4 billion people, has about 16.5 million births each year. The report further stated that with the annual cost of raising a child estimated at 40,000 Yuan (about N1.3million), the extra births would translate into an extra 120 – 240 billion Yuan in consumer spending a year, or 4-6% of China’s total retail sales.

The implication of this increase in consumer spending is that some baby stocks would start rising in the financial market. One of the biggest winners in the financial markets was China Child Care, which makes hair and skin care products for children. Its shares ended 40% higher on Hong Kong’s stock exchange a day after the introduction of the new policy. Goodbaby International, which makes pushchairs, car seats and cribs, rose 7.4% on Thursday and followed that up with a 2.3% gain on Friday

Japanese and other foreign brands are popular with Chinese buyers because they are seen as being authentic and better quality, hence, Japanese companies were also among the beneficiaries as Baby bottle maker, Pigeon Corp, surged 10.7% while nappy makers rose nearly 4% in Tokyo. In New Zealand, the local dollar gained as the country is a major dairy exporter and its milk powder and formula industry would be likely to benefit from a small baby boom in China. All these are results of forecast in the increase of child birth which the new policy affords.

On the other hand, condom-making companies which have served the Chinese population in adhering to the one-child policy are on the losing end. Although Chinese couples will only be allowed to have two children, the shares of condom company, Okamoto Industries, fell by more than 10% on the news. The Tokyo-based firm sells a lot to China, and Chinese tourists represent one of the biggest customer groups.

In conclusion, it is expedient to note, from the foregoing, how little policy changes affect businesses in a country. So, when next you are considering what business to venture into, you may want to consider what government policy would be to or against your favour.

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