20 September 2018

Look before you leap onto the China two-child party

Soon after Beijing decided to ease the decades-old population control policy and allow eligible parents to have a second child, companies involved in childcare products saw their share prices shoot up across the board as investors were betting on the potential consumption that will be unleashed.

According to UBS, the policy easing will bring about a baby boom in the next few years. The brokerage expects it will lead to about 16 billion yuan (US$2.62 billion) worth of additional baby formula demand, or about half of the overall baby milk powder revenue in China last year.

The optimism of investors is understandable. Along with the rise in living standards on the mainland, some parents are willing to spend more on their offspring. In Beijing, the expense on education, health care, living and extracurricular activities for a child comes to about 80,000 yuan a year, China Youth Daily quoted a middle-class mum as saying.

Such news fuels the hopes of consumption boost from the two-child policy, but investors should bear in mind that not all couples can afford to actually turn their desire to have a second child into a reality. Raising an additional child can easily put a family under financial hardship.

In Hong Kong, there is a household television commercial which says that one needs HK$4 million (US$512,820) to bring up a child. The ad, although indulging in a bit of exaggeration, does tell the truth that being parents is no easy task. And, it is the case not only for Hong Kong parents. In China, too, the cost of raising children is increasingly becoming hefty.

Investors who have been carried away by China’s child policy change should take a look at a filing of Guangdong Qunxing Toys (002575.CN). After witnessing over 50 percent surge in its share price over four sessions, the company has reminded investors that the actual impact of the two-child policy to its operation remains uncertain.

The market value of the toy maker was about 3.28 billion yuan on Wednesday, taking the stock’s price-to-earning multiple to 116. Qunxing is probably not the only counter that has seen excessive factoring in of the hopes and benefits of the population policy reform.

– Contact the writer at [email protected]



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