19 September 2019
Chinese parents will be shopping for more baby products now that the one-child policy has been abolished. Photo: Reuters
Chinese parents will be shopping for more baby products now that the one-child policy has been abolished. Photo: Reuters

Investment hot spots sparked by the 13th five-year plan

At the fifth plenary session of the 18th Central Committee of the Communist Party late last month, Beijing set the tone for the country’s economic planning for the next five years.

The government has abolished its one-child policy, now allowing each couple to have two children.

In 2013, the government already relaxed the one-child policy, allowing couples in which at least one spouse was an only child to have a second child.

The two-child policy is likely to boost various consumer sectors, such as products for infants and children, education, entertainment and so on.

It’s estimated that the two-child policy will add between two million and three million newborns each year, and that would create incremental consumption of between 30 billion yuan (US$4.71 billion) and 50 billion yuan in child-related consumption per year, if we assume parents spend 16,000 yuan on each newborn per year.

The new policy will also assist China in its economic restructuring.

The country’s demographic dividend has diminished, and the population is aging rapidly.

In the fifth census in 2000, people above 60 years of age made up 10.2 percent of the population, and those over 65 accounted for 6.9 percent.

The continuing aging of the population will worsen labor shortages and drive up labor costs, which will hinder the restructuring of the economy.

China needs more young and well-educated workers for its efforts to boost consumption, services and industrial upgrading.

The two-child policy will increase the birth rate and ease the aging problem.

The 13th five-year plan stresses deepening the reform of the country’s healthcare system and drug pricing.

The authorities are set to support healthcare and the elderly care industry during the period, so pharmaceutical stocks will be attractive investments in the long term.

China is gradually shifting from an investment-driven economy to a consumption-led one.

In this year’s first three quarters, consumption contributed as much as 58.4 percent of growth in gross domestic product, the highest level in history.

And China’s retail sales rose by 10.8 percent in September from a year earlier, which would lend support to related stocks.

Beijing is likely to ramp up its monetary easing measures to stimulate growth.

The Chinese central bank cut interest rates by 0.25 percentage point and reduced the reserve requirement ratio for banks by 0.5 percentage point on Oct. 23.

It has made six rate cuts totalling 1.5 percentage points and four RRR reductions totalling 2.5 percentage points since November last year.

The easing moves will mitigate capital outflows.

Chinese investors have been battered by the market meltdown in July and August, but they have regained some confidence since September.

As a result, the Shanghai Composite Index has rallied nearly 8 percent in the last two months.

Market sentiment is likely to improve further in the fourth quarter.

A shares have rebounded nearly 20 percent from the bottom of 2,800 points on the index, but H shares still lag behind.

H shares are now 30 percent cheaper than the corresponding A shares and will be more attractive amid a stabilizing external market environment.

This article appeared in the Hong Kong Economic Journal on Nov. 11.

Translation by Julie Zhu

[Chinese version中文版]

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Managing director of retail division at Value Partner