The decision by Beijing to end the decades-old One Child Policy means that from 2016, approximately 90 million couples will be allowed to have a second child. The implications of this change in policy are huge for the broader economy and for retailing specifically. There will, undoubtedly, be a surge in consumption of products and services for babies, young children and their parents.
Credit Suisse estimates there will be 1.2 million babies in total, born in China in 2016 alone. Given that the annual cost of raising an infant is 40,000 yuan, this will result in a 4.8 billion yuan boost to the economy. Parents are likely to reduce the amount of money they save in order to buy the things that their new arrivals need, and the market for baby formula milk is expected to grow by 6% in 2016.
We have already seen new brands of formula enter the market as a result; there is little consumer confidence in local infant formula, and the demand for international brands in this category is intense. The longer-term effects of the shift in policy will be seen in the amount of food each household consumes, the need for bigger housing, additional spending on clothing, medical care, higher utility bills and possibly even bigger cars.
All of this additional spend will give a welcome boost to China’s GDP, as well as helping address the need for a growing number of young people to help care for the country’s ageing population.