Policy Shift Gives Birth to Investor Optimism

New regulation

The infant formula market is also expected to get a lift from the new regulation. The industry will see an additional 6 billion yuan in sales each year, said Song Liang, a dairy industry analyst.

The extra sales will mostly occur among Chinese brands of milk powder, shrinking the gap in market share between domestic and foreign milk producers, he said.

Song said that in first-tier cities, many couples are both only children. Those who wanted to have a second child already did so under the old policy, which allowed them to do so.

Therefore, the new policy will encourage more births of second children to couples in second- and third-tier cities. Those smaller cities and counties are the major battlefield for domestic baby formula makers, Song said.

In the baby formula market, domestic brands hold a share of about 40 percent and foreign brands account for about 60 percent. The market is worth about 55 billion yuan annually.

But after the relaxation of the regulations, domestic and foreign brands are expected to split the market evenly.

Foreign baby formula brands, which are most popular in first-tier cities, will be less affected by the limited increase of newborns in big cities, he said.

Responding to a query from China Daily, Nancy He, a corporate affairs officer at Nestle China Ltd, said: "We have just heard about the latest policy on family planning. We are studying the policy and have no comment on it at the moment."

Listed companies involved in mother-and-child care have seen their shares get a boost. Nine companies - including Ningbo David Medical Device Co Ltd (which makes infant incubators and warmers), Goldlok Toys Holdings (Guangdong) Co Ltd and Xinjiang Western Animal Husbandry Co Ltd - saw their shares rise by the daily 10 percent limit on Monday. But shares of the companies retreated on Tuesday.

A China International Capital Corp Ltd report said the relaxation of the family planning policy will alleviate the pressure of an aging population and help optimize the population structure.

The report said that the relaxation is only a beginning and more adjustments are expected.

In the short term, the demand for mother-and-child consumption will be lifted. Sectors including maternity medicines and treatment, medical testing facilities, baby care, healthcare, baby formula, diapers, toys, clothing for children and early education will also be supported, it said.

Haitong International Securities Group Ltd said that the initiatives will give an obvious boost to the number of newborns. The country will experience a fourth baby boom in five years, when people born between 1980 and 1990 marry and give birth.

Coupled with the newborns from the relaxed policy, the number of newborns each year is expected to reach 23 million in three years. The number of children below age 3 will be 35 percent above the current level.

But some analysts are taking a conservative view of the new regulations' impact.

Xue Shengwen, a senior researcher at CIConsulting, an industry research firm in China, said the impact on companies will be limited. Xue added that there are still uncertainties about the policy change.

Xue said the high costs of education, medical treatment and housing will give many couples of childbearing age second thoughts about second babies.