Childcare companies’ shares soar after China scraps one-child policy

Shares of baby stroller maker Goodbaby International Holdings Ltd and diaper maker Hengan International jumped on Friday after China scrapped its one-child policy.

China's ruling Communist Party said on Thursday it would ease family planning restrictions to allow two children for all couples.

Companies that cater to the childcare industry welcomed the news, with Goodbaby climbing 8.9 per cent, Hengan rising 3.3 per cent and skin care products maker China Child Care, formerly Prince Frog, gaining 17.3 per cent.

Shares of infant formula maker Biostime International rose 11.8 per cent, milk powder maker Yashili International surged 9.6 per cent, and dairy products maker China Mengniu Dairy also climbed 6.7 per cent.

Child policy change doesn't herald surge in infant food demand

Stock prices for baby food makers, which climbed after China pledged on Thursday to ease family planning restrictions, may have surged too soon, with analysts and one leading company predicting little chance of a significant bump in demand from the policy change.

Shares for milk-powder maker Danone SA hit a five-month high and Mead Johnson Nutrition Co reached a two-month high.

The announcement comes at a time when sales for baby food and milk formula companies have weakened due to China's economic slowdown and its campaigns to promote breastfeeding. Global prices for whole milk powder fell in July to levels not seen since 2009, according to the U.S. Department of Agriculture.

But no baby boom is not expected to be forthcoming soon as small families are an engrained part of Chinese culture and adding more children is too expensive for many.

Analysts note that an easing of policy in late 2013, allowing couples to have a second child in situations where one spouse was only child has only had a minor impact. As of June, only 1.5 million of the 11 million eligible couples had applied for second child.

Mead Johnson, one of the top five international baby formula brands in China, said it did not expect the policy adjustment to "significantly impact births or birth rates in China, consistent with what we have seen in previous rounds of relaxation."

ANZ analysts added that a huge impact on milk powder demand for New Zealand, the top dairy exporter to China, was unlikely.

"It is primarily in the richer Eastern seaboard cities where consumers can afford formula based on New Zealand powders," they wrote in a note to clients.

"Here, the policy has been less binding - particularly after the policy was relaxed somewhat in 2013, but also because wealthier people generally want fewer children. But it all helps at the margin."

New Zealand has seen its shipments of whole milk powder slide 65 per cent in the first five months of 2015, according to the USDA. Shares in the shareholder's fund of New Zealand's Fonterra Cooperative Group Ltd, the world's biggest dairy exporter, made only modest gains on Friday morning.

Retail sales of baby food in China in 2011 totalled 68 billion yuan, or about $10.7 billion, with sales of baby milk formula accounting for about 90 per cent of the value, the USDA said in a report last month, citing data from Euromonitor.

Fred Gale, a senior economist for the USDA, said he did not expect a detectable impact on dairy demand from the change in policy due to the expense of raising a child in China - a sentiment echoed by Chinese citizens posting to microblogging site Weibo.

But Bunge Ltd, a top global agricultural trader, is predicting the change will add millions more babies to China's population over the long term.

The change is "good for demand, but it's not necessarily steaks," Bunge Chief Executive Soren Schroder told Reuters.

"It's the whole spread of basic food, starting with infant nutrition and then working its way up to poultry, pork, processed foods of various types," he said.

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