Policy change gives birth to child-related boom in China

China’s child-related stocks surged on Tuesday on the A-share, Hong Kong and US markets, after the country’s top leadership announced on Monday a major policy shift that allows every couple to have three children.

The policy change will benefit many industries such as education, retirement, the maternity sector, clothes, infant formula, medical care and real estate, analysts noted.

Ningbo David Medical Device Co, an A-share listed company that produces and sells medical equipment for infants, opened 6.72 percent higher and closed 12.47 percent higher on Tuesday. Hong Kong-listed Jinxin Fertility Group, an assisted reproductive service provider, saw its shares open 17.51 percent higher but closed 4.92 percent lower.

Aidigong Maternal & Child Health closed 13.7 percent higher in Hong Kong. The company is a leading maternity service provider in China focusing on traditional yuezi (postpartum confinement), which refers to the month of resting and restoring balance after giving birth.

The rally was boosted by the announcement from China’s top leadership on Monday that couples are allowed to have three children as part of an effort to tackle shifting demographics in the country.

Analysts said that the move will further boost the country’s already massive market. According to iiMedia Research, in 2020, China’s maternal and infant market reached 4.09 trillion yuan ($641.2 billion).

“The market will continue to grow after the implementation of the three-child policy, with a steady expansion of 5 percent annually in the next two years. But the growth will not be significant, as the policy still needs time to be digested,” Zhang Yi, CEO of Guangdong-based iiMedia Research, told the Global Times on Tuesday.

“It will be evident after two years, when the consumption of toys, clothing and milk powder will post an annual growth rate of 7 percent,” Zhang added.

A manager at a Beijing-based yuezi center told the Global Times on Tuesday that after the implementation of the two-child policy, the number of customers increased a lot every year, mainly from the post-80s and post-90s mothers.

“It is expected that there will be more new customers after the three-child policy, but it will take one or two years. After all, preparing for pregnancy takes time,” said the manager.

“This year, the number of customers hiring yuezi increased by 40 percent compared with last year. There were basically no customers in the second half of last year due to the COVID-19 pandemic,” the manager added.

A Shanghai-based analyst surnamed Cheng told the Global Times on Tuesday that the three-child policy will benefit many industries, not only those classified as maternity- and infant-related.

“A baby boom often corresponds to an increase in total social demand. China’s population growth will eventually become a demographic dividend and a huge domestic market,” Cheng added.

A staffer at Guangzhou Baiyunshan Pharmaceutical Holdings Co told the Global Times on Tuesday that the company believes the policy could be a boon for its Jin’ge – a generic version of sildenafil citrate, the blockbuster drug that US-based pharmaceutical giant Pfizer Inc developed and marketed under the trade name Viagra.

“Obviously, the new policy will involve older parents looking to having more babies. As an anti-erectile dysfunction drug, Jin’ge could help those in need, and therefore we see the policy as a boon,” the staffer said, noting that the company has no plans to alter its marketing practices or sales targets for the drug.

The policy shift is also boosting many other sectors such as liquor. Some investors noted that E Fund’s “star manager” Zhang Kun, put shares of Jinxin Fertility Group and liquor stocks including Kweichow Moutai and Wuliangye in a portfolio named “Asia Selection” in March.

Some explained that Chinese customs require new parents to invite guests to celebrate the baby’s birth. At these events, baijiu (a type of liquor), is indispensable. Therefore, liquor also belongs to child-related concept stocks.

But analysts warned that the announcement of the three-child policy does not mean that there will be three children in each family, because the willingness to give birth won’t immediately change, which means that actual demand growth will be limited.