China's Baby-Boom Bets Go Bust

Tyler Durden's picture

A year ago, when chatter began about China lifting its one-child policy, we explained the implications (and warned of excess exuberance). As Bloomberg reports, it appears China's anticipated baby boom is more of a bust. Nine months after stock-market wagers on a baby boom in China reached record levels, the bets have turned into some of the nation’s biggest losers as living costs deter couples from having more than one child - less than 3% of the 11 million Chinese couples eligible for another child applied for permission by the end of May, jeopardizing government efforts to bolster a population that the United Nations predicts will start shrinking by 2030.

 

As Bloomberg reports, relaxation of the one-child policy in the world’s most-populous nation is part of the government’s broadest expansion of economic freedoms since at least the 1990s.

At stake is China’s ability to avoid a demographic crisis as its population ages.

 

China’s fertility rate of 1.66 per woman compares with the 2.1 level needed to sustain population levels, according to the UN.

But the people didn't procreate...

Less than 3 percent of the 11 million Chinese couples eligible for another child applied for permission by the end of May, jeopardizing government efforts to bolster a population that the United Nations predicts will start shrinking by 2030.

Costs prohibitive - no matter how 'open' policy is...“The cost is a top consideration,” Sun, 32, said by phone. “My four-year-old daughter is heading to school and that will mean extra classes and higher spending. A nanny is too expensive so the grandparents look after her. They are approaching 70 and I don’t think they can handle a second child.”

A couple would need to spend 2.76 million yuan to support a child from birth to college in Beijing, according to China’s official Xinhua News Agency. The July 2013 report cited an informal survey and calculations suggesting that a husband and wife earning the average per-capita income would theoretically need to work for 23 years without eating and drinking to afford it.

 

Raising a child from birth through to 18 years of age costs about 23,000 yuan ($3,745) a year, according to Credit Suisse Group AG, equivalent to 43 percent of the average household income in China.

 

Average household income in China is about 53,118 yuan, according to the China Household Finance Survey compiled by the Southwestern University of Finance and Economics in Chengdu.

 

The confidence of couples in their ability to provide for a second child may also be waning as China’s economic growth slows, Asian Capital’s Wan said. Gross domestic product will probably expand 7.4 percent this year, the weakest pace since 1990, according to economist estimates compiled by Bloomberg.

 

“People tend to give birth to a second child when the macro-environment and property prices are more favorable and they have job security,” Wan said by phone on Aug. 8.

The unsurprisng conclusion...

“There was too much speculation about a baby boom,” Zhang Gang, a strategist at Central China Securities Co. in Shanghai, said by phone on Aug. 8. “Baby-related stocks still have room to fall further.”

*  *  *

Wait what? Speculators over-estimated the impact of a government policy? Whocouldanode?

“With a rapidly aging population and declining birth rate, even relaxing the birth-control act now won’t help reverse the trend anytime soon,” Hao Hong, a Hong Kong-based strategist at Bocom, said on Aug. 15. “China will be dealing with wage pressure soon.”

 

As Bloomberg reports, relaxation of the one-child policy in the world’s most-populous nation is part of the government’s broadest expansion of economic freedoms since at least the 1990s.

At stake is China’s ability to avoid a demographic crisis as its population ages.

 

China’s fertility rate of 1.66 per woman compares with the 2.1 level needed to sustain population levels, according to the UN.

But the people didn't procreate...

Less than 3 percent of the 11 million Chinese couples eligible for another child applied for permission by the end of May, jeopardizing government efforts to bolster a population that the United Nations predicts will start shrinking by 2030.

Costs prohibitive - no matter how 'open' policy is...“The cost is a top consideration,” Sun, 32, said by phone. “My four-year-old daughter is heading to school and that will mean extra classes and higher spending. A nanny is too expensive so the grandparents look after her. They are approaching 70 and I don’t think they can handle a second child.”

A couple would need to spend 2.76 million yuan to support a child from birth to college in Beijing, according to China’s official Xinhua News Agency. The July 2013 report cited an informal survey and calculations suggesting that a husband and wife earning the average per-capita income would theoretically need to work for 23 years without eating and drinking to afford it.

 

Raising a child from birth through to 18 years of age costs about 23,000 yuan ($3,745) a year, according to Credit Suisse Group AG, equivalent to 43 percent of the average household income in China.

 

Average household income in China is about 53,118 yuan, according to the China Household Finance Survey compiled by the Southwestern University of Finance and Economics in Chengdu.

 

The confidence of couples in their ability to provide for a second child may also be waning as China’s economic growth slows, Asian Capital’s Wan said. Gross domestic product will probably expand 7.4 percent this year, the weakest pace since 1990, according to economist estimates compiled by Bloomberg.

 

“People tend to give birth to a second child when the macro-environment and property prices are more favorable and they have job security,” Wan said by phone on Aug. 8.

The unsurprisng conclusion...

“There was too much speculation about a baby boom,” Zhang Gang, a strategist at Central China Securities Co. in Shanghai, said by phone on Aug. 8. “Baby-related stocks still have room to fall further.”

*  *  *

Wait what? Speculators over-estimated the impact of a government policy? Whocouldanode?

“With a rapidly aging population and declining birth rate, even relaxing the birth-control act now won’t help reverse the trend anytime soon,” Hao Hong, a Hong Kong-based strategist at Bocom, said on Aug. 15. “China will be dealing with wage pressure soon.”