China’s Baby Cliff: Rapidly Declining Births in China
In the next decade Total births in China are projected to decline from 15.2 million in 2018 to 11.7 million in 2028 (and significantly down from 17.3 Million in 2017). This in turn means the ‘child’ market (0 to 4 yr. old) will also decline – by 25% by 2028. This is shown in Figure 1.
Figure 1: Historic and Projected trend in total births and number of 0 to 4 year old in China
It is a common misconception that recent changes to the one child policy are going to result in maintaining or even increasing total births in China and hence the child market and total population. However, the core driver in terms of number of births and the child population of China is not the birth rate but rather the number of women of childbearing age which cannot be changed for the next 15 years (they are already alive today). The number of such women will decline from 346 million in 2018 to 302 million in 2028. A 13% drop in a decade. Birth rates would need to increase by 34% from the 2018 to offset this and that is unlikely given that all couples can now have two children and with increasing affluence relatively few will want more than 2. As a result, the decline in total births in China is entrenched. Figure 2 shows the trend in number of women of child bearing age and overall trend in the birth rate.
Figure 2: Historic and Projected Trend in number of women of child bearing age (15 to 49 years) and average birth rate per thousand.
As such the Baby market (that is 0-year olds) will decline in number of consumers at the rate of -2.7% per annum for 2018 to 2023 and then -2.4% per annum to 2028. This decline in total births is a function of both the decline in the number of women of child bearing age and a marginal decline in the average birth rate as the bias of women of child bearing age moves to 30 years and above where the rate is much lower.
This decline in births significantly impacts not only the ‘baby market’ but also the 0 to 4-year-old market. The peak number of persons in this age group was in 2017 at 84 million. This is projected to declines to 62 million in 2028. A decline of -2.7% per annum and in absolute terms the market will be 25% smaller in number of consumers.
Increasing household incomes means that total funds available to be spent on these fewer children need not decline (depending on spending priorities of the family). These countervailing trends in terms of a declining number of consumers versus a steady value of market clearly indicate that the market is going to move from a volume play to a strategic value play. Branding and market strategy will be key. It is likely that initially established products and services will need to compete on price in order to maintain market size as they need to get an increased share of a market declining in number of customers. This could impact profitability.
It should be noted that the change in birth rates will not affect the size of the labour force, and hence will not impact GDP potential until 2033 at the earliest and probably later given the increasing propensity of youths to stay in education to age 18 or 20 years. However, after that point there will be a more rapid decline in the labour force.
The change in the One child policy may also result in a reduced male bias in births which is currently creating a significant social issue by 2028 in term of there being insufficient females of marrying age. A potentially socially destabilising issue.
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