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A New Baby Boom: How the Baby Market in China Will Affect Beauty

Posted: December 30, 2013

Rob Walker, a contributing analyst with Euromonitor International, wrote a blog post called “The Beauty Implications of a Chinese Baby Boom,” detailing how the Chinese baby market is taking off—and what that means for the beauty industry on a global scale.

Walker writes, “The value of China’s baby and child-specific category has doubled over the last five years to around $1.6 billion, making it the third biggest in the world after the U.S. and Brazil. Spending could be about to grow much faster, however, as a result of a partial relaxation of family planning laws. Furthermore, the country’s gender imbalance could start to stabilize, triggering potentially huge increases in sales of women’s makeup, hair care and fragrances over the long term.

“The nub of the amendment is that couples living in urban areas are now permitted to have two children if one of the parents is an only child. Previously, both parents had to be single children to qualify. It affects upwards of 100 million women of child-bearing age (18–44) and could lead to between 10–30 million additional babies over the next five years. The final number will depend not only on the desire of parents to have a second child but also on state bureaucracy, the latter because couples will still have to apply for permission for a second child. Overall, the potential upside is highly promising.

“China’s one-child policy (or in rural areas a two-child policy if the first born is a girl) has been in place for three decades. It was introduced so that population growth would not derail future economic power, but China’s working age population has become so squeezed that an aging population is now a much bigger economic threat.

“The dependency ratio—which compares the potential workforce with the population of children and retirees—rose in 2012 for the first time in 40 years. On current trends, the number of people over 65 will reach 222 million by 2020, compared with 93 million in 2000. The pressures on pensions and state healthcare are growing by the year.

“What we are seeing now could be the start of a complete relaxation of the one-child policy, with new revisions phased in gradually over the next 10 years. Changes will have to be made slowly because, firstly, so many Chinese people are employed in regulating family planning and, secondly, the coffers of local authorities have grown used to windfall fines. In Beijing, for example, the fine for having an unauthorized second child was around $50,000.

“A change in the law, no matter how small, is a big deal for any company with a footprint in China’s baby and children’s consumer base. Indeed, shares of publicly listed companies making anything from diapers to pianos have jumped in recent weeks.

“In beauty and personal care, the biggest beneficiary in the short term could be Johnson & Johnson, which accounts for around 30% of sales in the baby and child-specific category. There are a number of local players in the frame too, notably Prince Frog International Holdings, which owns the fast-growing skin care brand Frog Prince. This is a leading player in China’s second- and third-tier cities.

“China’s current population of babies and toddlers (aged 0–4) is 67 million, of which around half live in urban areas. It is easy to see why 10, 20 or even 30 million additional babies could have a major bearing on market dynamics over the next five years. In terms of baby and child-specific products’ sales we could be talking about a potential windfall of over $1 billion a year.

“Even without the easing of the one-child policy, China had been forecast to become the biggest market in the world for baby and child-specific products by 2018. Its ascendency to the top of the global rankings is now likely to happen as early as 2015. “One of the key long-term impacts of the law change is that China’s gender imbalance will start to stabilize. Currently, there are 119 million boys aged 0-14, compared with only 96 million girls. This imbalance, one of the highest in the world, is a legacy of selective abortions. Doctors are not legally allowed to divulge the sex of an unborn baby, but it is easy for couples to find out.

“As the population of girls grows in urban areas, the female consumer base for beauty and personal care will expand too, translating into billions of dollars of new business for manufacturers of skin care, hair care and color cosmetics. A generation from now, this could propel China into becoming the biggest beauty and personal care market in the world,” Walker concludes.