China surprised markets last Thursday when it announced the removal of its one child policy introduced in 1979. Now Chinese families can opt to have two children instead of one.
However, what’s unfortunate about all of this is that the Communist’s Party decision has nothing to do with improving the social aspect of family life in China. On the contrary, the only reason is due to the fact that the Chinese government is faced with an ageing population and a shrinking working age population.
Ageing Population
China has the world’s largest population at 1.37 billion. The problem is that Chinese people aged 60 and over rose last year by more than 10 million to 212.4 million, or 15.5 per cent of the total population.
This is becoming a liability for the government due to the increase in pensions being paid. The United Nations projects that the number of Chinese over the age of 65 will jump 85% to 243 million, in 2030, up from 131 million this year.
Shrinking working age population
The limit on the number of birth’s coupled with an ageing population leads to a drastically shrinking working age population between 15 to 64 years of age is drastically shrinking.
While the shrinking labour pool is probably helping to prevent a rise in unemployment, it is also driving up labour costs and eroding the manufacturing and export competitiveness that helped fuel China's 30-year expansion.
There are many industries in China which seek to employ foreigners because they do not have enough capacity. One that immediately comes to mind is the airline industry.
So how can investors benefit from all of this?
One answer is to find value in companies which export baby food to China. It is interesting to know that only 28 per cent of Chinese moms breastfeed exclusively during the first six months, trailing the global rate of 37 per cent, according to Unicef China.
Chinese baby formula demand will probably be boosted by government policy to increase urbanization. The proportion of urban Chinese mothers who exclusively breastfeed during the first six months is about half that of those in rural areas, according to government studies. That difference could limit government efforts to promote breastfeeding as more women move to urban areas in search of higher-paying jobs.
Companies which are likely to benefit from what’s happening in China are:
Danone SA (Ticker: bn, Market Cap: €41.6bln, Ind Gross Yield: 2.36%)
Danone SA is a food processing company. The Company produces dairy products, beverages, baby food and clinical/medical nutrition products. Baby food in China represents about seven per cent of Danone’s earnings.
Nestle SA (Ticker: NSRGY, Market Cap: $244.5bln, Ind Gross Yield: 2.97%)
Nestle SA is a multinational packaged food company that manufactures and markets a wide range of food products. The Company's product line includes milk, chocolate, confectionery, bottled water, coffee, creamer, food seasoning and pet foods.
Mead Johnson Nutrition Co. (Ticker: MJN, Market Cap: $16.3bln, Ind Gross Yield: 1.99%)
Mead Johnson Nutrition Company manufactures nutritional products for infants, children, and expectant and nursing mothers. The Company markets its products in North America, Latin America, Europe and Asia.
Johnson & Johnson (Ticker: JNJ, Market Cap: $280.7bln, Ind Gross Yield: 2.96%)
Johnson & Johnson manufactures health care products and provides related services for the consumer, pharmaceutical, and medical devices and diagnostics markets. The Company sells products such as skin and hair care products, acetaminophen products, pharmaceuticals, diagnostic equipment, and surgical equipment in countries located around the world.
Bayer AG(Ticker: BAYN, Market Cap: €99.1bln, Ind Gross Yield: 1.88%)
Bayer AG produces and markets healthcare and agricultural products, and polymers. The Company manufactures products that include aspirin, antibiotics, anti-infectives, and cardiovascular, oncology, and central nervous system drugs, over-the-counter medications, diagnostics, animal health products, crop protection products, plastics, and polyurethanes.
Disclaimer: This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.