Cost of raising a child sinks hopes for China's baby-boom stocks

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.

While milk-powder producers Biostime International and Yashili International surged to record highs after the Communist Party relaxed its one-child policy last November, the stocks have lost at least 40 per cent this year, with Biostime leading declines in the MSCI China Index. Hengan International Group, a diaper maker, has dropped 8.3 per cent even as the MSCI gauge rose 6.3 per cent.

Less than 3 per cent of the 11 million Chinese couples eligible for another child applied for permission by the end of May, jeopardising government efforts to bolster a population that the United Nations predicts will start shrinking by 2030. Raising a child from birth to 18 years of age costs about 23,000 yuan (HK$28,950) a year, according to Credit Suisse, equivalent to 43 per cent of the average household income.

"There was too much speculation about a baby boom," said Zhang Gang, a strategist at Central China Securities in Shanghai. "Baby-related stocks still have room to fall further."

Mainland China loosened family-planning restrictions first imposed in the late 1970s, allowing couples to have two children if either parent is an only child. There were about 271,000 applications to have a second child by the end of May and 241,000 received approval, according to the National Health and Family Planning Commission.

Relaxation of the one-child policy is part of the government's broadest expansion of economic freedoms since at least the 1990s. The MSCI China Index has gained 8.2 per cent since the reforms were unveiled in November, while the Shanghai Composite Index of mainland-traded shares has increased 4.9 per cent.