China Abolishes Its One-Child Policy: Cross-Industry Impact On Licensing

Posted by Utku Tansel on August 10, 2016

As I investigate in Euromonitor’s “Key Character Licensing Trends Shaping Apparel, Personal Accessories and Toys in Asia Pacific” Global Briefing, after over 30 years and increasing pressure for change, the Chinese government decided to abolish its controversial one-child policy in 2015 which will help to increase birth rates in the coming years, fuelling consumption and benefiting consumer businesses, including licensing.

This was huge news for companies, especially those in character licensing-related industries, with China potentially becoming an even greater land of opportunity. The industries and categories that will potentially benefit from the change include apparel and footwear (childrenswear – baby and toddler wear, boys’ and girls’ apparel), tissue and hygiene (nappies/diapers, baby wipes), traditional toys and games (baby, infant and pre-school toys), packaged food (baby food), beauty and personal care (baby and child-specific products), and paediatric consumer health.

China size of the prize, total market sizes, value, rsp, us$ million, current prices, 2015-2020

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However, the impending baby boom has yet to materialise with fewer parents taking advantage of the relaxed policy than anticipated to date. Some argue that China’s removal of the one child policy is expected to have little impact on the country’s demography. The current problem for the government is how to change the mind-set of a generation. How to promote larger families in a new China that has embraced consumerism as well as modern modes of urban living. It is projected that the policy change is unlikely to reverse China’s demographic problems in the long term, as its population still ages rapidly and the labour force shrinks.

How many babies will there be in China?
Euromonitor International projects that the relaxation of the one-child policy could mean an extra 2,175,000 babies born each year on average, over the 2015-2030 period. This would certainly offer further opportunities in character-based licensing across many industries. However, it should also be noted that Chinese authorities do not readily make figures officially available, so attempting to predict the impact will remain challenging.

Overall, between 2015 and 2030, a substantial 265,180,000 babies are projected to be born in China. This compares to Japan’s forecast of just 13,426,000 live births. It should be highlighted that disposable income is a key parameter for licensed merchandise, as it is considered non-essential. Since licensed products are more expensive than their non-licensed equivalents, affordability is a key factor determining sales. In China, disposable income per capita is projected to reach US$14,505 by 2030. While this is great news for the rising penetration of character licensing in many industries, China will still lag well behind many developed markets. For instance, in Japan, disposable income per capita is projected to be US$28,718 in 2030; double that in China. As the living standards in most of China’s emerging metropolises will remain well below the current averages of the developed world, pricing strategies need to be adjusted accordingly.

End to “little emperor syndrome”?
As the “one-child-six-pockets” family pattern (also known as “little emperor syndrome”), whereby one child has two sets of grandparents’ pockets alongside their parents’ to spend on them, has been common in China because of the one-child policy, expenditure on child-related products has risen sharply leading to their dynamic growth. On the other hand, if the recently implemented relaxation of the one-child policy is not widely accepted by the overall population, the “little emperors” will have to shoulder the burden of supporting both their parents and grandparents on their own should they not have any other siblings. They might have the money, however, they could potentially deprive their own children of non-essential products, such as licensed merchandise, so that their grandparents can be looked after in a nursing home, for example.

With the removal of the one-child policy, this family pattern is expected to be impacted to a certain degree. It could be argued those 265,180,000 babies by 2030 also mean that overall there will be less money to spend on them. However, there could be other industry-specific parameters that could potentially take precedence.

In apparel, for instance, thanks partly to the relaxation of the one-child policy; baby and toddler wear outperformed all other categories in China by a very large margin, recording 15% value growth in 2015. There is a new baby-rearing philosophy among modern Chinese parents, represented by those parents born in the 1980s. They prefer to buy new and branded clothes for their babies, in order to better protect their tender skin.

In baby and child-specific beauty and personal care products, naturally-positioned offerings remain prevalent in China due to increasing demand from parents who are both health-conscious, as well as benefiting from rising purchasing power. In addition, organic products, although a niche, are also on the rise, and are likely to be a future growth engine for the category.

In traditional toys and games, baby (0-18 months), infant (19-36 months) and pre-school (3-4 year olds) are projected to record 12%, 7% and 8% CAGR over 2015-2020, respectively, adding US$952.5 million combined in additional sales. Less than 6% of these categories were licensed toys in 2015 indicating that they are still very far from saturation in the short to medium term in China.

The end of the one-child policy will help to boost birth rates in China, especially in cities where the old policy was strictly enforced. This means there would be more opportunities for licensing to expand and increase its penetration across many more related industries/categories than before. However, businesses should also be aware that its positive impact is not likely to last in the medium and long term. A declining population of reproductive age, a massive gender imbalance, and rising wealth and women’s education are factors that will keep birth rates low in China. Euromonitor International projects that China would lose its position as the world’s largest population to India by 2025. While Asia Pacific is an obvious choice of expansion for many companies as it evolves as the global leader in population, production and consumption, licensing businesses are advised not to put all their eggs in one basket and to focus on spreading investment in the region.

Utku Tansel leads Licensing at Euromonitor International, where he is responsible for managing the publication of market leading Licensing analysis on Euromonitor’s Passport system. With a solid market research background and enviable industry expertise Utku also regularly writes for external publications focusing on most recent key trends and developments.