Oh Baby! More Babies in China Means More Ways to Profit

China's National People's Congress recently relaxed the national "one-child" policy that had been in effect since 1979. Couples can now have two children (without facing a financial penalty) if one of the parents is an only child.

The law's original intent was to control China's population, the world's largest, and to ease food and commodity shortages.

The one-child policy prevented an estimated 400 million births.

How This Revised Policy Will Pay Off

The low-birth-rate years dramatically changed Chinese demographics. China's working-age population fell by 3.45 million to 937 million in 2012. The percentage of elderly in the population rose to 14.3%, a nearly threefold increase from 1982.

Furthermore, China is consciously trying to transform itself from an export-based economy to a domestic, consumption-based economy. The new, young, hungry mouths should help.

The relaxed one-child policy will go a long ways to solving both those challenges.

For investors, the investment implications are large and very profitable.

For example, the value of the infant formula market in China was $9 billion in 2012 but is now forecast to grow an additional $950 million a year from the expected 2 million more babies who will be born each year.

Several baby formula and dairy companies on the U.S. Pink Sheets and on the Hong Kong Exchange will benefit from all those hungry babies.

Some names to watch include Biostime (BTSDF), Yashili (1230.HK), Goodbaby (GBBYF) and Modern Dairy (1117.HK).

It's not just what goes into all those babies that generates big new business, too. All those baby bottoms will need more diapers, helping the bottom (forgive the pun) line of companies like Procter & Gamble (PG) and Kimberly Clark (KMB), both of which already do big business in China.

Looking forward a few years, the biggest winner of all will be China's for-profit education companies.

I cannot begin to tell you how seriously the Chinese take education. Most Chinese students don't finish school until 5 p.m. or 6 p.m., watch little television, and play very few video games.

They are prohibited from working before age 16 so they can concentrate on school. Plus, most students attend tutoring classes after school and on Saturdays.

When I was a child, my mother ordered me to sit in the front row right in front of the teacher's desk. She gave me almost-daily lectures on the importance of education.

My mother was a big believer in corporal punishment and I got the spankings of my life for anything less than straight-As.

Those same lectures about education happen every day all over Asia, especially China, because academic success is a top cultural priority.

Plain and simple, the Chinese education sector is an all-weather, recession-resistant, steady growth winner.

There is a way to profit — HANDSOMELY — from the Asian obsession with education and academic success.

Did you know there are eight Chinese education stocks listed on the NYSE and Nasdaq? Yup ... and here they are.

  • ATA Inc. (ATAI) provides computer-based training courses to help Chinese students pass professional certification exams in banking, insurance and accounting.
  • ChinaEdu Corp. (CEDU) is the Chinese equivalent of the University of Phoenix, offering online college degrees.
  • China Distance Education Holdings (DL) offers online education and test-preparation courses in accounting, law, healthcare, construction, engineering and information technology.
  • China Education Alliance (CEAI) sells "education resources" online, a fancy name for a huge database of informative practice exams.
  • New Oriental Education & Tech. Group (EDU) is the largest English and college entrance exam preparation school in China.
  • TAL Education Group (XRS) is China's largest private educational tutoring company.
  • Noah Education Holdings (NED) sells electronic education materials, and distributes its content primarily through handheld digital learning devices.
  • Xueda Education Group (XUE) is a private tutoring company like TAL, but serves university students as well as high school students.

As you can see, there are several routes to profit in the Chinese obsession with academic excellence. Changes in China's one-child policy will drive this already successful industry to new heights.

Best wishes,

Tony Sagami

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Posted 01-17-2014 1:45 PM by Tony Sagami