Map of china cut out from their flag

Last Thursday, the Communist Party of China announced it would be ending the notorious one-child policy that was implemented 35 years ago, originally aimed at controlling China’s population explosion at the time. Fast forward to the current context, where China’s birthrate is anemic and worries of labor shortages loom, this moment in history could not have come any sooner. However, Thursday’s announcement is more symbolic than anything else, since to completely abolish the policy will take time, and it is also not without precedent—rules were significantly loosened in 2007, and most recently in 2013, the policy had been further relaxed so that parents who were both only children could have a second child.

Given the impact that demographic trends in China have on our market models, the four of us got together to take a deeper look into what the one-child policy actually meant to China, and how its official end will (or will not) change the landscape of the Chinese medical device market. But before we share some of our key takeaways below, here are some oft-forgotten points to keep in mind:

  • In 2007, the policy only applied to 35.9% of the population, mainly in urban areas
  • More than 50% of the population were allowed a second child when the first was a girl
  • Wealthy households often ignore the policy because they can pay the penalty for having multiple children
  • Other countries in Asia that do not have a one-child policy have similar birthrates to China

Erik has an optimistic outlook for at least one medtech market:

“It’s simple: more people means more consumption, which means a larger economy. The increase in sales of baby formula is the future’s boon in tuition payments, and then home purchases, and then healthcare spending. China is catching up to developed countries on medical infrastructure, like ORs and cath labs, where medical devices are used. These factors set the stage for a large medtech market now, and for when the current birth cohort enters its senior years. I suppose between these generations, healthcare spending might go down since the generation of only-children is smaller. However, I think there is at least one medical device segment that will benefit in the near term thanks to this baby boom: congenital heart defect closure devices. Congenital heart defects are closed with percutaneous devices instead of surgery in developed markets. The baby boom will increase the congenital heart defect patient population and China’s continued economic development will drive the uptake of more pricey device-based procedures. This is interesting considering there are Chinese companies making these devices trying to get a foothold in Europe, where birthrates are declining. Looks like they may be better off just focusing on their home base.”

Xi takes a different view:

“It is tough to gauge the impact of the two-child policy on the medical device market. The low birthrate is not just a result of the one-child policy; much of the world is experiencing birth declines. Macau and Hong Kong, which are unaffected by the one-child policy, actually have lower birthrates than China. It is the cost associated with having more than one child that is holding everyone back. In addition, more and more Chinese people are preferring late marriages, shortening the childbearing window. The general trend towards an aging society will most likely continue. The medical device industry has already caught onto this and has been actively investing on treatment solutions for the elderly, particularly in the rapidly expanding orthopedics and cardiovascular markets. That is not to say that a small baby boom is not going to happen. Considering China's massive population, even if only 1% of families decide to have a second child in the coming year, this would be equivalent to the population of Toronto (or Jamaica). However, the two-child policy’s biggest impact will be an increase in girls being born. Abortion may no longer be needed as a way to ensure the family lineage continues if the first child is a girl. The correction of the gender imbalance is huge for the gynecological market in the long term.”

Manya, explains the impact on women’s health markets further:

“Permanent forms of contraception such as female sterilization were very popular with Chinese women during the days of the one-child policy. I expect that moving to a two-child policy will likely change this situation. Women are going to push sterilization procedures out further into the future or may reconsider having them altogether. Since it will no longer be deemed a legal offence to have more than one child, there is less of an incentive to undergo permanent sterilization. As the new policy takes shape, I see Chinese women adopting alternative contraception methods such as IUDs and birth control pills to a larger extent than they do currently. Therefore, I expect the female sterilization device market in China to trend downwards over the next 5 to 10 years.”

What’s your take on all of this?

Written by Jason Lau, Erik J. Bracciodieta, Xi Chen, and Manya Aggarwal

Follow Jason, Erik, Xi, and Manya on Twitter at @JLauDRG, @ErikB_DRG, @XChenDRG, and @maggarwalDRG for additional medtech market insights.

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