The news? There are going to be more babies born in China over the foreseeable future. In a surprise and strategic move, the Communist Party of China decided it was time to increase its baby population and look towards the future of the country.
Under the country’s new plan, the one child policy will be modified to allow two children per family in cases where one of the parents came from a one-child family.
As I said, this is huge; it could be a critical turning point in the direction and growth of the Chinese economy. (Read “Time to Look at Chinese Stocks Again?”) While the change in population control may seem archaic to us here in America, in China, this is a major change that could impact the country for decades going forward.
Make no mistake about it, China is ambitious and wants to expand its economy more and become the biggest economy in the world. This will inevitably happen; it could even take less than the previously estimated 20 years, given the new baby policy along with the opening of some state-operated industries to private investment and foreign companies.
And while the Chinese government wants to make sure there are sufficient babies born to replace the aging population, a key objective of the change is to inevitably drive up domestic consumption in the Chinese economy in the decades ahead.
The Chinese economy will see rising demand for food, homes, apparel, household goods, and services, just to list a few of the likely perks. What this all means is that the country will need to import more raw materials and goods from foreign markets—and that includes the U.S., meaning America could see a boost in its economy as a result of China’s reforms.
American multinational companies operating in China or selling in the country will likely see a rise in demand for goods. In the short-term, for example, family staples companies like The Procter & Gamble Company (NYSE/PG) and Colgate-Palmolive Company (NYSE/CL) will see a rise in their sales in China. And with the expected rise in the demand for food, companies like Caterpillar Inc. (NYSE/CAT) will likely see more demand for agricultural equipment.
In the United States, we could see a rise in demand for many raw materials and grains, such as wheat, corn, soybeans, and canola, to feed the new population growth in China. Companies like Archer-Daniels-Midland Company (NYSE/ADM) could likely see higher demand out of China as a result.
Whatever the case, the expected new population boom in China can only be a positive for American business—and investors.