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Populations and Pre-school

Great Expectations
A long time ago in rural Thailand a friend of mine was surprised the fact that I did not yet have any children, already being over 25 years old. He was 24, and had three. I countered with the usual western reasoning that having kids is a big decision, one needs to have a good job, be married, etc. He could not understand this though, as no one in his village had a good job. I told him that I did not even know if and when I would have children, and in disbelief he then asked, “but who will carry your water?” This was meant literally, as the well was some distance from his hut, and up a hill.

I’ve never been asked this question in my years in China, but would not be surprised if some farmers out in China’s poorer provinces think the same way. Kids are a good source of chores, which includes water-carrying, and can provide support later in one’s life. Move closer to the Eastern Seaboard and larger cities, though, and I doubt that you will get meet with the same attitude. The fact is that in larger cities like Shanghai, or Nanjing or Ningbo children are now seen more of a net expense than value added.

There was an example of this recently, in an article in the Global Times on the one-child policy. This referred to a study done by a Professor Wu from Jiangsu x University, who recently conducted a large sample of interviews with parents throughout the province, regarding the number of children they are likely to have. The focus here was on families in cities, as farmers are allowed to have two or more children.  

The key finding by Professor Wu is that even if the one-child policy is lifted, many of these parents would not have another child because the cost of raising a child these days in China is just too expensive. This may seem like formulating results to support current government policy, but much of this analysis rings true, and should be explored. Jiangsu, with cities like Suzhou and Nanjing, is one of China’s richer provinces, so this cannot represent all of China, but is more representative than a Shanghai, whose per capita GDP is nearly 50% higher. And the trend is moving, faster than one may think, to less developed provinces and smaller cities, where are large portion of China’s urban population resides.

I think that we have to add one factor to this: it’s not the basic cost of raising a child, but what is expected- by parents, grandparents, and peer groups, coupled with inflation and expansive choices, that have driven these costs up remarkably in recent years. And what is expected is very much a matter of what social group or set one belongs to. If we are just talking basic costs- food, housing, basic healthcare, then costs have gone up somewhat but are still manageable for most. It is the additional factors that have been layered on top of these that make the difference. Basic costs can be calculated. The real question is: what is expected?

The short answer: a lot. To get a sense of this, go to the 6th Floor of the Times Square Pudong in Shanghai. There is Early MBA (Fast Track Kids, English), Baby Art, a Kids Photo Studio, and until recently a Gymboree. Baby Art, which teaches hands-on art, has programs upwards of 20,000 RMB per 12-18 months. At the photo studio, the top packages cost about this much- yes, 20,000 RMB for your child’s photos, styled and dressed up on various costumes. You may want to pass on the knight in armor costume for three year olds. With the exception of the Photo Studio, all have some sort of foreign origin, and all look busy, full of small kids and their parent (or often) grandparent minders. Such child development centers are now finding their way into a number of smaller Chinese cities.

Or travel a few kilometers up to the Carrefour at Big Thumb Plaza, and look at the shelves of infant formula. Each imported package costs about 200 RMB ($30), and a baby will consume about 4-6 packages per month. One doesn’t need an early MBA to add this up. However, given China’s recent scares in food products, including dairy and infant formula, a strong minority of urban Chinese mothers will now only buy imported infant formula, and only from a verifiable store or channel, to avoid counterfeit product. For this notable minority, imported infant formula, from an Abbot, Wyeth or Mead Johnson is now considered much more of an essential than an option, and is expected.

Or take pre-school, called kindergarten in China, though encompassing up to several years before first grade. Go back 10-12 years, and the practice of sending a three year old to pre-school was not typical, even in Shanghai or Beijing. Now it is very typical, and a wide range of pre-schools have sprung up to meet this need. At the lower end, many of these are sparsely supervised and have very high teacher turn-over, and questionable programs. And still these are not that cheap. At the higher-end, decent pre-school in Shanghai will cost upwards of 4,000 RMB (USD 600) per month and more.

Why is so much expected? As the number of children decreases, the expectations for each increases. As urbanization has increased (the government claims that China is now at around 50% urbanization, which will depend on how one defines urban), competition intensifies. At the same time, child development options become more available.

The scope of child development options in larger Chinese cities now is impressive, and growing: motor skills, artistic development, classes to develop EQ, more sports options, and the all pervasive English learning. More private schools are now on offer. University fees are still low, though sometimes much is invested to do well in the Gao Kao (national exam for university placement). Many parents will the above tools and many others to push and prepare their children for success.  

 

Two Families
Take two families- Mr. Liu and his wife and daughter in Jiangsu, and Mr. Zeng and his wife and two sons in Shanghai. Mr. Liu lives in Yangzhou, a city of about 5-6 mil population north of the Yangtze in Jiangsu Province. He has a decent job as a clothing trader, and owns his own apartment. Apartment prices in Yangzhou are about one half to one third the cost compared to Shanghai proper. His wife helps out with the business, and looks after their 3 year old daughter. Neither graduated from a university.

Mr. Zeng has two sons, ages 2 and 4. He is marketing director with a notable firm in Shanghai, and his wife until the birth of their second son was an engineer. Both are university graduates. They own their apartment, plus another also in Shanghai, and also own a car, and have a live-in maid. Neither the Liu or Zeng families can be called wealthy, though Mr. Zeng is certainly upper middle class, as are the neighbors in his apartment compound, which also houses a good number of expats. Mr. Liu is not poor- he does not have to worry about the basics, as his business is doing well, and he is even thinking about buying a second apartment.

Mr. Zeng and his wife are much up to speed on the various programs that could help their kids develop, and they take advantage of many of these: quality milk powder and supplements, lots of classes and trainings, educational vacations, the latest books and videos. The development of their kids not only command significant monetary resources, but also take a good amount of their time. In Mr. Liu’s case, he and his wife are just learning about what is available, and have begun to investigate developmental options for their daughter. They do not understand these options like Mr. Zeng and his wife do, though they are learning from various websites and friends. In fact an English school opened a few blocks away from them with real foreigner teachers. They will have a look, and maybe try a class.

Some of Mr. Liu’s friends have asked him about whether he might consider a second child. He and his wife have discussed this on occasion, though have no immediate plans. It depends to a good degree on how his business develops. Mr. Zeng has thought about having a third child, though less so than before. He has Canadian citizenship in addition to Chinese, so the government policy would not be the issue. However good Mr. Zeng’s job, though, finances are limited and kids are expensive. And if there was a third child then it would not be possible for his wife to go back to work.

These are not real families, but I’ve met many who are in similar situations. The point here is that for the Zeng and Liu families, and millions of other families like them, the choice to have a child, a second child, etc, is more complicated than it used to be, with new expectations and cost of these very much factoring in.

Have Another?

Many couples in China are who have the ability to have a second or third child, or even a first child, are thinking twice about this now. This is due in part to the factors one meets in more developed economies: careers taking longer to launch, later marriage, job demands. As well as those expectations…

So on a very anecdotal basis, as urbanization increases, family sizes are likely to significantly shrink. Families in poorer rural areas are still likely to be larger, as those water carriers are needed, while at the same time the wealthiest Chinese families can certainly afford these afore mentioned development expenses, and can either pay the fees associated with more than one child or get their children foreign passports.

So it’s a bit ironic that the groups in China likely to produce more children in the coming years, on average, are the poorer and wealthier of Chinese society. And the middle class? They will in many cases be squeezed by expectations, and Mead Johnson (which has a P/E ratio of 28- no wonder), and their local pre-schools, though lots of couples like Lius are working hard to move up to the next level and take their place with the Zengs. Baby Art awaits.

 

About GCiS China Strategic Research

GCiS (www.GCiS.com.cn) is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.


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