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Economy

Vietnam hopes third, fourth child will be the economic charm

Ending two-child policy could boost birthrate and spending

Most families in Vietnam have two children.

HANOI -- The Vietnamese government is expected to end its de facto two-child policy by the end of the year amid a population that is aging faster than expected. 

For the past 29 years, the government has encouraged families to have no more than two children. Even though the limitation was never as strict as China's, most couples have only two offspring. 

Earlier this month, however, the country's health ministry began showing a negative view toward the rule when it said couples should be able to decide how many children they want. The country's justice ministry later expressed support for the change. The government is now expected to officially eliminate the policy in 2017.

The move is expected to boost child-related consumption, especially among middle-class and wealthy citizens. Consumer spending accounts for 70% of the country's gross domestic product. Increased spending could help the country's economy grow at a faster pace. 

Vietnam is also hoping that grandparents will stimulate consumption, as the elderly tend to have higher savings rates than younger generations. 

There are no punitive measures for violation. But a total of some 20 million citizens in the public sector -- including the 4.5 million members of the Communist Party, as well as government officials and employees of state-owned enterprises -- have been prone to indirect penalties, such as not getting promotions or being relegated to lower-status jobs in smaller cities. 

More than 20 years ago, Nguyen Dang Vinh, a 59-year colonel in the Vietnam People's Air Force, and his wife had two daughters but they wanted a boy too. The year their third child was born, the colonel did not get promoted. He did not even receive the typical annual salary increase that year. 

If the new system encourages families to have more children, it will stimulate consumer spending and the economy. Greater spending on children has an impact on several sectors, from food to toys to education, and indirectly, the housing, automotive and insurance industries. 

Bigger family, bigger expenses

The country's toy market is currently worth an annual $5.2 billion and has been growing around 20% each year. According to a local private research agency, each family in urban areas spends on average 2 million dong ($88.6) a month on toys.

Foreign manufacturers are keen to tap that appetite. Japanese toymaker Tomy in 2010 opened three factories in the northern city of Hai Phong. Germany's Bullyland is planning to build a toy factory in Vietnam.

The country's largest property developer, Vingroup, plans to complete a large, urban development named Vinhomes Golden River in December this year. A major attraction of the complex is an education facility covering kindergarten to high school that will be run by the developer. 

Vingroup aims to provide a safe and reliable environment for raising children that meets the demands of the wealthy. The developer expects to sell 200,000 to 300,000 units of $30,000-class apartment condos during the five years through 2022, targeting the growing number of middle-class earners.

Vietnam's car industry will also benefit from the policy shift.

Following the launch of the ASEAN Economic Community in December 2015, Vietnam plans to entirely remove tariffs on trade within the Association of Southeast Asian Nations by 2018. So more cars will be imported, including affordable ones from Thailand. And growing families need bigger cars.

New car sales in Vietnam posted a record 304,400 units in 2016. Selling more family vehicles is seen as a key to expanding the market further.

A grandparent's love

Every grandparent loves grandchildren, and Vietnam is hoping the older generation will spend more on them. The country's elderly population, particularly those in the northern regions, is wealthy, with savings rates typically higher than those in other areas. 

Average life expectancy in Vietnam was 76.5 years in 2016 -- an increase by roughly 6 years compared to 2005 -- and it is common for three generations to live together. "I can't say no to my grandchildren when they ask me to buy something," said an 80-year-old woman in Hanoi.

The country's wealth gap is significant and widening -- roughly 60% of the 93 million population are farmers, who are often impoverished. "Even if we can have more children, we won't be able to afford to have that many," said a 27-year-old farmer who also works part time at a golf course.

Still, many in the middle and upper classes are looking forward to the policy change. They are key drivers of the economy and could boost the birthrate in conjunction with consumer spending. 

Vietnam's real GDP grew 6.2% in 2016. The pace was one of the highest among Southeast Asian economies, but it slowed for the first time in four years.

Vietnam has not been able to strengthen its domestic industry enough to continue powering the economy. Instead, it has relied on foreign trade, which is now facing challenges. The U.S. just announced its withdrawal from the Trans-Pacific Partnership free trade deal, and Samsung Electronics' unit in Vietnam -- a key manufacturing center for the South Korean company's smartphones -- took a hit when production and sales of the Galaxy Note 7 were terminated due to the smartphone catching fire. 

The arrival of even more newborns could significantly boost the economy. 

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