The list of fixed monthly spending on 10 month-old baby Momo in Beijing at the end of 2009 comprised the following: Rmb250 on disposable diapers, Rmb200 on branded food supplements (including Gerber`s products), Rmb200 on toys and Rmb100 on clothing. Various children's toys Toys launched in the New Year The list didn't include the high-end Graco brand pram (at a cost of Rmb4,000), the baby swimming pool (priced at Rmb600) for enhancing the baby's lung capacity and the Rmb2,800 monthly salary for the child's nanny who has been with the family since the birth. "Children nowadays are virtually brought up by money," Momo's mother confessed. And Momo does not even belong to the most "extravagant" class. He's breast-fed, saving the family close to Rmb1,000 on imported milk formulas each month. Also, Momo isn't provided with Japanese Kao or GOO.N brand disposable diapers, unlike his middle class peers. These two brands have sold exceptionally well online on the Mainland in recent years, as parents believe that only expensive imported diapers can protect their babies' bottoms. In 2009 when Momo was born, 16 million new babies were born in China. Scholars believe that it is the fourth "baby boom" since the founding of "New China", and will last till 2015. Sociologists link the current baby goods economy to the typical family structure and the traditional high hopes on a child in a Chinese family. A typical family in the cities nowadays has a "4+2+1" structure, in other words four grandparents, two parents and the child, one which accounts considerably for the boom in the so-called baby goods economy. Promising profit margins The "baby boom" spells enormous opportunities in this market sector. The number of children aged up to six is close to 170 million. Among these, 70 million live in the cities. Figures from the National Bureau of Statistics show that spending outlays on an infant or child make up over 30% of a family's total expenditure in urban areas. Of this, food accounts for 50%, education 25% and clothing 5%. At the end of 2008, the babies' and kids' market was worth Rmb850 billion, which is expected to break the Rmb1 trillion mark by 2010. Babies' and kids' products are major sellers at supermarkets, while related chain stores have sprung up at first- and second-tier cities. B2C websites, such as Redbaby.com.cn and leyou.com targeting this market segment, have also reported good business. Product lines are also becoming further refined and new services and related products such as professional baby photography, pre-school education and baby preparations and bathtubs have emerged. Baby clothing, toys and daily-use textile products fetch around 30% of aggregate volume sales, while household products represent close to 40% of the total. Profits are mostly netted in the intermediate and sales processes, and only a thin margin, averaging between 5% and 10%, is available to manufacturers. Take the price of babies' and kids' products in a mid-range Beijing mall as an example. A branded clothing item retails at between Rmb100 and Rmb500, while a doll costs between Rmb50 and Rmb400, with a model toy priced at between Rmb150 and Rmb800. Production costs make up only one-fourth to one-fifth of these retail prices. Among all businesses, pre-school education has developed the fastest and fetches the highest returns. The three brand names of Gymboree, R.Y.B. Education Institution and BabyCare have together carved out an over 60% market share in large and medium sized cities. Tuition fees are high, reaching Rmb120 or above for a 45-minute class. Yet, enrolments are never lacking. Under-developed market spells ample opportunities While the babies' and kids' market has bright prospects, it is yet to be fully developed. The low-end market entry threshold has led to a mushrooming of small- and medium-sized enterprises, but those with great competitive strength and a good reputation are few and far between. Analysts note that three retail models operate in the market presently. The first consists of B2C enterprises which make use of online sales platforms and product catalogues to sell their products. The second is made up of enterprises running websites, together with product catalogues and chain stores, a model similar to traditional retail chains. The third model comprises community websites such as yaolan.com which are engaged mainly in information sharing and exchanges. While they have a great influence among consumers, their major revenue source is advertising and not product sales. The three current market leaders, Redbaby.com.cn, leyou.com and lijiababy.com.cn, now jointly take up less than 10% share in the market. In an Rmb500 billion market, there should at least be one leading enterprise with a turnover making up around 20% share of the market. The industry also lacks supervision and past crises have eroded consumers' confidence. The Sanlu baby formula incident in 2008 harmed the health of some 300,000 Mainland babies, dealing a severe blow to the domestic milk powder and baby food industry. The sector has yet to pick up again. Recently, the many recalls of unsafe China-made prams have further tarnished the image of domestic products. As a result, consumers have turned to more expensive imported goods including baby formula, milk bottles, diapers, prams, clothing and toys. Sales of local babies' and kids' products will have plenty of work to do if they are not to be totally undermined. Another problem is that domestic products are mostly copycats, and innovation is minimal. Close to 60% of product sales take place in the wholesale sector, and a great number of products are unbranded. Of the 40,000-plus enterprises in the industry, less than 1,000 have established their own brands. As to baby wear sold in major cities, such as Beijing and Shanghai, international brands outperform domestic ones for market share. Local enterprises often just compete by cutting costs, resulting in a vicious cycle of self-defeating price wars. Industry associations to enhance competitiveness To keep pace with market development, local industry associations are being formed. Zhejiang, an advanced manufacturing base, has pioneered the establishment of the first babies' and kids' products industry association. It aims to regulate the industry and better utilise resources in the production chain - and enhance the region's overall competitiveness. In July 2009, the Guangdong Provincial Light Industry Association also proposed lining up several dozen babies' and kids' products manufacturers to form the country's first provincial industry association. Preparation work is underway. Overall, the babies' and kids' products industry is in its infancy, with major transformations expected in two to three years. For enterprises entering the market with the right timing and positioning, the returns look promising. From special correspondent Zhong Xin, Beijing