(Yicai) July 11 -- The much-anticipated Year of the Dragon is giving no respite to China's struggling infant formula companies.

After the "most difficult" year in history last year, manufacturers of baby formula have only discovered the first half of this year equally challenging despite signs of a rise in new births during the year of the auspicious Chinese zodiac sign, Yicai learned.

No official 2024 data is out yet but reports point to a rebound in family planning. Since January, all the beds in the obstetrics department of the Kunming City Maternal and Child Health Hospital have basically been occupied, Song Ying, director of the department, said to Yicai in April. Nanjing and several cities in Shandong province reportedly have similar situations.

Some say sales are recovering. Huiyuanbang, a service provider in maternal and baby products, said that surveyed stores boosted sales by 5 percent in the first quarter from a year ago.

A small-molecule infant formula brand under Bright Dairy & Food used to have a sales ratio of 2:3:5 between stage-one, two, and three baby formulas but some regions record a narrowing gap between the share of stage-one and two products, a company representative said, adding that already in March he could notice changes caused by an increase in new births.

Price Wars

However, in the second quarter, the competition became increasingly intense. Zhang Chen, a long-term baby milk distributor from Weihai in Shandong province, said to Yicai that he has been unprofitable for two straight months. Despite last year's challenges, the company was still able to make a profit but the quarter that ended last month was even more difficult, he added.

Other data point to a slump in sales. Offline sales of maternal and child products decreased by 11 percent in May year-on-year, according to NielsenIQ.

The market is filled by nearly similar products so naturally, the most common method for manufacturers to compete is price wars, Yicai learned through store visits.

The market is grappling with severe overcapacity, said Song Liang, an independent dairy industry analyst. The intense competition should continue in the second half and it will be difficult to achieve a balance between supply and demand in the short term, Song added.

Dairy companies are turning their attention to international markets to revitalize cash flows.

For example, China Feihe has obtained its license overseas to produce baby formula in Canada, eyeing other markets such as the United States, Canada, and Mexico, Chairman Leng Youbin said, adding that several markets with high birth rates such as Southeast Asia, the Middle East, and South America, do not have local infant formula brands.

Editor: Emmi Laine