An extra 1.5million babies were expected annually over the next 10 years with the relaxation of the one-child policy.
That population increase, coupled with ongoing household income growth, was expected to underpin both demand and prices, ASB's latest Farmshed Economics report said.
In the lucrative Chinese infant formula market alone, the two-child policy was estimated to generate a lift in demand by more than 10%.
Having extra mouths to feed helped ASB to reaffirm its long-run milk price forecast range of between $6.50 to $7.
The baby-boom was also positive for the demand outlook for other food exports like meat and horticulture, although Chinese income growth and changing preferences would remain the key income drivers, the report said.
Average annual births were likely to rise from 16.1million in 2005-15 to 18million in 2016-25.
The US Department of Agriculture's annual report on the dairy situation in China showed a very slight increase in milk production levels.
A major fact in the increase was improved genetics with a large number of live dairy cattle imported from Australia and, recently, Chile.
The report also expected milk prices in 2016 to remain weak, Prof William Bailey, from Western Illinois University, said.
As a consequence, consolidation was expected in milk production as smaller producers went out of business and were replaced by larger producers, a potentially significant change in the Chinese dairy landscape.
The report noted an interesting trend - increased imports, including home delivery, of fluid milk.
European exporters had benefited from the trend and US exporters, once Chinese import regulations were completed, would also enter the market, Prof Bailey said.
Futures pricing was pointing to a small improvement in this week's GlobalDairyTrade auction.
ASB, which has trimmed its milk price forecast by 40c to $4.60, said ''time was not on this season's milk price side''.
It was nearing the halfway point in terms of auction volumes sold, with a little over 40% of whole milk powder sold so far.
