China Country Profile

Market Overview:

Euromonitor reports that China continues its transition from an export-led economy to one driven by consumption. The government is negotiating a difficult transition from a growth model based on construction and heavy industry to one which places greater reliance on consumption and services. Though the pace of rebalancing has been slower than expected, there has been some success. Consumption has accounted for around 70% of growth in recent years.

Private final consumption will be the main driver. Both private investment and public investment in infrastructure also provide support while exports will see modest gains. A credit crisis (possibly due excessive credit tightening by the government) is a downside risk. The threat of new protectionist measures is another concern.

  • Beijing should continue with its managed deceleration of the economy - Growth of real GDP will slow to 6.3% in 2018 after gains of 6.8% in 2017
  • The real value of private final consumption rose by 7.4% in 2017 - In 2018, growth of 7.3% is expected
  • Unemployment in 2017 was 3.7% and it will rise to 3.8% in 2018 - Firms’ efforts to retain workers have become increasingly elaborate as demographic changes such as “the one-child policy” and the slowdown in rural-to-urban migration make staffing harder
  • Although the 13th Five-Year Plan sets a growth target of 6.5% for 2016–2020, rates of growth in real GDP are expected to slip to about 5% per year by 2025.

Structural changes in China’s economy are gradually dividing companies into two distinct groups. The old industrial base made up of firms focused on energy, materials and most manufacturers. Alongside this group a “new economy” is propelled by technology, the internet and the consumer choices of millions of upwardly mobile consumers – most of them born since 1980. This group tends to be tech-savvy, environmentally aware and health conscious and their purchases drive the “new economy” which includes firms in sectors such as consumer, healthcare and IT. To support the “new economy”, China has announced a “Made in China” plan to dominate the production of semiconductors, artificial intelligence, biotechnology and other high-tech industries.

In 2017, China’s population was almost 1.4 billion – an increase of almost 125 million since 2000. Population, however, is growing at a decelerating pace. China is ageing at a rapid pace. In 2017, the median age was 37.9 years – 7.6 years greater than the figure for 2000 – and it will be 41.9 years by 2030 (well above the regional average). In 2017, the number of Chinese over 65 years totaled 148 million. This figure represented 10.7% of total population. In 2030, a projected 16.9% of all Chinese (almost 247 million) will be over 65 years.

In 2017, U.S. exports of consumer oriented food products to China increased 12% to US$2.4 billion. China remains the 6th largest market for consumer ready food products from the U.S. China also remains the 5th largest market for the export of U.S. processed foods, totaling nearly US$1.9 billion in 2017, an increase of 10% from the prior year.

Top processed food products exported to China in 2017 included:

  • Processed/prepared dairy products
  • Prepared/preserved seafood
  • Food preparations
  • Prepared/preserved meats
  • Processed fruit
  • Vegetables and pulses
  • Beer and wine
  • Syrups and sweeteners
  • Fats and oils

USDA’s Agricultural Trade Office (ATO) in Guangzhou hereinafter referred to as “Post” reports that China’s expanding economy, rising disposable incomes and urbanization are driving robust demand for imported food and beverage products. China Customs data indicates that domestic demand for imported consumer-oriented agricultural products in 2017 was set to reach a record high with imports through November already at US$34 billion.

Chinese Customs year-to-date data (through November) indicates the U.S. will likely again be China’s top supplier of total agricultural, fishery, and forestry products in 2017, ahead of Brazil and Australia respectively. In terms of consumer-oriented agricultural products, the United States placed 2nd behind New Zealand. With U.S. beef regaining market access in June 2017, U.S. consumer-oriented food and beverage product sales to China are expected to continue to be strong in 2018. Additionally, the Chinese government announced on December 1, 2017, a tariff reduction on several food and beverage categories.

The U.S. has some competitive advantages in supplying food products to the Chinese market, including:

  • Extensive USDA resources in China, including five U.S. Agricultural Trade Offices and more than 30 USDA Cooperators with local representation
  • China’s increasing purchasing power allows a growing number of urban consumers, including those outside 1st tier cities, to afford imported goods
  • Logistics and infrastructure development in emerging market cities connects more consumers with international products
  • Continued urbanization will increase the number of consumers with access to imported food and beverage products
  • China’s food safety scandals in recent years allow imported foods to carry a premium price tag
  • Market analysts report that products made in the United States are trusted and deemed higher quality by Chinese consumers
  • Chinese consumers, especially the younger generation, actively seek out international experiences and products
  • China’s online retail sector has opened channels for imported products to further penetrate emerging market regions of the country where many international products are not available in brick-and-mortar stores
  • China’s cold storage capacity and logistics have grown significantly in recent years

Challenges for U.S. suppliers of food products to China include:

  • Aspiring U.S. exporters frequently lack an understanding of how to enter the Chinese market and do business under Chinese business culture
  • China’s decelerating economic growth could restrain future food and agricultural import demand
  • Many Chinese consumers remain price sensitive. Note: China’s 80th percentile of annual per capita urban disposable income is still less than US$10,000
  • Trade agreements between China and other exporting countries put many U.S. products at a disadvantage in the Chinese market and draw Chinese buyer attention away from the United States
  • Current market access barriers preclude some U.S. products from gaining entry
  • China’s “One Belt, One Road” initiative prioritizes closer trade with Europe and Asia
  • Retail contacts indicate China’s cold chain infrastructure still has a number of breaks and geographic limitations

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in China had been estimated to reach US$231.6 billion in 2017. That represents a growth rate of 24.2% or US$45.1 billion since 2013. The forecast for growth in this market is outstanding. By the year 2022, the retail sales in the packaged food market in China is expected to reach US$325.3 billion, a growth rate of 32.2% or US$79.2 billion. High growth categories in the forecast include:

  • Baked goods
  • Processed fruit and vegetables
  • Baby food
  • Breakfast cereals
  • Sauces dressings and condiments
  • Savory snacks
  • Dairy products
  • Confectionery
  • Spreads
  • Rice pasta and noodles

National Perspective:

Post reports that China’s retail sector is the primary method in which U.S. exporters can reach consumers in China. Rapid urbanization and a growing middle class are driving China’s retail sales to record levels. China’s younger generations have become accustomed to imported food products being available in major cities. Imported products are perceived to be high quality, safe, and are still considered luxury items for many Chinese. In 2016, total retail sales of consumer goods reached US$4.98 trillion, up 10.4% from 2015. In the same year, food consumption averaged 30% for China’s annual urban household expenditures.

In recent years, large retailers are gaining market share as they are able to realize greater efficiencies through better supply chains and wider distribution channels. Large retailers have the resources to source directly from domestic and international suppliers thereby allowing them to realize greater profits and have more control over the quality and genuineness of products. However, many different retail business models have emerged recently. Smaller convenience and specialty e-commerce stores are two exciting retail models.

Foreign retailers continue to be successful in China; however growth rates for some major chains slowed or decreased in 2016. In general, traditional retailers are transitioning to include an online component to their business. The era of traditional standalone retail stores is being phased out. Offline (i.e., no online offering) food retailers include hypermarkets, supermarkets, specialty stores, discount stores, community stores, and conveniences stores. Online food retailers, such as fruitday.com or chunbo.com, are two examples of specialty retailers that provide food products online and deliver the items to the consumer.

Post reports that popular products with a strong presence in the market include:

  • Tree nuts and dried fruit (prunes, raisins)
  • Seafood (especially live seafood, including lobster and geoduck)
  • Pork
  • Vegetables (especially sweet corn)
  • Infant formula
  • Dairy products (cheese and butter)
  • Baking ingredients and bread bases
  • Cereals
  • Fresh fruit (oranges, apples, especially cherries)
  • Premium ice cream;
  • Wine and spirits.

Regional Overview: Multiple Post Reports on Top Municipality/Province Focus

South China: Post’s (ATO Guangzhou’s) South China regional coverage includes the provinces of Guangdong, Fujian, Hunan, Guangxi and Hainan. ATO Guangzhou’s South China region includes the provinces of Guangdong, Fujian, Hunan, Guangxi and Hainan. This area has a population of 274 million, an estimated per capita GDP of $8,500, and accounts for roughly 32% of China’s consumer oriented food and beverage imports (according to Chinese Customs data). As the primary manufacturing hub, this relatively affluent region has a dynamic economy. It has two first-tier cities (Guangzhou and Shenzhen) and several rapidly expanding second- and third-tier city markets (e.g. Dongguan, Zhuhai, Xiamen, etc.). Travel times to other major international trading hubs are diminishing with high-speed rail upgrades between Guangzhou and Hong Kong.

Guangdong: This province contains the two first-tier cities of Guangzhou and Shenzhen, and has a population of 109 million. Guangdong is South China’s key market for consumers. According to the Chinese Bureau of Statistics, Guangdong’s GDP reached US$1.24 trillion in 2016, an increase of 7.8% from the previous year. Consumer goods sales in 2016 reached US$535 billion, an increase of 10.2% from the previous year. Leading retail chains in Guangdong include Wal-Mart and China Resource Vanguard. Specialty chains like Corner’s Deli (grocery) and Pagoda (fresh fruits) are also prominent. Several second- and third-tier cities in the Pearl River Delta region such as Zhuhai, Zhongshan, and Jiangmen are important emerging retail markets. Guangdong Yihua Group is a leading domestic retailer based in Zhongshan, and has started to gain significant market share in the region.

North China: Post (ATO Beijing) reports that the North China region consists of Hebei, Henan, Gansu, Shandong, Shanxi, Shannxi, and Qinghai Provinces, Beijing and Tianjin Municipalities, and Ningxia, Inner Mongolia and Xinjiang Autonomous Regions. The total population in the region is over 490 million. It accounts for 34% of China’s population. The major sea ports in North China region are Tianjin and Qingdao.

Beijing: The key international hypermarket operators such as, Carrefour, Wal-Mart, Jusco, Ito-Yokado, RT-Mart and Metro, are all established in Beijing. Beijing’s retail market is near saturation, and it is increasingly difficult to find downtown store locations given rising property and rental prices. Retail industry growth has slowed along with the Chinese economy. For example, BHG closed two outlets, Wu-Mart closed its first membership store, and Charter closed its one supermarket in 2016. Beijing is one of the most dynamic cities for e-commerce, contributing 20% of retail consumer good sales. The headquarters of JD.com, Amazon.cn, and Womai.com are based in Beijing. Alibaba Group opened its first offline store HeMa Fresh in Beijing in 2017. JD.com, Chunbo.com, and Miss Fresh offer two-hour express delivery in downtown areas.

East China: Post (ATO Shanghai) reports that East China is well known for its retail sector, and is a national leader in e-commerce, convenience store outlets, specialty stores, supermarkets, and wholesale markets. The East China region includes one municipality and five provinces along the Yangtze River (Shanghai, Jiangsu Province, Zhejiang Province, Anhui Province, Jiangxi Province and Hubei Province). As China’s business center, companies have invested in the region’s food distribution and food storage capabilities to supply its 323 million people.

Shanghai: Shanghai’s retail sector has become increasingly saturated. It is home to many supermarkets, hypermarkets, specialty stores, and convenience stores headquarters. Supermarkets remain the dominant retail format. According to CBNweekly’s 2016 China Import Food Report, major imported food products include snacks, dairy products, beverages, health food supplements, condiments, and coffee/tea. Traditional markets, such as wet markets, grocery stores and fruit booths, have a wide presence in Shanghai but are losing their dominance. The low food safety standards associated with such retailers have resulted in the market shifting to online and/or high-end offline retailers, especially for the younger generation. In 2013, the Chinese government established the Shanghai Pilot Free Trade Zone (FTZ). This designation led to key government reforms and private business innovation in investment, foreign trade, finance, and the legal framework necessary to conduct trade within the FTZ.

Southwest China: Post (ATO Chengdu) reports that the Southwest region consists of Sichuan, Yunnan, and Guizhou Provinces, the Chongqing Municipality, and the Tibet Autonomous Region. Southwest China’s major urban centers are Chengdu, Chongqing, Kunming, and Guiyang. These second-tier cities offer reasonable access to imported food products, and serve as distribution hubs for imported products to their respective provinces.

Chengdu: Chengdu is the wealthiest and most advanced city in Southwest China. It is a key part of the China’s One Belt One Road initiative. Upscale department stores, supermarkets, and hypermarkets offer the highest concentrations of imported products. Upscale department stores in the city include Ito-Yokado, Isetan, Renhe Spring, and Wang Fu Jing. High-end supermarkets include Ole’. Other hypermarkets and supermarkets such as Wal-Mart, Beijing Hualian Group (BHG) have considerably less selection. In 2017, Fresh HeMa (Alibaba’s new online-offline new retail approach) will open its first store in Chengdu. Yonghui will also launch “Super Species” a smaller-sized supermarket meant to compete with e-commerce. The 800 square meter store targets middle class consumers who like to combine shopping and dining. Chengdu-based convenience store chains Hongqi, Owo, and Wudongfeng have a major presence and are expanding business to surrounding areas.

Northeast China: Post (ATO Shenyang) reports that Northeast China, called Dongbei in Chinese, includes the three provinces of Liaoning, Jilin and Heilongjiang. The three provincial capitals are Shenyang, Changchun and Harbin. Each provincial capital is home to seven to 10 million residents. Dongbei is home to 110 million people and has 30 more cities with populations of over one million. Northeast China has a land area of 780,000 square kilometers and is roughly the size of Pakistan. The port city of Dalian is the wealthiest city in Northeast China. In 2016, it had six million people and per capita income of over $14,000.

Shenyang: Shenyang’s retail market is concentrated in the traditional downtown shopping areas of Taiyuan and Zhongjie Streets. Shenyang’s shopping mall construction grew dramatically since 2007, with many constructed along the Golden Corridor of Qingnian Boulevard, especially in the Wulihe area, and new districts like Hunnan in southern Shenyang. Sales in these areas have been growing rapidly, increasing on average by 10% per year over the past five years. A number of international chains set up supermarkets in many of the city’s major retail areas. Carrefour opened its first store in Shenyang in 1999 and now has 12 stores in Shenyang. Wal-Mart operates four stores and Metro operates two. Lotte Mart opened its first store in 2011, and a second one in 2013.

Olé opened its first store in 2011 in Mix-C, one of Shenyang’s most prominent shopping malls. China Resources opened its second Olé Supermarket in the Forum 66 Shopping Mall in 2012. Olé focuses on imports, with more than half its shelf space dedicated to foreign products with the remainder dedicated to premium domestic products. In 2013, Vanguard set up a dedicated imported product area in one of its stores in Shenyang. The dedicated area targets consumers with higher disposable income and a desire for imported foods. YooHoo is a local high-end supermarket that opened in 2010, and is one of the largest high-end supermarkets in Northeast China with over 7,000 square meters of floor space.

Food Service Sector:

Euromonitor reports that owing to a slowdown in the domestic economy and weakened consumer confidence, consumer food service decelerated in terms of outlet, transaction and value sales growth in 2016, compared with rates in 2015 when the market showed signs of recovering from the strict anti-corruption campaign in 2013 and 2014. However, overall growth remained strong, thanks to the rigid market demand for food service, driven by the faster lifestyles and rising household incomes.


Convenience And Lifestyle Consumption Are The Major Growth Engines:
With the mounting pressures of life and work, more consumers have reduced their cooking time in favor of relaxation; as such, 100% home delivery/takeaway flourished in 2016, leading to double-digit growth in outlets, transactions and value sales, albeit from its relatively small base. On the other hand, specialist coffee shops, where young consumers love to hang out and meet friends, also recorded buoyant growth rates, showing a rising market demand for lifestyle consumption in China.

Food service Seeks New Growth Engines in Various Ways: Amid increasingly fierce market competition, consumer food service operators have adopted various approaches to seeking new growth engines. Starbucks Corp accelerated its outlet expansion by opening new stores in lower-tier cities in 2016, while McDonald’s China Development Co Ltd sold its local franchise for a period of 20 years for US$2 billion, to speed up its growth in the domestic market. To cater to consumers’ changing needs, besides themed stores, KFC introduced its first Original+ concept outlet in Shanghai in 2016, with digitalized menus, interaction with a robot for customer service and food delivered to the table by a drone.

The Advent of New Players Spices up The Market: Local consumers’ changing food demands give rise to the frequent advent of new players in the market. KFC launched its Latin American food brand Taco Bell in Shanghai in late 2016, winning good ratings on www.dianping.com. Fast food brand Burger King premiered its freshly brewed King Coffee in 2017, jumping on the freshly brewed coffee bandwagon in China. Prior to this, in 2015, KFC introduced its own freshly brewed coffee. Consumers are being presented with more choices of freshly brewed coffee, at more affordable prices, at fast food outlets.

The Convenience Trend Drives Robust Growth In 100% Home Delivery/Takeaway As Well As the Increasingly Popular Mobile Payment Method: With lifestyles becoming faster, especially among urban dwellers, the convenience trend has taken shape in the consumer food service market. It gave rise to the robust growth of 100% home delivery/takeaway in outlet number, transactions and value sales in 2016. Meanwhile, mobile payment methods are increasingly popular, thanks to the rising ownership of smartphones and the introduction of various mobile payment modes, such as WeChat Pay and Alipay. In addition, KFC introduced Apple Pay in March 2016, to enrich customers’ choice of mobile payment.

Post reported that interviews with Hotel Restaurant Institutional HRI food service professionals repeatedly confirm that U.S. food exporters should select top quality products for export to China. U.S. foods benefit from expectations of high quality, attractive appearance, convenient package and food safety. On the other hand, it is difficult for most U.S. food products to compete with Chinese domestic products on price, particularly for those foods in demand by the HRI market. Instead, suppliers should consider targeting niche as well as regional markets with top-quality products that are unique, healthy, and nutritious.

The secondary stage of processing has had a huge impact on HRI sector sales. Such goods for example as:

  • Sliced meats,
  • Prepared chicken
  • Ready-to-use and value-added products
  • Ready-made
  • Pre-cooked and
  • Portion-controlled

Products that fit into these categories include sauces, soups, pizzas, vegetables, fish fillets, meat and meat products, and frozen dough.

Food-Processing Sector:

Post previously reported that the slowing economic expansion has taken a toll on many industries, including the food processing and manufacturing sector which experienced overall revenue growth of only 4% in 2015 (compared to 8% in 2014). According to analysts, the food processing sector is also undergoing a period of consolidation where regionalized businesses are increasingly losing market share to larger food processing companies that have better access to investment capital and modern technology.

Despite slowing revenue growth and consolidation, a number of national trends are supporting the sector as whole, including:

  • Continued rise of disposable incomes, urbanization, and growing consumer demand for convenient, high-quality processed food options
  • As a result, imported food ingredients are increasingly in demand by domestic processors
  • As more and more of the Chinese population of nearly 1.4 billion flocks to urban areas where consumers require packaged foods, the country’s food processing industry is likely to continue expanding for the next several years.

In order to improve food safety after a series of scandals rocked the industry in recent years, Chinese regulators have recently implemented stricter policies for food companies. An example of this was in 2013 when regulators reviewed all baby formula manufacturers in the country and reissued production permits to those who passed a revised examination. The number of baby formula manufacturers shrank over the next three years from over 600 to 103 by 2016. This action supported increased imports of food ingredients because the larger, more modern enterprises that could adhere to stricter safety policies tended to more frequently utilize high-quality imported ingredients.

Urbanization, a key driving force: Moving to the cities has allowed the population access to a far greater range of products (especially processed products) and has also resulted in a shift away from staple food consumption. This dramatic change in living environment has caused the traditional preference for fresh food and wet markets to give way to a preference for more convenient foods and supermarkets, which has had profound implications for China’s demand for processed foods.

Most processed food products and beverages are distributed through hypermarkets/ supermarkets and convenience stores. Major international retail giants (AEON, ParkNshop, TASTE, RT-Mart, Metro, Carrefour, Wal-Mart, and Lotus) are present in most of China’s 1st, 2nd and even 3rd-tier cities. Chinese nationwide and regional retail chains have also continued to grow and develop. Convenience stores such as Kedi, 7-11, OK Mart and Family Mart have emerged as a strong platform targeting the younger generation with ready-to-eat meals, packaged snack foods and beverages.

E-commerce has also become an important channel for packaged foods and beverages with online retail sales in 2015 reaching US$183 billion and accounting for 18% of total traditional retail sales. Major platforms, such as T-mall, JD.com and VIP.com, generate over 80% of the total online sales in China.

The rising labor costs and shortages have caused some of the larger manufacturers to reduce their footprint and a great number of small plants to shut down. Many large-scale Chinese food processors are actively looking for acquisitions overseas in order to gain direct access to high-quality raw materials. Some leading Chinese dairy companies have also started manufacturing their own branded products in plants overseas, catering to consumers’ stronger confidence in imported dairy products.

Best Product Prospects:

Post advises that generally speaking, prospects of products are determined by a couple of factors: A combination of product uniqueness, comparative price advantage, thriving degree of sub food sector, and marketing efforts are the most decisive ones and would largely determine if a product would have a good prospect in China.

Based on those assumptions what fits into the matrix are:

  • almonds
  • walnuts (including black variety)
  • meats (pork) and by products
  • poultry and by products
  • surimi and seafood wastes
  • starch
  • fruits
  • wheat flour

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