China Country Profile

Market Overview:

Euromonitor reports that Beijing’s managed deceleration of the economy continues. Growth of real GDP will slow to 6.1% in 2019 after gains of 6.6% in 2018. New tax and credit policies, together with stronger consumer confidence will stimulate consumer spending, while public and private investment will be healthy. Headwinds to China’s economy will mostly be from external factors. Rates of growth in real GDP are expected to slip to about 5% per year by 2026.

  • Beijing has seen tangible progress in its bid to rebalance the economy towards domestic consumption. The real value of private final consumption rose by 7.4% in 2018. In 2019, growth of 7.3% is expected. Consumer spending is supported by a steady rise in wages and a cut in the value added tax (VAT) rate.
  • Unemployment in 2018 was 3.8% and it will rise to 3.9% in 2019. 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.
  • Real wages have been rising at an impressive pace since 2010. The increase is spurring the exodus of many manufacturers.

In May 2018, China and the U.S. opened a second round of high-level talks aimed at averting a trade war. Beijing officials indicated their willingness to reduce China’s trade surplus and played down their controversial “Made in China 2025” industrial policy. Despite these efforts at appeasement, Washington imposed three rounds of tariffs in 2018 on Chinese goods imported by the U.S. worth US$330 billion. 

China has also announced retaliatory duties on hundreds of food products imported from the U.S. including pork, fruit, nuts and wine of up to 25% as a response to the Trump administration’s tariffs on steel and aluminum imports. Beijing has also launched a legal challenge against Washington’s duties on numerous Chinese products. Leaders from both sides met for talks at the Group of 20 (G20) in late November 2018 and announced the latest round of tariffs would be suspended until early March 2019, unless an agreement could be reached in the meantime. In early March 2019 the talks were suspended until April at the earliest with no change in tariff application. 

In 2018, China’s population was almost 1.4 billion – an increase of over 130 million since 2000. Population, however, is growing at a decelerating pace. China is rapidly urbanizing. As recently as 1980, less than 20% of China’s population lived in cities but today more than half of all Chinese live in urban areas and up to 70% are expected to be urbanites by 2030. China is ageing at a rapid pace. In 2018, the number of Chinese over 65 years totaled 158 million. This figure represented 11.4% of total population. In 2030, a projected 17.4% of all Chinese (almost 248 million) will be over 65 years.

The U.S. Department of Agriculture (USDA) Foreign Agricultural Service (FAS) operates five Agricultural Trade Offices (ATOs) in China, hereinafter referred to as “Post”. Post Shanghai covers East China which is home to China’s most dynamic and innovative retail market. Shanghai remains the innovation hub for China’s retail sector, and tends to be the trend setter for China’s other large cities. Post Beijing covers the greater Beijing region and many of China’s western provinces. The Beijing retail market shares many characteristics with Shanghai, as both regions have growing numbers of consumers who purchase imported food products. Post Guangzhou covers South China. Guangzhou is a key distribution hub for imported fruit and fresh and processed products in China. Its proximity to Hong Kong and China’s southern manufacturing cities has led affluent consumers to seek imported food products. 

Post Chengdu covers Southwest China. Chengdu is Southwest China’s major city and plays a key role in the Chinese Government’s One Belt One Road economic initiative to extend trade with non-traditional trade partners in Central and South Asia. Post Shenyang covers the Northeast region. Northeast China is China’s major grain and heavy production region and has growing retail sector anchored in its port cities and inland transportation hubs. Demand for premium brands and fresh seafood is experiencing an upsurge in the region.

Post reports that China is a large, diverse, and competitive market for imported food products. They urge U.S. food suppliers to understand that while China is one country, it should not be considered one retail market. Over the past 10 years, China’s middle-class has grown larger and more diverse, and China has become a collection of niche markets separated by geography culture, cuisine, demographics, and local commercial trends. Competition for these markets has become fierce. Post recommends U.S. exporters to carefully conduct market research, identify market niches, and consider which geographical locations are best suited for their products.

Agricultural exports to China dropped 53% in 2018 ending at US$9.1 billion. This dropped them to 4th place in the rankings, having been passed by Japan who had growth of 8%. China had been the top market for a few years with a total export value of nearly $26 billion in 2012, so this decline was devastating, especially to U.S. farmers of oilseeds, pulses and grains. Many small and medium size exporters of dairy, seafood, fresh fruit and beer and wine also saw their markets shrink or disappear. To add perspective, the 5th ranked U.S. market for agricultural exports is South Korea who imported US$8.3 billion in 2018. That means that only US$800 million in exports separate Korea with a population of 51.4 million from China with a population of close to 1.4 billion. 

U.S. consumer-oriented foods exported to China dropped 3% to US$2.6 billion, still good enough for a ranking of 6th overall. China also remains the 5th largest market for the export of U.S. processed foods, totaling nearly US$1.9 billion in 2018, an increase of 5% from the prior year. Top processed food products exported to China in 2018 included:

  • Prepared/Preserved Seafood
  • Processed/Prepared Dairy Products
  • Prepared/Preserved Meats
  • Food Preparations
  • Vegetables and Pulses
  • Snack Foods
  • Processed Fruit
  • Syrups and Sweeteners
  • Beer and Wine 

Opportunities and Challenges for U.S. Food in the China Market

Opportunities in the Chinese food market include: 

  • Increasing disposable incomes and a focus on healthy eating - U.S. food has strong reputation for food safety.
  • With online shopping convenience large datasets allows retailers to quickly adapt to consumer preferences.
  • There is a lot of social media consumer awareness of U.S. food products.
  • There has been an increase in cold storage development and enhanced distribution networks into second-, third-, and fourth-tier cities.
  • This has also prompted growth in cross-border e-commerce.
  • There is increasing popularity of private labels and younger consumers are readily adapting to dining on the go.
  • There is greater curiosity about American regional cuisines, e.g., Tex-Mex, Cajun, and New England seafood and more cities are hosting more trade shows.

However markets this large and complex always come with a distinct set of challenges:

  • China’s overall (and potential) economic slowdown currently is causing a transition into a consumer-oriented society.
  • There is significant and increasing competition from other exporting countries at trade shows and exhibitions.
  • There are market access complexities which are currently led by the punitive tariffs on hundreds of U.S. food products and China also grants lower tariffs to many U.S. competitors.
  • Cultural differences make finding areas of common ground more difficult, including packaging size and labeling preferences which are different.
  • Most Chinese do not own or know how to use stoves and there is a general lack of U.S. brand awareness.
  • Logistics in third- and fourth tier cities still needs improvement, especially with products with shorter shelf life. 

The official Chinese currency is the renminbi, and the basic unit of renminbi is the yuan. It is abbreviated as either RMB or CNY, for "Chinese yuan. Currently the RMB is well undervalued, making U.S. products much more expensive. There is strict GMO labeling, organic registration and other labeling requirements, intellectual property (IP) protection is still weak for U.S. exporters and there is no bilateral organic equivalency agreement.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in China had been estimated to reach US$276.5 billion in 2018. That represents a growth rate of 22.8% or US$51.3 billion since 2014. The forecast for growth in this market is outstanding. By the year 2023, the retail sales in the packaged food market in China is expected to reach US$385.9 billion, a growth rate of 31% or US$91.3 billion. 

  • Baked goods
  • Baby food
  • Breakfast cereals
  • Processed fruit and vegetables
  • Sauces dressings and condiments
  • Rice pasta and noodles
  • Dairy products
  • Savory snacks
  • Ready meals
  • Processed meat and seafood

Post reports that China remains one of the most dynamic retail markets in the world and offers great opportunities for U.S. food exporters, especially if a trade war can be avoided and the punitive tariffs on U.S. foods are lifted. As indicated, imported food consumption growth is shifting from China’s major coastal metropolitan areas (e.g., Shanghai and Beijing) to the dozens of Second-and-Third Tier cities throughout China. China is experimenting with new retail models, such as 24-hour unstaffed convenience stores and expanded mobile payment platforms. E-commerce sales continue to grow, but major e-commerce retailers are competing for shrinking numbers of new consumers.

Nearly all hypermarkets and supermarkets sell imported food products. In 2016, the leading retailers include China Resources Vanguard, RT-Mart, Wal-Mart, Lianhua, Carrefour, Yonghui, Bubugao, Wumart, Metro, and AEON China. High-end chains include Olé, BLT, Sam’s Club, Bravo, and BHG. Foreign chains such as Wal-Mart, Carrefour, and Metro are facing keen competition from leading domestic chains like China Resources Vanguard and Yonghui. Foreign chains are transitioning from the older, central hubs of major Eastern coastal cities to newly established suburban areas. However, the number of stores has remained nearly the same over the past year. In 2017, Alibaba took a US$2.9 billion stake in leading food retailer Sun Art Retail Group. Sun Art Retail Group operates 400 hypermarkets under the Auchan and RT-Mart brands. This investment will help Alibaba expand its offline business.

Best Prospects: 

Popular U.S. products with a strong presence in the market include:

  • Tree Nuts
  • Dried Fruit (Prunes, Raisins)
  • Seafood (Especially Live Seafood, Including Lobster, Crab And Geoduck)
  • Pork
  • Beef
  • Vegetables (Especially Sweet Corn And Baby Carrot)
  • Infant Formula
  • Dairy Products (Cheese And Butter),
  • Baking Ingredients And Bread Bases
  • Cereals
  • Fresh Fruit (Oranges, Apples, Especially Cherries)
  • Premium Ice Cream
  • Red 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:

Post reports that China’s Hotel, Restaurant, and Institutional (HRI) sectors recorded US$583 billion in sales revenue in 2017, a 10.7% increase from the previous year. Regional diversity greatly influences the consumption trends, yet food safety is of the greatest concern. U.S. agricultural products generally enjoy good reputation for their quality, safety, stable supply and consistency. While 2017 sub-sector figures still not available, in 2016, restaurants accounted for the largest share of the sector with US$352 billion in sales revenue, or approximately 65% of the HRI sector. Hotels accounted for US$109 billion and Institutional food service accounted for US$78 billion, approximately 20% and 15%, respectively.

China’s HRI sector is driven by many economic and cultural factors but the below are especially important to note:

  • An ever growing urbanization and the expansion of China’s middle class population is fueling the sales increase of the food service industry;
  • China’s HRI sector is highly fragmented and dominated by small-to-medium enterprises;
  • Regional diversity greatly influences the many cuisines and consumer consumption trends of China;
  • On average, imported food products are considered safer, of higher quality, and more consistent than domestic food products. However, this is rapidly changing as China develops/improves food safety standards and the domestic food industry matures;
  • Product food safety and traceability is rapidly becoming popular in China as consumers demand to know more about the food products they eat. Chinese consumers place great value in knowing the production methods, stories and history of the different brands of products they purchase;

The HRI sector is highly competitive in China’s Tier 1 cities (i.e., Shanghai, Beijing, Shenzhen, and Guangzhou) and is rapidly developing in Tier 2 and Tier 3 cities. Restaurants in China that serve international cuisines, which tend to be more expensive and offer an upscale ambiance, are more likely to use imported food products. U.S. exporters should strongly consider training food service chefs and staff on the proper preparation and presentation of the various U.S. food products when supplying any establishment in the HRI sector. While the HRI sector is developing, many food service professionals lack experience in using U.S. ingredients and other imported food products.

Partially spurred by major international events, conferences and trade shows, many internationally-owned or managed hotel groups are rapidly expanding operations in China. Although most international hotel chains are located in first tier markets such as Shanghai, Beijing, Guangzhou, and Shenzhen, international hotels have also been aggressively expanding in second, third-tier cities and top tourism destinations.

On average, food service operations in hotels and resorts account for approximately 20% of the total hotel’s revenue. Unlike in many Western countries, restaurants in hotels are not necessarily visited by only lodging guests; rather they are frequently visited by outside guests. Generally speaking, restaurants in the hotels are considered to have superior quality and service. Hotels often purchase ingredients and food products through a centrally managed system. Imported food products are often preferred by international hotels because the hotels cater to a diverse clientele.

Geographically large and regionally diverse, China has very distinct local and regional food and flavor preferences. While restaurants serving local cuisines continue to dominate the market, western cuisines are becoming popular in Tier 1 cities. Restaurants serving western cuisines account for approximately 5% of the total HRI sector revenue. In general, ingredients for non-chained establishments are sourced from local retailers and markets.

Traditionally, institutional food service in China was primarily for hospitals, government offices, army, schools, and transportation (i.e., train, flights). However, as China slowly transitions into a services economy, institutional food service has expanded into office complexes. The majority of institutional food service providers are small in scale. International institutional catering groups take only a small share in the market. 

According to the China Catering Association, the institutional food service sector reached US$78 billion in revenue in 2016, or 15% of revenue of the entire HRI industry. However, the institutional food service sector is facing many challenges, such as lack of known brands and unstandardized operational standards, food safety control and management measures, and logistical procedures. Due to extreme price sensitivity within much of the sector, the catering market has yet to use a meaningful level of imported food and beverage products. However, with increasing wealth, high-end office complexes and private companies, institutional food service could be a future market for imported food ingredients.

Best Prospects: 

Post reports that interviews with 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 and consistent quality, attractive appearance, convenient packaging and food safety. Post has consistently found that it is difficult for most U.S. food products to compete with Chinese domestic products on price in the HRI market. Instead, suppliers should target niche as well as regional markets.

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:

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.

Laborers across the country are demanding higher pay, better working conditions and better benefits. The new generation of small-town, migrant workers do not want to relocate to coastal cities but would rather find employment closer to home. As a result, many factories are now being built in underdeveloped inland 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.

Multiple large processors, manufacturers and e-commerce platforms are now motivated to directly source products from exporting countries to reduce costs. According to market analysts, several major hypermarkets and supermarkets in first-tier cities are currently directly sourcing up to 30% of their fresh fruit from outside the country. By doing so, retailers are able to both enhance traceability of the products purchased and reduce costs by 20%-30%. Some large e-commerce platforms are also directly sourcing products (especially fresh fruit) from outside of China.

Best 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 And
  • Wheat Flour

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