Voluntary Report - Public distribution

**Date:** 5/28/2008

**GAIN Report Number:** CH8403

CH8403

**China, Peoples Republic of**

**Market Development Reports**

**Shandong Snapshot**

**2008**

**Approved by:**

![](media/image1.wmf)LaVerne E. Brabant

ATOBEIJING

**Prepared by:**

Li, Xueqing

**Report Highlights:** Shandong Province, China's leading agricultural
production and export base has continued to enjoy significant and long
term growth over the last decade. With a population of more than 93
million, the Province provides enormous trade opportunities for the US
food and agricultural product export trade. The focus of this report is
an overview of the three major-fastest growing Emerging Cities of Jinan,
Yantai and Weihai after Qingdao.

Includes PSD Changes: No

Includes Trade Matrix: No

Trade Report

Beijing ATO \[CH4\]

\[CH\]

**Shandong: A Promising Market**

![](media/image2.png){width="3.4166666666666665in"
height="2.875in"}Shandong (literally East of the mountain) takes the
name from its location to the East of the Taihang Mountains on China's
East Coast in the lower Yellow River Valley (see map to the right). The
industrial base of Shandong includes oil extraction, food processing and
manufacturing, machinery, electric power generation, chemicals,
textiles, arts and crafts, etc. Industrial output is dominated by heavy
industry yet the province is a cradle for many national light industry
giants. Shandong is home to a number of famous local brands such as
Haier Electronics, Hisense Electronics, Tsingdao Beer, etc. The Province
ranks third, only behind Zhejiang and Jiangsu, in the number of "Chinese
Famous Brands.\" With rail a primary driver of the Province's huge
transportation network, its highway system is one of the most developed
in all of China with modern roads connecting all major areas of Shandong
Province with other major highways and arteries reaching every part of
China.

Major cities include Jinan, Qingdao, Yantai, Weihai and Rizhao with
Qingdao and Yantai the two largest port cities in Shandong. The 2008
Beijing Olympic Games water sports events will be held in Qingdao and
the city has been preparing with a makeover for several years running.
Shandong, rich in culture and history, as well as gifted with beautiful
landscapes and productive agriculture provides some of the best scenery
in China and is home to Mount Tai, Laoshan Mountain, Jiaodong Peninsular
Coast, Confucius Family Mansion, and Confucius's Woods and Temple in
Qufu. Traditional specialties include clocks and watches from Yantai,
porcelain of Zibo, Weifang Kites, and Qingdao shell-carvings as well as
Qingdao Beer!

Economic growth in Shandong slowed slightly in 2006, but the Province
remains one of China\'s fastest growing regional economies. GDP growth
for 2006 was about 14.7%, down from 15.2% reported for 2005. Shandong
appears to be maintaining growth momentum, and recent growth rates
remain above the reported 13.2% average between 2001 and 2005. Shandong
has consistently outperformed the Chinese Economy since the advent of
economic reform in the late 1970s, with double-digit rates of annual
output growth from its secondary and tertiary industrial sectors leading
the way. Foreign Direct Investment (FDI) in Shandong is the third
highest in China and post rates Shandong's long term growth as highly
positive.

Shandong is one of the largest consumer markets among all of China's
provinces. Retail sales increases of 17.6% for the first 10 months of
2007 and a whopping 19.8% increase in revenues was reported in
Shandong's HRI sector benefiting from tourism related spending. Strong
consumer income gains in Shandong have helped spur higher levels of
consumer spending with spending averaging well above the national rate
over the past few years. Post believes these spending levels will be
maintained through 2008 based on a number of factors related to Foreign
Direct Investment as well as the upcoming Olympics preparations.

This report focuses on the three major areas or cities of Shandong
Province after Qingdao which include: Jinan (provincial capital), Yantai
(Shandong's second largest port), and the historically rich costal city
of Weihai. For additional information on Qingdao, please refer to:
Qingdao Emerging City Market Report CH 6414 available online at:
[www.fas.usda.gov](http://www.fas.usda.gov/)

*Jinan*

![](media/image3.jpeg){width="1.625in" height="1.25in"}Jinan, capital of
Shandong Province on China\'s East coast, is the provincial political,
economic and cultural center. Nearby to the south is Mount Tai,
officially recognized by the United Nations as a World Heritage Site. To
the North is the Yellow River, which is called the \"Cradle of the
Chinese Nation". Thanks to its long history, Jinan has been designated
by the State Council as a famous historical and cultural city and boasts
a number of natural springs amid picturesque scenery and is known as the
\"City of Springs.\" (See photo to the right which shows the famous
Baotu Spring in Jinan)

Jinan is a major transportation pivot for North China located in the
western part of central Shandong Province at the juncture of the
Beijing-Shanghai and Qingdao-Jinan railways. The Qingdao-Jinan
expressway shortened the distance considerably between the two cities to
the current 4 hour drive. Leading industries in Jinan are machinery,
textiles, iron and steel, chemical and food processing. Jinan is also an
important wholesale distribution center in Shandong with 206 wholesale
and 343 agricultural product markets operating there.

*Yantai*

Yantai, with a population of 6.35 million plus, is located on the East
tip of Shandong bordering the yellow Sea and Bohai Bay. The city lies
directly across the sea from Korea and Japan with Yantai having become
China's new gateway to the Northeast. The area integrates both regional
and national air, land and sea transportation networks. Ranked as the
12^th^ largest port in China, the government has plans to develop the
region more given its strategic position. Based on plans released by the
Ministry of Communication and National Development & Reform Commission,
development of the Bohai Bay Area into a metropolitan coastal port hub
will rival the Yangzi and Pearl River Deltas as early as 2010. The plan
is to integrate Yantai's development as a container pivot with expanded
operations in Dalian, Tianjin and Qingdao as major ports in the region.
One of the more unusual transportation concepts being developed is a
transoceanic railway project featuring use of water barges to ferry
fully loaded cargo trains across the Bohai Bay between Yantai and
Dalian. This would effectively make Dalian an extension of Yantai's
network. This route could become a valuable link connecting Yantai not
only to Russia and the natural resources and heavy industry of Northeast
China but with Jiangsu, Shandong, and Zhejiang Provinces in the south.

Yantai's business environment gets very high marks although the more
economically robust Qingdao often eclipses Yantai. None the less, the
rich costal city is experiencing an economic boom as it develops a large
manufacturing base and emerges as a logistical and distribution hub
connecting the Northeast with the Coast. The climate is very temperate
with mild winters and summers, and is well-known as a summer resort
destination. As with other areas in Shandong, Yantai is famous for its
hot spring which attracts over 100,000 inbound tourists from some 30
countries annually. In addition, the city is famous for its \"immortal,
sea, mountain, island and ancient culture\" and considered a national
tourist destination.

*Weihai*

Located at the eastern tip of the Shandong Peninsula, Weihai is a
well-known port and tourist destination. It was also one of the first
costal open up cities as well as first national model cities for
environmental protection. On the same latitude with San Francisco,
Weihai is surrounded by the sea on three sides, facing Liaoning
Peninsula to the North and the Korean Peninsula and Islands of Japan to
the East. It is the "doorway" to Beijing and Tianjin, and therefore
bearing the label of "Costal Front of China".
![](media/image4.jpeg){width="2.4166666666666665in" height="1.75in"}
With four seasons distinctively different, Weihai enjoys a very
agreeable climate. The city has been named for several years running as
one of the 500 most livable cities in the world by the United Nations
given its cleanliness, nice weather, and beautiful environment. Weihai
is ranked as one of the most environmentally friendly cities in China
and is famous for its beautiful coastline and pristine beaches. Only an
hour from Korea, the city is flooded with South Korean tourists who
bring with them their food culture, and other products. It is estimates
that the resident population of Weihai is approximately 20% Korean.

The following table shows primary economic indicators for Jinan, Yantai,
and Weihai.

Economic Indicators for Shandong's Major Cities (2006)

  -------------- -------------- -------------- -------------- --------------
  **Cities**     **GDP\         **Per Capita   **Retail       **Export
                 (US Billion)** GDP\           Sales\         value\
                                (RMB)**        (US Billion)** (US\$
                                                              Million)**

  Jinan          29.1           4,853          12.5           2,439.5

  Yantai         32.1           4,943          9.3            8,798.7

  Weihai         18.3           7,314          4.4            6,010.8
  -------------- -------------- -------------- -------------- --------------

*Source: Shandong Statistical Yearbook 2007*

**China's Agriculture Hub**

Recognized as one of the China's leading agricultural production bases,
Shandong is famous for a variety of agricultural products such as wheat,
corn, cotton, vegetables, fruits, peanuts, etc. The Province is not only
the leading food supplier to the rest of China, but a major agricultural
product export base as well. In 2006, total agricultural exports from
Shandong Province reached US\$10.6 billion or a 21.6% increase compared
to 2005 and continues to rank as the number one agricultural exporting
province in China for 7 consecutives years. Both peanuts and poultry
account for more than half of China's agricultural exports.

Yantai is the home to many of China's fruits and vegetables with a wide
variety of products including apples, pears, grapes and cherries,
vegetables, and chestnuts produced there. Among these Red Fuji Apples
account for more than 9% of total output and 4% of total Chinese fruit
exports with 250,000 tons of vegetables exported annually from Yantai.
Geographic location, favorable weather and good soil conditions all
combine to make Yantai an ideal place for horticultural production
including wine grapes. Yantai boasts more than 10,000 hectares of
vineyards and the Yantai Changyu Company is the largest winery in China
as well as enjoys the largest domestic market share of wine sales. In
addition to Changyu there are more than some 150 wineries that have
evolved in the area over the last several years, producing nearly 40% of
China's total wine output. Weihai enjoys one of China's largest
aquaculture and fishery products base as well accounting for 25% of the
City's GDP. It is also an important base for peanut & fruit production
in Shandong.

As an agricultural production base, Shandong has developed strong food
manufacturing and processing industries. According to the Shandong
Statistical Year Book, there were a total of 3,446 food processors and
945 food manufacturers in Shandong Provinces at the end of 2006, ranking
it among the nation's largest food processing and manufacturing bases.

**A Booming Retail Market**

Overall, Shandong Province represents about 8% of China's total retail
market. Reported retail sales in Shandong increased 17.6% during the
first 10 months of 2007, 1.4% higher over the same period in 2006.
Retail sales in urban markets reached USD 70 billion compared to 23.7
billion in rural markets in the major commercial centers located in
Jinan, Qingdao, Yantai, and Weihai. Food retail market development in
Shandong shows continuing strong growth. Companies from nearby Japan and
Korea have also invested heavily in the development of provincial
infrastructure, including the 'cold chain' creating highly ideal
conditions for continued retail expansion. Carrefour, RT Mart, Wal-mart,
Metro and Jusco are all present with Taiwan-based RT Mart having opened
more than 10 stores in Jinan, Yantai and Weihai over the past 3 years.
As well, RT Mart established its northern China Distribution Center in
Jinan in 2007. SPAR, the largest voluntary retail chain in Europe,
entered the China market after signing an agreement with Shandong
retailer Jiajiayue Supermarkets in 2005, opening its first store in
China in Weihai. The Li Qun Group, the largest local Shandong retailer
has doubled the number of its stores over the past few years. Food and
wine imports in supermarkets are still somewhat limited in these cities
compared to Beijing, Shanghai etc, yet consumers show a willingness to
try new products and pay a premium for high quality products. In April
2007, ATO Beijing organized a 10 day Great American Food Promo with RT
Mart in North China including 7 stores in Jinan, Yantai and Weihai.
According to one of the major product suppliers participating in the
promotion, breakfast cereals, cheese, canned soup, salad dressings and
corn chips all from the United States were all very hot selling items in
Jinan, Yantai, and Weihai. Interestingly, the large wave of Korean
visitors and expatriates often bring with them a penchant for a variety
of American products such as breakfast cereals, etc.

**Home of Lu Cuisine**

As one of the 8 major cuisines of China, Shandong Cuisine, also known as
Lu Cai, boasts a long history and far-reaching implications for modern
food preferences. Shandong Cuisine can be traced back to the Spring and
Autumn Period (770-221 BC) and quickly developed in the South and North
Dynasty (960-1279) and was widely recognized as an important cooking
style during the Qing Dynasty (1644-1911). Lu Cai is representative of
northern China\'s cooking and has been widely absorbed into northeast
China's food. The Cuisine, known for its wide variety of ingredients and
cooking methods is mainly comprises of two styles: Jinan Style from the
inland which encompasses dishes from Jinan and the surrounding region
famous for its soup; and Jiaodong Style which encompasses dishes from
Qingdao, Yantai and other coastal cities characterized by seafood and
light flavors. The restaurant industry is highly developed, but lacks
knowledge of imported products and cooking methods. For the most part,
only 4 and 5 star international hotel and a very few western restaurants
currently use imported food, beverage and food ingredient products in
these cities. Further education and chef and food service training with
regard to western cooking and use of imported food and food ingredients
in local terms is highly recommended for industry groups and exporters.

**Market with Great Potential**

As a market for imported products, Jinan, Yantai and Weihai are still
small relative to both their populations and incomes, but are growing
very rapidly. The market is underdeveloped for imported foods products
and competition comes almost entirely from local products given Shandong
is China's largest agriculture production base with local supplies
highly competitive in terms of quality, price and availability. However,
based on several ATO Beijing market development activities in Shandong
over the past several years, post believes consumers, particularly those
in the mid-high income range, view imported food and beverage items as a
distinct and separate category of product although it appears some food
imports could be easily substituted at much lower prices. Consumers tend
to view food and beverage imports as healthy, trendy and important to a
modern lifestyle. As well, imported food products are commonly purchased
as gifts during holidays, festivals and special occasions.

# 

# 

# Contact Information and Additional Resources

For further information about the North China and China market, as well
as updates on upcoming events, activities, programs and developments
please visit our website [www.usdachina.org](http://www.usdachina.org/)
or contact one of USDA's six Offices in China:

**FAS/Office of Agricultural Affairs, Beijing**

5-2 Qijiayuan Diplomatic Compound

Jianguomenwai, Beijing, China, 100600

Phone: (8610) 6532-1953

Fax: (8610) 6532-2962

E-mail: agbeijing@usda.gov

**Animal and Plant Health Inspection Service (APHIS), Beijing**

Room 618, Beijing International Club Office Building

No. 21 Jianguomenwai Avenue

Beijing, China 100020

Phone: (8610) 6532-3212

Fax: (8610) 6532-5813

E-Mail: <theresa.boyle@aphis.usda.gov>

**Agricultural Trade Office, Beijing**

Kerry Center, South Tower

Suite #2425, 24^th^ Floor

No. 1 Guanghua Lu, Beijing 100020

Phone: (8610) 8529-6418

Fax: (8610) 8529-6692

E-Mail: <atobeijing@fas.usda.gov>

**IPR Office**

Email: <chinaipr@fas.usda.gov>

**Agricultural Trade Office, Guangzhou**

China Hotel Office Tower, 14/F

Guangzhou 510015, China

Phone: (8620) 8667-7553

Fax: (8620) 8666-0703

Email: <atoguangzhou@fas.usda.gov>

**Agricultural Trade Office, Shanghai**

Shanghai Center, Suite 331

1376 Nanjing West Road

Shanghai 20040, China

Phone: (8621) 6279-8622

Fax: (8621) 6279-8336

E-Mail: <atoshanghai@fas.usda.gov>

**Agricultural Trade Office, Chengdu**

1222 Western Tower,

No. 19, 4^th^ Section, Renmin Nan Road, Chengdu, 610041 China

Phone: (8628) 8526 8668

Fax: (8628) 8526 8118

E-mail: <atochengdu@fas.usda.gov>