Required Report - public distribution

**Date:** 6/9/2006

**GAIN Report Number:** CH6607

CH6607

**China, Peoples Republic of**

**Market Development Reports**

**South China Pet Food Market Brief**

**2006**

**Approved by:**

![](media/image1.wmf)Keith Schneller

U.S. Consulate General

**Prepared by:**

Economic & Political Section, US Consulate General Guangzhou

**Report Highlights:**

Who Let the Dogs Out? With canine ownership in Guangdong Province on the
rise, there are increased opportunities for pet food and pet products.
The import market for pet food products is steadily increasing, but not
keeping pace with the rapid development of Chinese pet food exports. US
pet food exporters also faced many challenges during the past couple of
years due to the BSE ban on products containing beef. The following
report was co-authored by staff from the Economic and Political Section
of the US Consulate in Guangzhou.

Includes PSD Changes: No

Includes Trade Matrix: Yes

Unscheduled Report

Guangzhou \[CH3\]

\[CH\]

Table of Contents

[Summary 3](#summary-1)

[From Delicacy to Best Friend: They\'ve Come a Long Way
3](#from-delicacy-to-best-friend-theyve-come-a-long-way)

[Unleashing a Trend: The Numbers Tell the Story
3](#unleashing-a-trend-the-numbers-tell-the-story)

[Why So Many Doggone Pets All of a Sudden?
4](#why-so-many-doggone-pets-all-of-a-sudden)

[Beijing Loosens the Collar by Lowering Fees\...
4](#beijing-loosens-the-collar-by-lowering-fees...)

[\...But Guangzhou Fees Remain Doggedly High, So Dogs Remain
Unregistered
4](#but-guangzhou-fees-remain-doggedly-high-so-dogs-remain-unregistered)

[But Does the Proposal Stand Only A Dog\'s Chance of Passing?
4](#but-does-the-proposal-stand-only-a-dogs-chance-of-passing)

[\"Cry Havoc and Let Slip the War on Dogs\"
5](#cry-havoc-and-let-slip-the-war-on-dogs)

[Despite the Crackdown, It\'s Still the Year of the Dog
5](#despite-the-crackdown-its-still-the-year-of-the-dog)

[Comment: The End of a Dog Eat Dog World? Not Quite Yet.
6](#comment-the-end-of-a-dog-eat-dog-world-not-quite-yet.)

[A Quick Look at the Trade Numbers:
6](#a-quick-look-at-the-trade-numbers)

[Figure 1. China Imports: Dog and Cat Food
6](#figure-1.-china-imports-dog-and-cat-food)

[Figure 2. China Exports: Dog and Cat Food
7](#figure-2.-china-exports-dog-and-cat-food)

# Summary  {#summary-1}

# 

In a part of China better known for viewing dogs as cuisine rather than
as pets, we have noticed an increase in dog ownership. Sales of dogs ---
and correspondingly, dog food and related canine care products \-- are
up and represent a growing niche in the economy. The reasons for the
increase are varied, however, with one-child households, \"empty
nesters,\" rising disposable incomes, the desire to own a middle class
status symbol, and changing social dynamics probably all playing a part.
All dogs are required to have a license, but most do not, leading some
to call for a cut in associated fees to encourage owners to \"come
clean.\" Guangzhou, however, has yet to lower its fees, although a
motion to abolish some fees and reduce others has been tabled \-- for
the fifth time. Despite a crackdown on unregistered dogs initiated in
Guangzhou in the fall of 2005 to counter rabies and dog attacks, local
dog owners continue to publicly display their dogs in parks and at
public \"dog club\" meetings. It appears that the increased spending on
pets is an indicator of the increasing discretionary income some Chinese
enjoy.

Blame it on it being the Year of the Dog, but it appears an increasing
number of Cantonese now own dogs. Dog owners can be seen walking their
animals in local parks; several pet markets operate around Guangzhou,
with puppies being a favorite item; and we have even spotted what appear
to be dog social clubs in Guangzhou and Shenzhen. Spurred by these
trends, we decided to take a closer look at this emerging phenomenon and
what it may reveal about South China. Although domestic demand is
growing for pet food, Chinese pet food exporters are aggressively
shipping product abroad.

# From Delicacy to Best Friend: They\'ve Come a Long Way

The transformation of animals from pests or food source to pets in China
cannot be understated. For decades the Chinese have been unreceptive, to
say the least, towards the concept of animals as pets. Considering that
just a few decades ago Mao encouraged peasants to kill sparrows and pets
were seen as a bourgeois decadence, the change is remarkable. While many
Chinese came around over time to the idea of keeping fish or pet birds
at home, other, more high-maintenance animals \-- particularly dogs \--
were not as accepted. From the 1950s to the late 1970s, regular dog
extermination programs were carried out; dogs were seen as a threat to
public hygiene and were routinely executed by mobs. These scenes were
recreated during the SARS epidemic of mid-2003, when unsubstantiated
fears that dogs and cats may carry the virus led to the extermination of
hundreds of animals. Added to these perceptions is South China\'s long
culinary fascination with dogs, which are said to be a \"warming\" food
and good for the body\'s circulation.

# Unleashing a Trend: The Numbers Tell the Story

China\'s National Kennel Club found that in 2005 there were roughly 150
million pet dogs in China. Research by a global consumer market analysis
group found that the percentage of Chinese owning dogs increased from 5%
in 1999 to 7% in 2004. These market analysts estimate that sales of dog
and cat food in China reached nearly RMB 1.6 billion in 2004
(approximately USD 199 million), up 13% over the previous year.
Predictably, pet food sales are mostly generated in large cities such as
Beijing, Shanghai and Guangzhou, according to industry analysts. In
2004, pet-related businesses in China \-- including sales of animals,
provision of services, and sales of accessories \-- were worth a
combined 15 billion RMB (roughly USD 1.88 billion) annually, according
to the People\'s Daily. Experts predict annual sales of pet food and
necessities might top RMB 6 billion (roughly USD 750 million) in 2008,
according to China's central news agency, Xinhua.

# Why So Many Doggone Pets All of a Sudden?

There are several possible reasons for the increase in dog ownership.
First, one-child households are contributing to the demand for pets,
which might be regarded as additional members of the family and can
become companions to an only child. The one-child policy itself helps by
reducing financial obligations on the part of parents at a time when
incomes are rising across the nation. Additionally, when the only child
eventually leaves home, the pet can continue to provide comfort to the
\"empty nesters\" left behind. Second, many young people, who are also
enjoying increasing levels of disposable incomes, view pets as a fashion
and identity statement \-- a middle class status symbol. The mere fact
that they are not saving the money or spending it in more traditional
ways may in itself be considered an avant-garde move. Finally, as
Chinese society undergoes unparalleled changes, many people rely on pets
to relieve the stress, uncertainty, and loneliness associated with these
radical changes. For many young people a dog offers the companionship
they crave without the heightened responsibilities a child (or a spouse)
brings.

# Beijing Loosens the Collar by Lowering Fees\... 

Regardless of the reason for the increase, the Chinese are raising more
pets \-- some legally and others not. All dogs in China must have a
license, but because fees tend to be prohibitive, many people do not
license their pets. Statistics from the Beijing Public Security Bureau
(PSB) reveal that at the end of 2002, there were roughly 1.4 million
dogs in Beijing, and only one-tenth of them had been registered. In
response to this reality, in late 2003 the capital cut the first-year
registration fee for a pet dog from roughly USD 600 to USD 120; the fees
for subsequent years dropped from USD 240 a year to USD 60, according to
Chinese press reports. More than 40 categories of dogs deemed
\"dangerous\" by city authorities because of their size remain illegal
to own, however, and Beijing also imposes a \"one-dog policy\" that
restricts each family to owning only one dog, according to Hong Kong
press reports.

# \...But Guangzhou Fees Remain Doggedly High, So Dogs Remain Unregistered

Guangzhou\'s \"Dog Raising Management Regulations\" first came into
effect in 1997. Article 10 of these regulations stipulates a fee of RMB
10,000 (approximately USD 1,250) to register a dog, followed by a
further annual fee of RMB 6,000 (about USD 750). Probably as a result of
these high fees, Guangzhou has only approximately 800 registered dogs,
according to a local newspaper. The number of unregistered dogs in
Guangzhou, however, is conservatively estimated by the same paper to be
between 50,000 to 60,000. There are currently political efforts underway
to lower the fees, and by extension, to encourage owners to register
their dogs. In March 2006 during the annual Guangzhou CPC and CPPCC
meetings, CPPCC delegate and South China Agriculture University
professor Zhu Xingquan submitted a motion for pet management that
included abolishing registration fees and cutting the annual fee for the
first year to RMB 1,000 (about USD 125), and further reducing the fee to
RMB 500 (roughly USD 63) in the second year, according to local press
reports. He also suggested that annual fees for a dog consecutively
registered by the same family for more than three years be progressively
reduced. The local press also reported that Shenzhen City\'s CPC
recently passed a \"Draft Regulation of Dog Raising Management,\" which
abolished the original registration fee of RMB 5,000 (approximately USD
625) and cut the annual fee from RMB 2,000 (roughly USD 250) to RMB 300
(about USD 38).

# But Does the Proposal Stand Only A Dog\'s Chance of Passing?

While the motion has been submitted and the proposed changes are making
their way through the political process, Zhu himself noted, however,
that this is the fifth time a proposal of this kind has been raised in
recent years \-- the previous four efforts were never successful in
seeing the motion included in the legislative plan. The draft regulation
in Shenzhen, likewise, is also still subject to the Guangdong CPC's
final approval.

# \"Cry Havoc and Let Slip the War on Dogs\"

The proliferation of unregistered dogs in Guangzhou led to a crackdown
in the fall of 2005. Local press reports from that time noted that the
Guangzhou Public Security Bureau (PSB) along with the Guangzhou
Administration of Industry and Commerce, Agriculture Bureau, Environment
and Sanitation Bureau, and Public Health Bureau, carried out a campaign
aimed against: (1) illegal sales and diagnostic treatment of dogs; (2)
the raising of large dog breeds; (3) irregularities in dog-walking; and
(4) the failure to comply with dog vaccination regulations. According to
Guangzhou\'s \"Dog Raising Management Regulations\", pet dogs must
measure less than 60 cm in length (roughly 24 inches) and less than 40
cm in height (about 16 inches). A Western press report on the crackdown
commented that the Guangzhou police conducted house-to-house searches
and confiscated unregistered dogs from parks and veterinary clinics. The
report also noted that officials said the cull was necessary to counter
the spread of rabies given that 244 people died of rabies in Guangdong
in 2004, a 41% rise over 2003. Local press reports on the incident
included a police explanation that more than 36,000 people in Guangzhou
were attacked by dogs in 2004, and between January-July 2005 another
25,000 were attacked. Police officials also said that in recent years
Guangzhou authorities have seized and disposed of 14,000 unregistered
dogs, according to local press reports.

# Despite the Crackdown, It\'s Still the Year of the Dog 

So where does this leave Guangzhou\'s dog owners? The culling incident
of last fall appears to have faded from the memories of many dog owners
\-- if not from various pet-related internet forums where the shock and
outrage remains posted for all to see. Around Guangzhou owners can be
seen in various parts of town publicly displaying their dogs. Apparently
the desire to spend time in the open with their pets or the yearning to
show them off overrides the fear of having them confiscated.

To illustrate the atmosphere of openness, on a recent Sunday morning, we
witnessed a gathering of a local dog club in the relatively affluent
neighborhood of Er Sha Island. In an open field, dogs and their owners
were gathered into a group, happily mingling with each other. While the
dogs were of all types \-- golden retrievers, English sheepdogs, King
Charles spaniels, and Pekinese \-- the owners were mostly all of the
\"yuppie\" type. Many of the dogs sported doggie outfits, and one of
them was even dressed to match its owner. An organizer soon arrived,
checked off names from a list, and handed out matching yellow hats. Soon
after, the dogs and owners departed together on two buses and drove off
for an apparent outing. Before the group departed, we had a chance to
ask one of the owners why he was speaking English to his dog? He replied
that (naturally!) dogs understand English.

We also witnessed a similar scene in an affluent part of Shenzhen.
There, the gathered owners were not of the "yuppie" ilk, and were
decidedly less enthusiastic about the actual pooches than the Guangzhou
crowd. In fact, they seemed mostly interested in interacting with the
other owners. Still, it was the dogs that provided the common ground
between them. After the meeting dispersed, the owners all went their
separate ways, suggesting that their original bond came through their
shared dog-ownership.

# Comment: The End of a Dog Eat Dog World? Not Quite Yet.

To say that dog ownership is a mark of a growing middle-class would be
somewhat of a stretch. Some of the most notable pet owners we have
noticed in Guangzhou are in fact homeless. However, the increased
spending on pets is a clear indicator of the growing purchasing power of
city residents in China. Where in the recent past every 'fen' had to be
used to ensure a family's basic needs, now some people have the luxury
of spending some of their hard-earned RMB on, well, an animal. Clearly,
things are changing for the better for many Chinese in affluent South
China and this trend represents a good opportunity for U.S. businesses
in the pet food and pet-related products business.

# A Quick Look at the Trade Numbers: 

Although Chinese import figures show steady growth in the import of pet
food products from around the world: about 1000 tons in CY2000 to nearly
3000 tons in CY2005. Chinese pet food manufacturers are exporting at a
rapid pace: about 1000 tons in CY2000 to more than 20,000 tons in
CY2005. So while there is a growing domestic market in China for US
exporters, Chinese pet food exporters are going to provide great
competition for US pet food producers around the world. US exports have
also fallen off recently due to the BSE ban on products containing beef.
This ban should be lifted in the near future.

# Figure 1. China Imports: Dog and Cat Food 

  ------------------- ---------- -------------- ------------ ------------ ------------ ------------ ------------
  **China Import                                                                                    
  Statistics**                                                                                      

  **Commodity:                                                                                      
  230910, Dog And Cat                                                                               
  Food, Put Up For                                                                                  
  Retail Sale**                                                                                     

  Annual Series: 2000                                                                               
  -- 2005                                                                                           

  **Partner Country** **Unit**   **Quantity**                                                       

  ** **               ** **      **2000  **     **2001  **   **2002  **   **2003  **   **2004  **   **2005  **

   World              T          1190           2201         2169         2789         2777         2970

   New Zealand        T          18             315          928          793          870          933

   Australia          T          784            1132         808          766          819          703

   Thailand           T          226            210          213          433          717          955

   United States      T          124            353          188          758          57           60

   Korea South        T          0              8            31           1            8            0

   France             T          5              143          0            0            1            11

   Germany            T          0              0            0            0            0            0

   United Kingdom     T          0              0            0            0            0            0

   Hong Kong          T          3              2            0            0            2            3

   Japan              T          0              0            0            0            2            4

   Belgium            T          0              0            0            0            8            0

   Brazil             T          0              0            0            0            283          280

   Canada             T          27             39           0            0            0            0

   China              T          0              0            0            0            8            0

   Denmark            T          0              0            0            39           0            0

   Netherlands        T          1              0            0            0            0            0

   Singapore          T          0              0            0            0            0            0

   Taiwan             T          0              0            0            0            2            22

  Source of Data:                                                                                   
  China Customs --                                                                                  
  World Trade Atlas                                                                                 
  ------------------- ---------- -------------- ------------ ------------ ------------ ------------ ------------

# 

# 

# Figure 2. China Exports: Dog and Cat Food

  ------------------- ---------- -------------- ------------ ------------ ------------ ------------ ------------
  **China Export                                                                                    
  Statistics**                                                                                      

  **Commodity:                                                                                      
  230910, Dog And Cat                                                                               
  Food, Put Up For                                                                                  
  Retail Sale**                                                                                     

  Annual Series:                                                                                    
  2000 - 2005                                                                                       

  **Partner Country** **Unit**   **Quantity**                                                       

  ** **               ** **      **2000  **     **2001  **   **2002  **   **2003  **   **2004  **   **2005  **

   World              T          1176           1073         9351         14091        15648        20459

   Japan              T          311            207          8269         12367        13406        15831

   Hong Kong          T          211            56           804          1362         1436         1404

   Czech Republic     T          118            86           69           83           15           0

   Thailand           T          40             0            50           0            0            0

   United Kingdom     T          48             42           42           30           24           4

   Switzerland        T          37             47           26           26           0            0

   United States      T          313            416          25           154          401          2636

   Korea South        T          0              11           20           14           272          445

   Poland             T          0              0            16           0            0            15

   Germany            T          7              0            12           28           0            1

   Korea North        T          1              3            9            4            8            0

   Singapore          T          5              2            5            2            5            0

   France             T          0              0            2            0            0            0

   Australia          T          34             0            1            0            0            24

   Malaysia           T          0              0            1            0            0            0

   Canada             T          13             5            0            0            0            6

   Indonesia          T          0              0            0            0            0            26

   Israel             T          2              0            0            0            0            0

   Italy              T          18             0            0            13           0            0

   South Africa       T          3              4            0            6            19           35

   Spain              T          13             174          0            0            0            0

   Lebanon            T          0              0            0            0            30           0

   Morocco            T          0              0            0            0            0            4

   New Zealand        T          0              0            0            0            0            2

   Syria              T          0              0            0            0            30           0

   Taiwan             T          0              2            0            2            3            27

   Vietnam            T          0              20           0            0            0            0

  Source of Data:                                                                                   
  China Customs --                                                                                  
  World Trade Atlas                                                                                 
  ------------------- ---------- -------------- ------------ ------------ ------------ ------------ ------------