Voluntary Report - Public distribution

**Date:** 1/31/2008

**GAIN Report Number:** CH8002

CH8002

**China, Peoples Republic of**

**Fishery Products**

**U.S. Seafood Exports to China are Re-Exported to Third Countries**

**2008**

**Approved by:**

![](media/image1.wmf)William Westman

AgBeijing

**Prepared by:**

Jorge Sánchez, Tanya C. Franke, and Amy Zecha

**Report Highlights:**

China, the world's largest aquaculture producer, is widely known as a
major seafood processor, importing input material from countries all
over the world and re-exporting it back to them. Is the seafood that
China imports from the United States and elsewhere staying in China for
local consumption? Evidence has left post to believe that perhaps less
than 10 percent of total U.S. seafood exports to China actually stay in
country for domestic consumption.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[Executive Summary](#__RefHeading___Toc185761083) 3

[Introduction 3](#introduction)

[Figure 1. Fish and Seafood Products Exported to China from the U.S.
4](#figure-1.-fish-and-seafood-products-exported-to-china-from-the-u.s.)

[Figure 2. Fish and Seafood Products Imported by U.S. from China
5](#figure-2.-fish-and-seafood-products-imported-by-u.s.-from-china)

[Processing of Seafood 5](#processing-of-seafood)

[Re-exporting of Seafood 6](#re-exporting-of-seafood)

[Data Difficulties 7](#data-difficulties)

[Figure 3. China Imports from U.S.: (Pollock) Coalfish, Frozen,
Excluding Heading 03.04, Livers and Roes
8](#figure-3.-china-imports-from-u.s.-pollock-coalfish-frozen-excluding-heading-03.04-livers-and-roes)

[Figure 4. China Imports from U.S.: Cod, Fresh or Chilled, Excluding
Heading, Livers, and Roes
8](#figure-4.-china-imports-from-u.s.-cod-fresh-or-chilled-excluding-heading-livers-and-roes)

[Table 1. U.S. Imports from China and China Exports to the U.S.
Comparisons
9](#table-1.-u.s.-imports-from-china-and-china-exports-to-the-u.s.-comparisons)

[Title/Ownership Changes 10](#titleownership-changes)

[Delayed Statistical Reporting 10](#delayed-statistical-reporting)

[Illegal Fishing Activities and Black Market Sales
10](#illegal-fishing-activities-and-black-market-sales)

[Mislabeling of Seafood Imports and Exports
10](#mislabeling-of-seafood-imports-and-exports)

[Skewed Recovery Rates, Skimming, and Rejected Product
10](#skewed-recovery-rates-skimming-and-rejected-product)

[Food Safety and Environmental Concerns
11](#food-safety-and-environmental-concerns)

[U.S. Seafood is not staying in China
12](#u.s.-seafood-is-not-staying-in-china)

[Issues that may Impact Chinese Seafood Re-exports in the Future
12](#issues-that-may-impact-chinese-seafood-re-exports-in-the-future)

[Conclusions 13](#conclusions)

[SWOT Analysis for U.S. Seafood Gaining Entry into the Chinese Market
13](#swot-analysis-for-u.s.-seafood-gaining-entry-into-the-chinese-market)

[Recommendations for Introducing U.S. Seafood into Chinese Market
14](#recommendations-for-introducing-u.s.-seafood-into-chinese-market)

# Executive Summary

Processing trade accounts for over 40 percent of China's aquatic
production export value as a result of successful value-added processing
of U.S. and other foreign seafood in China due to its abundance of cheap
labor and higher recovery rates. U.S. origin seafood is for the large
part being re-exported back to the United States for domestic
consumption. Most Chinese consumers prefer live or fresh fish over
processed frozen fish. Furthermore, most Chinese cannot afford the
approximate 10 percent of American seafood that does stay in China
consisting of varieties served at high-end restaurants and hotels. U.S.
seafood companies and exporters can learn about the potential market
opportunities for U.S. seafood in China by evaluating some of the points
mentioned in this report. At first glance, overall trade figures for
U.S. seafood exports to China, suggest that there is a strong consumer
demand for U.S. seafood products in the Chinese domestic market.
However, after examining the Chinese seafood market in greater depth, it
becomes apparent that U.S. seafood is currently relegated to
reprocessing factories in North China for re-export or local clientele
with high incomes. U.S. seafood is not consumed at the rates which
initial figures suggest.

# Introduction

China is the world's largest aquaculture producer. China's dominance in
this sector is largely attributed to the country's rapid economic
growth, rising disposable incomes, and strong exporting industry
supported by increasing global consumption of aquatic products. China's
aquaculture industry is expected to reach \$5 billion in profits by 2009
due in part to its extensive processing and export-oriented segments.
Although domestic consumption of aquatic products is growing, the
processing sector is mainly export driven, as domestic consumers
generally prefer to consume unprocessed, fresh or live fishery and
seafood products.

Seafood processing and re-exporting is a growing industry in China. In
2006, the United States internationally imported \$13.4 million worth of
edible fishery products and \$14.4 million of non-edible fishery
products for a total increase of \$2.6 billion in both the edible and
non-edible categories over 2005 figures. This is part of the continuing
trend of rising Chinese exports entering the U.S. market. China's
agricultural, fish, and forestry exports to the U.S. accounted for 28
percent of U.S.'s total imports in 2006.

The 2004 National Oceanic and Atmospheric Administration (NOAA) annual
report, *Fisheries of the United States*, states that Americans eat
about 4.7 billion pounds of seafood per year. Current per capita of
seafood consumption in the United States is greater than 16 pounds per
year and is expected to continue rising as more people discover the
health benefits of low-fat, protein-rich seafood. Given that China is
the largest importer of U.S. seafood, and that the United States imports
most of its seafood from China, there have been growing concerns
regarding exactly how much U.S. seafood is being exported to China for
processing and then being re-exported back into the United States.
Despite the complexity inherent in gathering data on seafood
re-exporting, the evidence supports that seafood re-exporting is on the
rise.

Figure 1 provides evidence of the growing trend of seafood going to
China from the United States. The U.S. exported a total of 227,854 tons
of fish and seafood products to China in 2007 between January and
September, 12 percent increase over the previous year. Comparatively,
China reported receiving only 214,968 tons of fish and seafood from the
United States over the same period. The United States ranked as the
second largest exporter of fish and seafood products to China, behind
Russia. Regardless of the discrepancies between the exact reported
figures, it is undeniable that U.S. exports of seafood to China are on
the rise. Both China and the United States reported increased imports
and exports respectively in production and product categories.

## Figure 1. Fish and Seafood Products Exported to China from the U.S.

Source: Global Trade Atlas

The U.S. is the third highest recipient of China's fish and seafood
product exports behind Hong Kong and South Korea respectively. China
exported a total of 3.4 million (number) fish and seafood items to the
U.S. between January and September 2007 which was an increase of 73
percent over 2006. The U.S. reported importing a total of 395,980 tons
of fish and seafood products from China in 2007 during the same period,
at a rate of increase of only 9 percent over the prior year.

U.S. fish and seafood imports from China have been increasing steadily
over the last six years. Figure 2, using U.S. data, reveals an upward
trend of fish and seafood imports from China over the last six years.
Chinese data was not included in this figure as export statistics were
only reported on a total fish and seafood products basis, not in metric
tons. Therefore, no accurate comparison can be made as a result of the
incompatibility of these two units of measurement.

## Figure 2. Fish and Seafood Products Imported by U.S. from China

Source: Global Trade Atlas

U.S. companies reported to post that they export seafood to China for
processing, reprocessing, and packaging revealing that China's export
processing system is not completely vertically integrated. Processors in
China custom process and package seafood to meet their customers'
specifications before re-exporting it back to where it was originally
exported from or to different countries. This system of international
seafood processing allows for increased profits for many seafood
companies in the United States and elsewhere, because it allows them to
focus on their core business as fishers and suppliers and utilize
China's low-cost labor. Simply put, these companies are outsourcing
processing (including cleaning, filleting, and packaging) to China to
reduce labor input cost.

# Processing of Seafood

The Chinese seafood processing industry is growing rapidly especially in
port cities along China's eastern coast, including in Qingdao, Dalian,
and Chengdu. There are a total of 9,128 fish and seafood processing
facilities throughout China. Due to the high-demand for processed
seafood in the export market, Chinese processors import raw products not
only from the United States but also from other sources around the
world. According to Chinese processors, other major exporters of raw
seafood to China include Russia, Europe, Japan, Korea, and Chile. Most
of the processed seafood is then re-exported to markets outside of
China. Popular export destinations include the U.S., Japan, Korea, and
Europe. Frozen filleted and smoked seafood products are especially
popular in these countries, and processors generally focus on these
types of products when producing for the export market.

According to industry sources, there are a variety of reasons why
seafood processing is a growing industry in China. Among them are low
production costs, high recovery rates, and the high quality of finished
products. Low labor costs contribute to low production costs since labor
is relatively cheap and abundant in China, especially when compared to
industrialized countries like the United States. Most of the seafood
processing in China is done by hand which results in not only high
recovery rates relative to machine processed seafood but also a higher
quality finished product. The result is an inexpensive, quality product
which sells well in the export market.

In addition to these specific competitive advantages enjoyed by Chinese
processors over many of their foreign counterparts, the Chinese
government has provided additional incentives for processors in the form
of a variety of special economic zones (SEZs). These SEZs, which include
a range of different names and provide a variety of preferential
policies, are designed to encourage industry growth. SEZs are considered
to be outside of the Customs territory. The bonded and duty-free
features of SEZs provide processors, importers, and exporters with
opportunities to apply innovative solutions to the challenges associated
with doing business in China.

# Re-exporting of Seafood

Seafood imports make up approximately 75 percent of the processing
sector since only 15 percent of domestic seafood is processed. Post
contacts have suggested that a large portion of raw seafood being
imported from the U.S. to China is specifically earmarked for
processing. Processors and several U.S. seafood companies who have
seafood processed in China confirm that 90 percent of U.S. seafood is
re-exported back to the U.S. after being processed in China or exported
to other countries. Processors specified that little U.S. seafood is
kept in China for local consumption. Approximately 10 percent of the
seafood that stays in China of the total amount processed is considered
to be waste, not suitable for export, and is mostly only suitable for
feed. This waste is considered fish trash which can adversely impact the
environment of other Chinese origin fish (farm raised) as a result of
veterinary drugs in some fish processed as fishmeal that is fed at
Chinese fish farms. Furthermore, feed mills could also become
contaminated and affect livestock feed processed at the same mills if
proper sanitation measures are not performed.

To account for loss and differences in importing and exporting of fish
and seafood products from China to the United States and vice versa, one
must account for the loss of weight in fish parts. The range of loss
processors reported ranges from 1.5 to 20 percent depending on the type
of seafood being processed. One processor noted that they guarantee that
100 percent of the final product is re-exported because all the
processing business is bonded. Although processors may report that 100
percent of the final U.S. seafood products return to the United States,
it is very difficult to verify the accuracy as a result of China
receiving imports of the same fish types from many different countries.
Additionally, the processors re-export not only U.S. seafood but also
seafood from a wide range of other countries, including those like
Russia who are experiencing a glut in raw seafood materials and have
limited processing capacity at this time.

Looking specifically at why re-exporting U.S. seafood has been
successful for China, a last point is that American consumers are price
driven. Unlike many of their counterparts in other industrial countries,
American consumers are generally more concerned with price than with
quality. However, secondary concerns such as nutritional value, health
benefits, environmental concerns, and quality do help shape American
seafood preferences. Recent media reports have contributed to American
consumers' growing fear of the "Made in China" label which impacts their
decisions for purchasing fish and other foods as well.

Determining the actual size of the seafood re-exporting industry, much
less the percentage which is attributable to U.S. seafood re-exports, is
difficult due to a variety of reasons. However, according to some
industry estimates, 70 to 90 percent U.S. seafood imports are processed
in China and then re-exported to the U.S. and other foreign markets.
Processed seafood re-exported from China is generally purchased by
foreign wholesalers, distributors, supermarkets, retail sellers, brokers
in the foreign and domestic markets, and restaurants.

# Data Difficulties 

After examining the data for seafood exports and imports collected by
the United States and Chinese governments, it is clear that there are
discrepancies between most figures. Data collected for pollock and cod
reveal that the numbers do not match in terms of the amount of seafood
the U.S. claims to have exported to China and how much seafood China
claims to have imported from the United States.

Processors reported that varying amounts of fish wastes remained in
country depending on the type of fish being processed. This waste, such
as eyes, bones, and skin/scales, may be seen as simply "trash," however,
the Chinese are able to use some of this for fishmeal. If 10 percent of
total U.S. processing stays in China for local consumption as suggested
by processors, nothing is left to make up fish waste since 90 percent
was reported as re-exported from China. Post believes that the 10
percent of imported fish that China claims that stays in country for
local consumption is made up of both waste and the fish available for
consumption. Little high-end, U.S. seafood is desired or affordable to
the average Chinese consumer. Moreover, one may question whether the
Chinese are reporting waste in total exporting numbers or is waste
processed for fishmeal. Inaccurate reporting may result if black
marketing or illegal fish are smuggled into China for processing from
other countries and is mixed with U.S. seafood.

Figures 3 and 4 have been provided to highlight the differences in the
numbers reported by the United States and Chinese official government
trade data.

Figure 3 displays the increase in pollock exports to China from the U.S.
between 2000 and 2006. Figure 4 shows a decrease of cod exported to
China from the U.S. in 2005 and 2006, although there has been a marked
recovery in 2007 according to U.S. figures. The lack of agreement
between the data reported by China and the U.S. makes the overall
picture unclear. The United States, however, is reasonably more accurate
in keeping records of seafood catches as well as processing, importing,
and exporting data. China does not maintain as stringent country-wide
seafood records of catches nor do they track what happens to U.S.
seafood imports after they enter its borders. Therefore, we cannot
calculate with precision what portion of U.S. seafood imports are
processed and re-exported and to what countries. This information is
mostly company specific. Once the seafood is re-exported out of China
(after being processed), the origination title of the seafood is changed
to China and no longer claimed as originated from the United States
unless it is specifically required in order for it to be returned to
U.S. companies. (This is simply a marketing strategy and not mandated by
customs.)

## Figure 3. China Imports from U.S.: (Pollock) Coalfish, Frozen, Excluding Heading 03.04, Livers and Roes

Source: Global Trade Atlas

## Figure 4. China Imports from U.S.: Cod, Fresh or Chilled, Excluding Heading, Livers, and Roes

Source: GTA

Data discrepancies may be noticed in Table 1 between U.S. seafood
imports recorded by China customs and exports to the U.S. that China
reported. The numbers do not coincide but China imports seafood from all
over the world, processes it, and then re-export it to many countries.

## Table 1. U.S. Imports from China and China Exports to the U.S. Comparisons

<table>
<colgroup>
<col style="width: 15%" />
<col style="width: 5%" />
<col style="width: 22%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 12%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10" rowspan="2"><strong>Commodity: Agricultural, Fish &amp;
Forestry, Group 1 (2007)<br />
Year To Date: January - September</strong></td>
</tr>
<tr class="even">
</tr>
<tr class="odd">
<td rowspan="2"><strong>Commodity</strong></td>
<td rowspan="2"><strong>Unit</strong></td>
<td rowspan="2"><strong>Description</strong></td>
<td colspan="3"><strong>Quantity</strong></td>
<td colspan="3"><strong>% Share</strong></td>
<td rowspan="2"><p><strong>% Change</strong></p>
<p><strong>2007/2006</strong></p></td>
</tr>
<tr class="even">
<td><strong>2005</strong></td>
<td><strong>2006</strong></td>
<td><strong>2007</strong></td>
<td><strong>2005</strong></td>
<td><strong>2006</strong></td>
<td><strong>2007</strong></td>
</tr>
<tr class="odd">
<td><p>160510 </p>
<p>U.S. Imports</p></td>
<td>T</td>
<td>Crab, Prepared Or Preserved</td>
<td>4,286</td>
<td>4,949</td>
<td>5,007</td>
<td>n/a</td>
<td>n/a</td>
<td>n/a</td>
<td>1.18</td>
</tr>
<tr class="even">
<td>China Exports</td>
<td>T</td>
<td></td>
<td>5,004</td>
<td>5,922</td>
<td>6,032</td>
<td>100</td>
<td>100</td>
<td>100</td>
<td>1.86</td>
</tr>
<tr class="odd">
<td><p>030614</p>
<p>U.S. Imports</p></td>
<td>T</td>
<td>Crabs, Including In Shell, Frozen</td>
<td>1,772</td>
<td>3,020</td>
<td>2,627</td>
<td>n/a</td>
<td>n/a</td>
<td>n/a</td>
<td>-13.01</td>
</tr>
<tr class="even">
<td>China Exports</td>
<td>T</td>
<td></td>
<td>1,399</td>
<td>3,494</td>
<td>5,300</td>
<td>100</td>
<td>100</td>
<td>100</td>
<td>51.7</td>
</tr>
<tr class="odd">
<td><p>030373 </p>
<p>U.S. Imports</p></td>
<td>T</td>
<td>Atlantic Pollock Except Fillet, Liver &amp; Roe Frozen</td>
<td>0</td>
<td>0</td>
<td>28</td>
<td>n/a</td>
<td>n/a</td>
<td>n/a</td>
<td>n/a</td>
</tr>
<tr class="even">
<td>China Exports</td>
<td>T</td>
<td></td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="odd">
<td><p>030551 </p>
<p>U.S. Imports</p></td>
<td>T</td>
<td>Cod, Dried, Whether Or Not Salted But Not Smoked</td>
<td>30</td>
<td>1</td>
<td>27</td>
<td>n/a</td>
<td>n/a</td>
<td>n/a</td>
<td>1796.94</td>
</tr>
<tr class="even">
<td>China Exports</td>
<td>T</td>
<td></td>
<td>185</td>
<td>393</td>
<td>496</td>
<td>100</td>
<td>100</td>
<td>100</td>
<td>25.93</td>
</tr>
<tr class="odd">
<td><p>030624 </p>
<p>U.S. Imports</p></td>
<td>T</td>
<td>Crabs, Raw (Live Etc), Cooked (Stm Etc) Not Frozen</td>
<td>17</td>
<td>3</td>
<td>19</td>
<td>n/a</td>
<td>n/a</td>
<td>n/a</td>
<td>518.7</td>
</tr>
<tr class="even">
<td>China Exports</td>
<td>T</td>
<td></td>
<td>7</td>
<td>1</td>
<td>0</td>
<td>100</td>
<td>100</td>
<td>100</td>
<td>-91.73</td>
</tr>
<tr class="odd">
<td><p><strong>030562 </strong></p>
<p><strong>U.S. Imports</strong></p></td>
<td><strong>T</strong></td>
<td><strong>Cod, Salted Or In Brine, Not Dried Or Smoked</strong></td>
<td><strong>35</strong></td>
<td><strong>15</strong></td>
<td><strong>2</strong></td>
<td><strong>n/a</strong></td>
<td><strong>n/a</strong></td>
<td><strong>n/a</strong></td>
<td><strong>-86.26</strong></td>
</tr>
<tr class="even">
<td><strong>China Exports</strong></td>
<td><strong>T</strong></td>
<td></td>
<td><strong>1,251</strong></td>
<td><strong>1,003</strong></td>
<td><strong>90</strong></td>
<td><strong>100</strong></td>
<td><strong>100</strong></td>
<td><strong>100</strong></td>
<td><strong>-91.08</strong></td>
</tr>
<tr class="odd">
<td><p>030250 </p>
<p>U.S. Imports.</p></td>
<td>T</td>
<td>Cod Except Fillets, Livers &amp; Roes, Fresh, Chilled</td>
<td>0</td>
<td>1</td>
<td>0</td>
<td>n/a</td>
<td>n/a</td>
<td>n/a</td>
<td>-100</td>
</tr>
<tr class="even">
<td>China Exports</td>
<td>T</td>
<td></td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="odd">
<td><p>030360 </p>
<p>U.S. Imports</p></td>
<td>T</td>
<td>Cod Except Fillets, Livers And Roes, Frozen</td>
<td>123</td>
<td>393</td>
<td>0</td>
<td>n/a</td>
<td>n/a</td>
<td>n/a</td>
<td>-100</td>
</tr>
<tr class="even">
<td>China Exports</td>
<td>T</td>
<td></td>
<td>820</td>
<td>699</td>
<td>0</td>
<td>100</td>
<td>100</td>
<td>100</td>
<td>-100</td>
</tr>
</tbody>
</table>

Source: GTA

Industry contacts were unable to offer suggestions or recommendations
about where it would be possible to attain or measure re-exporting data
on seafood products in China. Independent consultants, market analysts,
and government officials concur that there is a general dearth of
information in this particular area. Even if the Chinese government did
collect re-exporting data, there are a variety of factors that would
affect the accuracy of the reported figures such as: title changes of
country of origin, delayed statistical reporting, illegal fishing
activities and black market sales, mislabeling of seafood imports and
exports, and skewed recovery rates, skimming, and rejected product
discrepancies.

# Title/Ownership Changes

The change of ownership of seafood occurs once a seafood product reaches
its destination and is altered in some manner, including processing or
packaging. Post contacts noted that seafood in storage retains its
original country title of ownership until it is modified. In the case of
foreign-origin seafood processed in China, once the raw material has
been processed, it officially becomes "Chinese" seafood for reporting
purposes. However, if importers specifically request that origination
certificates are provided with the seafood, processors will label the
seafood as coming from the product's original country of origin,
otherwise it is labeled as being of Chinese origin.

# Delayed Statistical Reporting

Seafood shipments may potentially lose some mass after shipment, yet the
trade rates reported by China in comparison to the U.S. seem to be
significantly different. Although imperfect reporting of total exports
and imports exists, the increase of seafood exported from the United
States to China is evident. The numbers reported by China may include
re-exported U.S. seafood that China is returning to the United States,
but no clear differentiation is made at this time. Statistics may also
not match up perfectly as a result of the transition time of importing
and exporting. It generally takes two weeks for seafood to travel from
the United States to China. Once the shipment arrives in Chinese ports,
the contents may be registered into a different month or year than when
it was originally shipped.

# Illegal Fishing Activities and Black Market Sales

Among the many challenges facing those who wish to collect information
on the Chinese seafood re-exporting industry is the presence of the
black market. By definition, black market activities are outside the
scope of legal, traceable activities and are impossible to accurately
measure. Illegal fishing and sales of seafood are serious problems in
the worldwide seafood industry, and for some the temptation to earn
extra profit through avoiding import quotas, tariffs, and other types of
taxes is too strong to resist. In addition to the environmental and
economic harm these activities may potentially cause, black market and
illegal activities make it difficult to accurately determine how much
foreign seafood is entering China and how much Chinese processed (of
either domestic or foreign-origin) seafood is leaving.

# Mislabeling of Seafood Imports and Exports

Another obstacle for gathering accurate data on Chinese re-exports of
U.S. seafood is the practice of deliberately mislabeling of imports and
exports. Driven by a number of reasons, importers and exporters may
deliberately mislabel their seafood products, resulting in inaccurate
trade statistics. These reasons include wishing to avoid quotas, taxes,
and import and export restrictions or bans.

## 

# Skewed Recovery Rates, Skimming, and Rejected Product

There is a certain amount of unusable product resulting from the process
of seafood production. The finished product is considered *recovered*
and it is only this recovered material that is exported or sold in the
domestic market. Some processors skew their *recovery rates* to either
inflate or deflate their finished product figures. By decreasing their
reported recovery rates, processors are able to skim product and sell it
in the market for extra profit. Increasing recovery rates is a slightly
more complicated process which requires the manipulation of the seafood
in some manner to maximize the final weight of a product. This may be
accomplished by soaking seafood in chemicals, such as phosphates,
normally used to preserve taste and freshness. By soaking the seafood in
chemicals overnight or for an extended period of time, the weight of the
final product is increased resulting in artificially high recovery
rates. Some Chinese processors using this method claim recovery rates as
high as 80 to 100 percent.

One processor reported that his company imports approximately 15,000
tons of raw seafood material from the United States and exports 10,000
tons of finished products to the U.S. annually, claiming that they lose
about 33 percent of their raw material through waste. Another post
contact reported that no U.S. seafood is staying in China for local
consumption, though there is still question as to whether this is
completely true for all seafood types being processed in China.

In addition to the deliberate misreporting of recovery rates, second and
third grade seafood products rejected by importers in foreign markets
find their way into the domestic market. Since these seafood products
are not necessarily labeled with their country of origin, it creates
another problem for those trying to track foreign-origin seafood after
it enters China.

These obstacles, combined with the fact that the United States only
tracks re-exporting some seafood and that the Chinese government does
not track seafood re-exports, make it impractical to expect to find
reliable data on the subject.

# 

# Food Safety and Environmental Concerns

A variety of concerns related to the growth of the Chinese seafood
processing and re-exporting industry have been raised by those in the
U.S. seafood industry and government and are shared by posts in various
foreign countries. These concerns are related to a range of issues from
food safety concerns to the destruction of natural fisheries.

Many countries are concerned with the potential reduction of the overall
competitiveness of their national seafood processing industries and are
troubled by the shift of value-added activities to overseas locations
such as China. The lack of traceability of seafood being processed in
China, and in other developing countries, is a concern for those in the
industry, especially U.S. importers who are concerned with the lack of
guarantee regarding the quality of seafood imports from China. With the
lack of traceability comes a concern about food safety. With the recent
media coverage of tainted products produced in China, from toothpaste to
toys, many U.S. consumers are becoming more conscious of food safety
related issues.

However, a Chinese processor contact stated that China Inspection and
Quarantine (CIQ) inspects seafood imported into China from other
countries and carries out Hazard Analysis and Critical Control Points
(HACCP), International Standards Organization (ISO), and British Retail
Consortium (BRC) rules to control food safety. Some processors have labs
that inspect raw materials, the processing water, and finished products.
Chinese workers also receive training to improve food safety and ensure
that the appropriate rules and regulations are followed.

One seafood processor claimed that all lots are inspected by CIQ for
exports before every loading to assure that food safety is controlled
from China during exports. Another processor stated that suppliers must
meet stringent requirements in order to receive Health Certificates and
Origin Certificates issued by the local authority and CIQ and that
processing plants have strict inspection procedures according to
HACCP and other national seafood laws against the receipt of raw
material. A third Chinese processor also assured post that they have a
HACCP certificate, EU number, Marine Stewardship Council (MSC)
certificate, and BRC certificate.

Some environmental concerns related to the Chinese seafood processing
and re-exporting industry include the deterioration of sustainability
and natural fisheries. It is a lucrative business to export raw seafood
to China to help meet the growing demand of Chinese processors and is
increasingly tempting for unscrupulous fishermen to engage in illegal
fishing activities. These activities include illegal harvesting of
protected seafood, harvesting out of season, and black market trading
(usually engaged in to avoid quotas and taxes). These types of
activities are greatly unsettling for governments, and some, such as
Russia, have imposed serious punishments for those who engage in illegal
fishing and trading activities.

# 

# U.S. Seafood is not staying in China

## 

There are two main reasons why there is low demand for U.S. seafood in
China, high-prices and consumer preferences for fresh or live fish and
seafood products. These two factors serve as major constraints for U.S.
seafood in the Chinese market and deter many Chinese consumers from
purchasing U.S. seafood. U.S. seafood in China enjoys a strong
reputation as a high quality product. This is especially true for
Alaskan seafood products which are reputed to have a better taste and
texture than domestic Chinese seafood. As a result of this premium
branding, U.S. seafood is often too expensive for the average Chinese
consumer. Most U.S. seafood consumed in China is purchased by wealthy,
high-end consumers who enjoy eating it in upscale, expensive restaurants
and hotels. Much of the U.S. seafood staying in China is from Alaska,
and Chinese processors estimate that about 30 percent of Alaskan seafood
sent to China is actually consumed by the Chinese domestic market.

Some U.S. seafood is also purchased by Chinese consumers when marketed
as a novelty food item. Kentucky Fried Chicken (KFC), a fast-food chain
popular with young Chinese consumers, has tapped into this opportunity
by offering special seasonal promotions of wild Alaskan salmon sold in
nugget form, akin to the American classic chicken nuggets, or in
fajita-style wraps. Seen as a trendy, modern food, these promotional
items have sold well over the past few years primarily in China's large
urban centers.

Other than price constraints, U.S. seafood has a low market share in the
Chinese seafood market due to consumer purchasing preferences. Most of
China's domestic consumption of fish products is made up of freshwater
fish either farmed or caught in the wild. Most Chinese consumers prefer
to purchase their seafood fresh or live versus frozen or processed
otherwise. This preference has persisted even with the gradual
eradication of the traditional wet market retail format in many of the
urban areas in China. Large hypermarts and supermarkets (including
foreign-owned retailers such as Carrefour, Wal-mart, and Tesco) offer
wide selections of live seafood to cater to Chinese consumer
preferences.

# 

# Issues that may Impact Chinese Seafood Re-exports in the Future

There are a variety of issues that may impact the future of the Chinese
seafood re-exporting industry that would be wise to monitor. Among these
is a growing awareness of consumers regarding the environmental
sustainability of food. More consumers are increasingly conscious of
their carbon footprint (i.e. the amount of CO~2~ their lifestyle choices
generate) and air and water pollution related to their consumption
activities. Additionally, consumers are concerned about food safety, and
there is a growing trend towards increasing the traceability of food to
ensure that the products originate from safe and legal sources. These
trends may lead American consumers to develop more localized purchasing
habits which could reduce opportunities of Chinese re-exported seafood.

U.S. companies are becoming increasingly cautious about U.S. seafood
being returned to the United States after processing and more stringent
regulations may be imposed in the future. Buyers, wholesalers, and
retailers may also wish to know the origin of seafood items in the
future if food safety issues persist. These are two points that
processors, especially foreign processors such as those in China, should
be aware of since it may require them to begin tracking where seafood
originated from before and after it is processed and packaged. This
would be a quality assurance check point and also allow for traceability
should it be needed.

# Conclusions

It is evident that there is a distinct disparity between Chinese and
U.S. figures regarding seafood exports and imports. However, despite the
differences in numbers, the overall figures and trends indicate that
bilateral trade in seafood between these two countries is on the rise.
China and processing companies are important stakeholders in the
international seafood industry and developments in the U.S. fishery and
seafood sector impact them and vice versa.

The Chinese consumers' preference for live fish largely accounts for the
lack of U.S. seafood staying in China. Most consumers in China purchase
domestic freshwater fish, and only a small fraction of foreign-origin
seafood stays in China. The seafood that does stay is served almost
exclusively at high-end restaurants and hotels. China also has the
capability to process seafood at a lower cost and with higher recovery
rates than in the United States.

This implies that the United States needs Chinese processors for maximum
profits, just as Chinese processors need U.S. suppliers, especially
since processing trade accounts for over 40 percent of China's aquatic
production export value. U.S. buyers, wholesalers, and retailers must
have close relationships with processors in order to know the food
safety standards and protocols of individual processors that are
followed. Some U.S. seafood suppliers claim that they have staff on-site
to assure food safety protocols are followed in Chinese plants while
their fish is being processed on-site.

# SWOT Analysis for U.S. Seafood Gaining Entry into the Chinese Market

# 

# Recommendations for Introducing U.S. Seafood into Chinese Market 

For U.S. seafood producers and exporters wishing to enter into the
Chinese consumer market, there are three areas that can be developed to
help increase demand for their products. First, Chinese consumers are
brand conscious and many of the newly wealthy consumers seek brands
associated with luxury and quality. Since U.S. seafood has already built
up a reputation for being of good quality and for being a premium
product, the key to the success of U.S. seafood growing in the Chinese
market is to maintain this status as a special, luxury good and continue
to develop sells and connections with high-end restaurants and hotels.

Secondly, China's increasing income levels, growing high-end consumer
class, and awareness of U.S. seafood products bode well for the
industry. Since the Chinese are brand conscious and are beginning to
seek healthier food, U.S. seafood should be marketed in ways that
attract more Chinese consumers. By building demand among wealthy
Chinese, the overall growth of U.S. seafood demand is likely to remain
at a sustainable level. Working towards the creation of a high-end niche
for U.S. seafood is vital for staying in the Chinese market since
average consumers seek out live or fresh fish. Lastly, there are many
health benefits to be gained by eating seafood, especially wild caught
seafood. Much of the seafood produced domestically in China is farmed
which has less nutritional value than its wild counterparts. As a
result, with more health awareness and concerns, Chinese may begin
looking at wild caught seafood for better nutrition. Most of the
high-end U.S. seafood staying in China for domestic consumption is wild
caught seafood. Promoting this seafood on the basis of its health
benefits could attract increasingly health conscious Chinese consumers.