Voluntary Report - Public distribution

**Date:** 12/6/2007

**GAIN Report Number:** CH7419

CH7419

**China, Peoples Republic of**

**Market Development Reports**

**Emerging City Market: Dalian, the Pearl of the North**

**2007**

**Approved by:**

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

ATOBEIJING

**Prepared by:**

Amy Zecha

**Report Highlights:** Known for its beautiful cityscape, major port,
strategic location, and budding IT and software industry, this emerging
city is often called the 'Pearl' of North China. With 6 million urban
consumers, a thriving port, booming economy, rising incomes, and
expanding HRI sector, Dalian offers diverse opportunities for U.S. food
and agricultural product suppliers. As a central shipping hub for much
of Northeast Asia, 80 percent of North China's exports pass through this
key port city. Identified by both Chinese and international communities
as a market leader among China's Emerging City Markets, Dalian provides
significant opportunities for U.S. suppliers looking to gain a foothold
in the lucrative food and agricultural product markets in China's rising
second-tier cities.

Includes PSD Changes: No

Includes Trade Matrix: No

Trade Report

Beijing ATO \[CH4\]

\[CH\]

**Dalian: A Shining Gem**

Often referred to as the "Pearl of North China" Dalian is the most
important port city in Northeast China. Located at the southern tip of
the Liaodong Peninsula in Liaoning Province, the port city lies about
300 miles east of Beijing across the Bohai Gulf. It is the city's prime
location that has made it one the principal entry points for imports
destined for North and Northeast China.

In addition to being the largest port in Northeast China, Dalian also
claims the title as the largest port in all of Northeast Asia. Its
economy is ranked among the top four in *Dongbei* or the Northeast along
with Harbin, Changchun, and Shenyang.

Known not only for its large port and booming economy, Dalian is also
renowned for its highly competitive soccer team, trend-setting fashion
industry, environmentally conscious development, and robust wedding
industry. Additionally, Dalian is famous for its high-quality seafood
and unique historical architecture. Formerly occupied by both Russia and
Japan, Dalian's architecture is an eclectic combination of Chinese,
Russian, Japanese, and European styles. Lushun, known as Port Arthur
when under British rule, lies on the western edge of Dalian and is now
part of the Greater Dalian Area. This historic area, coupled with the
city's colorful past, helps make Dalian a popular tourist destination
for domestic and international visitors alike to Northeastern China. In
2006 more than 700,000 overseas tourists visited Dalian generating
nearly RMB 27 billion in foreign exchange revenue.

![](media/image2.jpeg){width="2.4680555555555554in"
height="1.8444444444444446in"}

While maintaining rapid economic expansion Dalian continues to display
its strong commitment and support for environmentally friendly and
sustainable development. From the mid-1990s through 2001, the city's
mayor, Bo Xilai, enacted a series of radical city planning policies.
Instead of building high-rise apartments or office buildings in the
city's less developed areas, he chose to create parks and green spaces
throughout Dalian. While not a particularly popular decision among
Dalian residents at the time, today the resulting parks and public
squares in Dalian are a particular point of pride for the city.

In 2001, Dalian was awarded the UN Environment Program's "Global 500
Award" which honored the city for its environmental conservation
efforts. Today Dalian has earned a reputation as one of the cleanest and
greenest cities in all of China. Urban green spaces in Dalian now
account for approximately 42 percent of the total area of the city, and
public green land has reached an unprecedented 10 square meters per
capita.

Labeled as one of China's leading Emerging Cities, Dalian is an example
of one of North China's best cities. With its growing tourism industry
and resulting HRI sector, rising urban disposable incomes, strong
economy, and exposure to a variety of cultures and foods, Dalian offers
a wide range of opportunities for U.S. food and agricultural suppliers.

**A 'Blooming' Economy: A Growing Port Industry**

In terms of economic strength Dalian ranks as the 7^th^ strongest
economy in China. For over a decade Dalian has enjoyed double-digit
growth rates which have contributed to its status as one of the leading
cities in Northern China. With a growth rate of 16.5 percent in 2006,
the highest level of growth attained by the city over the last 12 years,
Dalian's future as a leader among China's Emerging City Markets is
bright. In 2006, Dalian's GDP reached nearly RMB 260 billion, with urban
disposable income equal to 13,350 RMB per capita, up slightly over 11
percent from 2005.

A significant portion of this growth is attributed to the large volume
of import and export activities of the port, valued at RMB 236.8 billion
in 2006. Imports alone increased by more than 23 percent reaching RMB
108.3 billion and exports increasing by nearly 26 percent to RMB 128.5
billion. Port throughput in 2006 reached 200 MMT of cargo and 30 million
containers (TEUs), thus doubling the Port of Dalian' cargo throughput in
only four years.

*Infrastructure, FDI and Future Growth*

Part of Dalian's development strategy has been to create a strong
commercial and transportation network. The port itself covers 346 square
kilometers of water and 15 square kilometers of land. To improve
efficiency of movement of goods in and out of the port, Dalian has 160
kilometers of specialized railway lines, 300,000 square meters of
warehouse space, and 1.8 million square kilometers of stacking yards
with over 1,000 units of loading and discharging machinery and
equipment. Additionally, Dalian has an extensive expressway system of
244 kilometers connecting it to major cities in the North and Northeast
region including Beijing, Shenyang, Changchun, and Harbin.

With advanced port facilities, a variety of Special Economic Zones, and
excellent geographical location, Dalian is receiving much interest from
international companies looking to invest in China. As of 2006, over
10,000 foreign affiliates of multinational corporations have been
approved by Dalian's Municipal Government, of which approximately 4,000
are already in operation. Much of the FDI entering Dalian originates in
Japan and Korea with 40 percent of Dalian's international trade
accounted for by these two countries. With direct flights to and from
Korea as well as Japan facilitating business travel, many companies
based in these countries have identified Dalian as a prime location for
investment in China. Over half of all overseas-funded businesses in
Dalian come from either Japan or Korea.

In line with the municipal government's highly successful development
strategy, overseas investment in a variety of industries has been
encouraged to enhance the city's overall development and improve its
human capital resources. Currently, these areas include information
technology, bio-engineering, bio-pharmaceutical, environmental
protection, petrochemicals, green agriculture, machinery, and service
and trade sectors.

*Dayaowan Bonded Harbor Area*

The Dayaowan Bonded Harbor Area in Dalian was approved in late 2006 and
is the third of its kind in China. Shanghai's Yangshan Bonded Harbor
Area and Tianjin's Dongjiang Bonded Harbor are China's other two bonded
harbor areas. Plans for a 4^th^ bonded harbor area (to be located in
Hainan Province) were officially approved in late 2007. The opening of
the Dayaowan Bonded Harbor Area in Dalian is seen as a major step
towards the formation of a free trade zone between China, Korea and
Japan.

Bonded harbor areas enjoy preferential taxation and foreign exchange
policies designed to promote shipping and logistics industries in China.
These preferential tax policies include removal of tariffs on foreign
cargo, tax rebates for domestic cargo, and exempting businesses from VAT
and consumption taxes on trade occurring within the boundaries of the
bonded harbor area. Still under construction, it is estimated once the
port is fully operational that the efficiency of the port will increase
by more than 20 percent. The Dayaowan Bonded Harbor Area is expected to
be completed by the end of 2008 with a final total area of 6.88 square
kilometers. ![](media/image3.jpeg){width="2.3965277777777776in"
height="1.7916666666666667in"}

*Dalian's Pioneering Areas Leading the Way*

Dalian's four other pioneering areas, including the city's Economic and
Technological Development Zone, High-tech Industrial Park, Golden Pebble
National Resort, and the Central Business District of Dalian Xinghai
Bay, have also contributed to the city's economic success.

With 22 colleges and universities churning out thousands of graduates
every year, Dalian is investing heavily in its human capital resources.
Seen by the Chinese and international communities as a model developing
city, Dalian's graduates are helping raise the city's status by shifting
its industry focus to include not only lower-skilled factory work and
processing but also more highly skilled and increasingly technical jobs.

This is especially true in the area of information technology (IT) and
software development. To increase the city's attractiveness, the
municipal government reportedly offers tax breaks for businesses
involved in software, genetics, aerospace technology, and other
high-tech industries and ventures. Competing against international IT
destinations such as Bangalore (India), Dublin (Ireland), and the
Silicon Valley (California), Dalian has successfully won favor with over
230 international IT companies, including large firms from the U.S. such
as Hewlett-Packard, IBM, and Dell. In 2006, Dalian's IT industry
generated more than RMB 14 billion in revenues, a 50 percent increase
over 2005.

*Food Processing in Dalian*

Food processing is one of the top industries in Dalian. Famous for its
fruit production bases, as well as for its aquatic and seafood products,
Dalian's annual food production in 2006 was valued at RMB 39.05 billion.
In 2006, Dalian processed 2.54 MMT of vegetables; 1.06 MMT of fruit;
653,000 MT of meat, and more than 234,000 MT of poultry and eggs.

Due to its strong logistics industry, port infrastructure, and the
preferential trade policies related to the Dayaowan Bonded Harbor Area,
Dalian has placed itself in a prime position for food processing.
Seafood processors in Dalian have earned a reputation throughout the
Northeast for producing high quality products, and much of the processed
seafood is exported to Japan, Korea, EU, and the U.S. Many international
seafood suppliers take advantage of Dalian's processing expertise and
geographic position, and a majority of the foreign-origin seafood
arriving in the port is frozen or smoked by processors in Dalian
specifically for re-export. However, the local seafood processing
industry has not kept pace with Qingdao, another important Emerging City
Market which is the top seafood processing destination in China.

**Retail Outlet Situation**

As in many first and second-tier cities in China, the presence and
influence of multinational retailers in Dalian is growing. Big
international retail outlets such as Carrefour, Wal-Mart, and Tesco, are
established fixtures in the retail landscape. Especially with the
high-profile media coverage of food contamination issues over the past
few years, consumers are increasingly concerned with food safety and
have turned toward hypermarts and supermarkets and away from traditional
'wet market' formats when purchasing food. The convenience, hygiene, and
cleanliness of these newer retail formats are attractive features for
many urban and increasingly well-heeled consumers. Offering an extensive
variety of fresh produce, fresh and frozen meat and seafood, prepared
food, and food service sections, these retail formats continue to grow
in popularity. Many of these outlets are located in malls or other large
family-friendly shopping destinations complete with restaurants,
cinemas, fashion boutiques, sporting goods stores, and other specialty
shops. Shoppers in Dalian are known for shopping frequently, sometimes
more than once a day.

  ----------------------- ---------------- ------------------- ----------------
  **Dalian Retail Outlet                                       
  Snapshot -- 2006**                                           

  **Type**                **Name**         **Ownership**       **Outlets**

  Hypermarkets            Carrefour        French JV           2

                          Wal-mart         U.S.                3

                          Metro            German JV           1

                          Tesco (Hymall)   British/Taiwanese   1

  Supermarkets            DaShang          State-owned         7

                          Hualian          State-owned         2

                          Trustmart        Taiwan JV           2

  []{.mark}               Lego             Taiwan JV           3

  Convenience Stores      LianHua          State-owned         50
  ----------------------- ---------------- ------------------- ----------------

Internationally owned or operated supermarkets and hypermarts are the
main vendors of imported consumer products although imports only account
for a small percentage of sales. However, with the growing influence of
multinational retailers in Dalian's retail sector, opportunities for
U.S. imported products are increasing. This is especially true for
'premium' imported items which are reputed among Chinese consumers to be
of higher quality and safer than domestic substitutes. However, because
of the high prices of many U.S. products few urban consumers buy U.S.
imports on a regular basis, but instead prefer to purchase them during
holidays as gifts. Chinese holidays are very different from Western
ones, so it is important to learn about Chinese holiday periods to gain
a better understanding of the opportunities available for U.S. food and
agricultural imports. Key Chinese holidays for U.S. food and
agricultural imports are Spring Festival, Golden Week, and National Day
Holidays.

**HRI Sector**

Only an hour by air from Beijing, Dalian is a popular and convenient
location for international and domestic conferences and conventions. In
September 2007 the World Economic Forum held the world's first Summer
Davos meeting in Dalian. The World Economic Forum chose Dalian as the
location for its "Inaugural Annual Meeting of the New Champions" because
of its economic success and commitment to environmental protection.
Immediately following the Summer Davos meeting was the 33^rd^ China
Daily CEO Roundtable. Entitled the "Strategic Partnership between
Emerging Cities and Entrepreneurs: The Dalian Vision" the Roundtable
brought together business and government leaders to discuss the
importance of collaborative and cooperative efforts between cities and
businesses in today's rapidly globalizing world. The editor-in-chief of
the China Daily was quoted as saying that Dalian was an ideal location
for the meeting because "Dalian represents the emerging cities of the
world. It's a city where we would like our children to live and grow
up."

![](media/image4.jpeg){width="2.479861111111111in"
height="1.8583333333333334in"}

Other conventions and meetings that have been held on a regular or
irregular basis in Dalian include the city's annual International
Fashion Festival, a week-long event promoting exchanges between Chinese
and foreign fashion designers; the China Fisheries & Seafood Expo; and
the Dalian Import & Export Commodities Fair. In 2006 alone, 119 large
exhibitions were held in Dalian. Various industries including software,
seafood, biotech, and port logistics have selected Dalian as their
choice for a variety of conferences, expositions, and meetings,
generating revenue for Dalian's growing HRI sector.

Due to the demand created by Dalian's international and domestic
visitors, the city's collection of five-star hotels continues to expand
beyond its current collection of ten. In August 2007, the Xinhua News
Service reported that Dalian plans to build 20 new five-star hotels over
the next decade. This plan to expand the industry's first-class
accommodations is indicative of the service industry's increasing
importance to the domestically and internationally driven economy of
Dalian.

This is indeed good news for U.S. food producers and exporters as
high-end hotels are the primary end-users of imported U.S. food products
in Dalian. Most of the city's Western-style restaurants are located in
Dalian's upmarket hotels. Thanks to changing tastes among Dalian's more
urban and prosperous residents and the influx of international travelers
visiting the city, Western-style restaurants have gained in popularity.
For many of Dalian's affluent citizens, dining in one of the expensive
Western restaurants located in a five-star hotel is a way to demonstrate
economic success and prosperity. Overall, high-quality, premium U.S.
meat, seafood, and alcohol including wine are the main beneficiaries of
this trend.

The nightlife in Dalian, as in many large cities in China, has evolved
in recent years. Popular entertainment areas filled with bars and
restaurants include Russian and Japanese Streets, as well as the
downtown area immediately around the Furama and Shangri-la Hotels. These
areas may provide additional market opportunities outside five-star
hotels.

Despite the promising outlook for U.S. food imports, it is important to
note that U.S. products still face stiff competition from other foreign
producers, particularly Japan and Korea. With their geographical
proximity to Dalian and historical ties, Korea and Japan have distinct
advantages over U.S. suppliers and products in the HRI and retail
sectors. The strong Japanese and Korean expatriate population combined
with the influential business travelers from these countries, ensures
Korean and Japanese imports enjoy solid demand.

U.S. exporters should be conscious of the competition from these sources
as well as established local suppliers offering less expensive domestic
substitutes. This is especially true for seafood products which are in
abundant supply in Dalian. In order to effectively establish a
significant level of market share of the import market, U.S. food and
agricultural products must be differentiated from competitors' products
through proper branding and marketing.

*Wedding Bells in Dalian*

Due to its picturesque environs, favorable weather conditions, and short
distance from Beijing, Dalian enjoys a booming wedding industry. With
one prominently displayed electronic billboard located in its downtown
square welcoming visitors to "Dalian - the City of Romance," the city
proudly accepts the moniker. Dalian's wedding industry offers a wide
array of services to provide blissful couples with wedding photos,
custom-made wedding attire, wedding hall facilities, post-wedding
reception banquets, and tourism.

These features make Dalian an attractive location to hold weddings, and
indeed many of the five-star hotel facilities in the city are booked
well in advance. According to the Food and Beverage Director of the
Furama Hotel, the hotel already has wedding reservations through 2009.
Wedding banquets play a major role in Chinese weddings, and are an
important source of revenue for Dalian's high-end hotels, and may be a
potential market segment specific opportunity for high quality, premium
imported food products.

**SWOT Analysis**

U.S. imports encounter a variety of unique advantages and disadvantages
in Dalian. The following analysis highlights some of the key points that
U.S. exporters and producers should bear in mind when developing their
entry strategy for this particular emerging city market.

**Recommendations**

There are several basic steps that producers and exporters should
consider before attempting to enter into the Chinese consumer market,
especially in China's Emerging City Markets, such as Dalian. The
following course of action is advised:

-   **Research the Market and Target Consumer-Base:** The consumer
    market in China is not homogenous and it is important to develop a
    market-entry strategy that takes into account regional consumer
    tastes and preferences.

-   **Find a Local Distributor:** Develop a relationship with local
    distributors with experience in providing products to the targeted
    market. Collect as much insider-information as possible, and
    identify which products are likely to succeed in Dalian.

-   **Provide Consumer and Retailer Education:** Unfamiliar imported
    products (e.g. mustard, salsa, etc.) may confuse retailers and
    consumers, so it is important to use marketing and lifestyle
    campaigns to educate consumers and stimulate demand.

-   **Consider a 'Premium' Pricing Policy:** Like many Emerging City
    Market cities in China, Dalian is still a relatively price-sensitive
    market. However, consumers are increasingly willing to purchase
    'premium' brand imports, especially if the product is thought to
    meet stringent quality and safety standards.

-   **Promote Brand Awareness:** Chinese consumers are more brand
    conscious than their counterparts in other countries, and it is
    important to capitalize upon this fact. Media campaigns,
    demonstrations, sales, and other marketing promotions can be useful
    in differentiating a product from its competitors.

-   **Keep Chinese Holidays in Mind:** Demand for imported products is
    particularly high during holidays. Purchasing high-quality imported
    food, especially from the U.S., allows consumers to display their
    affluence and economic status. Important holidays associated with
    gift giving include Spring Festival, Golden Week, and National Day
    Holidays.

-   **Potentially Popular Products:** High-end seafood and alcoholic
    beverages are likely to sell well in Dalian, as well as meat
    products, especially beef once import restrictions on U.S. beef
    imports are lifted.

**North and Northeast China's Emerging City Markets (ECMs)\
**

To learn more about China's Emerging City Markets please visit
[www.fas.usda.org](http://www.fas.usda.org/) and view FAS China's
reports available under **Attaché Reports**. ECM reports and city
profiles are updated throughout the year, so be sure to check the
website regularly or subscribe to FAS Attaché Reports to receive
information about new Attaché Report publications.

Several ECM reports regarding cities in North and Northeast China have
been released in 2006 and 2007. Cities recently covered include Tianjin
(CH7414), Xi'an (CH7411), Qingdao (CH6414), Shenyang (CH6407), and
Harbin (CH6406). A report containing information about the economic
potential of Emerging City Markets in China (CH 7403) was published in
early 2007 and clearly defines the specific characteristics and
attributes of ECMs.

# 

# Contact Information and Useful Websites:

**Agricultural Trade Office, Beijing**

**Embassy of the United States of America**

Tel: (86-10) 8529-6418

Fax: (86-10) 8529-6692

Email: <ATOBeijing@fas.usda.gov>

Web: [www.USDAChina.org](http://www.USDAChina.org/)

**Office of Agricultural Affairs, Beijing**

**Embassy of the United States of America**

Tel: (86-10) 6532-1953

Fax: (86-10) 6532-2962

Email: <AgBeijing@fas.usda.gov>

**Agricultural Trade Office, Chengdu**

Tel: (86-28) 8558-3992

Fax: (86-28) 8513-8698

Email: <ATOChengdu@fas.usda.gov>

Web: [www.USDAChina.org](http://www.USDAChina.org/)

**Agricultural Trade Office, Guangzhou**

Tel: (86-20) 8667-7553

Fax: (86-20) 8666-0703

Email: <ATOGuangzhou@fas.usda.gov>

Web: [www.USDAChina.org](http://www.USDAChina.org/)

**Agricultural Trade Office, Shanghai**

Tel: (86-21) 6279-8622

Fax: (86-21) 6279-8336

Email: <ATOShanghai@fas.usda.gov>

Web: [www.USDAChina.org](http://www.USDAChina.org/)

**Animal and Plant Health Inspection Service**

**Embassy of the United States of America**

Tel: (86-10) 6532-3212

Fax: (86-10) 6532-5813

**Official City of Dalian Website**

<http://2003.dl.gov.cn/i18n/en/>

**Dalian Foreign Trade and Economic Cooperation Bureau**

<http://www.dalian-gov.net/index-e.asp>

**Dalian News**

<http://www.runsky.com/en>