Required Report - public distribution

**Date:** 10/13/2005

**GAIN Report Number:** CH5818

CH5818

**China, Peoples Republic of**

**Market Development Reports**

**Chongqing: An Underdeveloped Market in China\'s Interior**

**2005**

**Approved by:**

![](media/image1.wmf)Ross Kreamer

U.S. Consulate

**Prepared by:**

Cindy Marks

**Report Highlights:**

Sitting on the Yangtze River deep in China's interior, Chongqing remains
a largely undeveloped market for imported foods. Processed and high
value products dominate among food imports, with the exception of
soybeans, which are now imported directly to feed a nascent soy crushing
industry. The vast majority of food imports arrive indirectly via
coastal cities, from whence they are shipped primarily to Chongqing's
growing population of 5-star hotels. US producers considering Chongqing
as a potential market should be careful to account for fragmented
logistics and distribution, as well as the needs of high-end
international hotels, into account.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Shanghai \[CH2\]

\[CH\]

Table of Contents

[**Chongqing: Rising out of the Hills**
3](#chongqing-rising-out-of-the-hills)

[The Mountain City: China's Largest Inland Port
3](#the-mountain-city-chinas-largest-inland-port)

[Some Like it Hot! 4](#some-like-it-hot)

[Expansion of Infrastructure 4](#expansion-of-infrastructure)

[Focus on Heavy Industry 4](#focus-on-heavy-industry)

[Sector Analysis: Agriculture 5](#sector-analysis-agriculture)

[Chongqing's Exports: Silk Products Top the List
5](#chongqings-exports-silk-products-top-the-list)

[Current Market Situation 6](#current-market-situation)

[5-Star Oases Offer Taste of Home & High Quality Western Food
6](#star-oases-offer-taste-of-home-high-quality-western-food)

[Clients 6](#clients)

[Imports 6](#imports)

[Challenges 7](#challenges)

[Supermarkets and Retail Outlets 7](#supermarkets-and-retail-outlets)

[Prospects for the Future 8](#prospects-for-the-future)

[ATO/Cooperator Activities 9](#atocooperator-activities)

[Contact Information 9](#contact-information)

## Chongqing: Rising out of the Hills

Resting on the upper reaches of the Yangtze River in the heart of
China's Southwest, Chongqing (previously known to some as Chungking) is
famous for its hilly urban center, spicy food, and hot weather. Like
Beijing, Tianjin, and Shanghai, Chongqing is an independant municipality
answerable directly to China's central government. Its status is
somewhere between that of an independent city and a small province. The
municipality of Chongqing was established in 1997, carved out of the
eastern section of Sichuan Province. Its population of over 31.4 million
and land area of 82,000 square kilometers make it the largest of China's
four municipalities, and it is actually larger than several provinces. A
beneficiary of China's "Go West" policy, Chongqing's economy has grown
steadily over the last decade. GDP reached USD \$32.2 billion in 2004,
an increase of 12.2% over 2003.[^1] Long a base for heavy industry,
Chongqing is developing as an important trading center in China's
Southwest, with imports and exports totaling USD \$3.86 billion in 2004.
Although industrial production dwarfs agricultural output, the
municipality's large land area also makes it a significant producer of
tubers, raw silk, and in more recent years, processed soybean products.
The municipality is divided into two regions: the city of Chongqing and
the less developed rural areas around it, which comprise over two-thirds
of the land area. Purchasing power is centered in Chongqing city's 6
million residents, whose disposable income climbed 14% in 2004 to USD
\$1,115 (9,221 RMB). Despite its rapid growth, Chongqing remains a
somewhat isolated city, underexposed to Western food products, often
ignored by traders, and underveloped as a market for imported foods. In
its current state, it is a viable emerging market only for those
committed to building a client base through long-term market
development, consumer education, and other training programs.
![](media/image2.wmf){width="3.3930555555555557in" height="2.51875in"}

## 

## The Mountain City: China's Largest Inland Port

During WWII Chongqing was the wartime capital of China's Nationalist
government and an allied supply post. It is better known today as the
starting and ending point for tourist cruises that sail along the
Yangtze River, carrying domestic and international passengers past the
famed Three Gorges and the Three Gorges Dam, and a multitude of
riverside towns. Chongqing city is built on hilly land and is often
known as "the Mountain City." Buildings and roads in the central
district are constructed on steep hillsides, making for a dramatic
skyline. Situated at the convergence of the Jialing and Yangtze Rivers,
the city is the largest inland port in China and the economic center of
the upper reaches of the
Yangtze.![](media/image3.jpeg){width="3.0305555555555554in"
height="1.6277777777777778in"}

### Some Like it Hot!

One of China's "Four Furnaces," Chongqing's annual humidity averages 76%
and its skies are often hazy and foggy. Its four seasons can be labeled
as early spring, hot summer, rainy autumn, and warm winter. Temperatures
average 84F (29C) in summer and 50F (10C) in winter. Like the local
climate, the Chongqing palate is well-known for its heat, and is broadly
similar to the better-known Sichuan cuisine. Many dishes use a spice
called *mala*, which creates both a spicy flavor and a numbing sensation
in the mouth. The local specialty is *huoguo*, or hotpot. Diners place
raw meat, fish, and vegetables into a communal pot set over a small
heater or gas flame in the middle of a table, and pick out their
favorites when the food is cooked. The broth is famously spicy, though
non-spicy options are also available. Chongqing hotpot is famous across
China and restaurants specializing in the dish are common throughout the
country. Initial efforts in Chongqing have found that U.S. products do
well, once logistical and price issues are resolved.

## 

### Expansion of Infrastructure

Chongqing's status as a municipality brings the benefits of abundant
central government funding, which has been used to support extensive
infrastructure projects and other "Go West" development programs. The
city is preparing to host the thoroughly hyped Fifth Asia Pacific Cities
Summit from October 11-14, 2005, which will bring together
representatives from various Pacific Rim cities to discuss urban
planning and development strategies. In preparation for this summit,
Chongqing has invested USD \$834 million (6.9 billion RMB) on 56 primary
renovation projects and 77 auxiliary ones, including a new International
Convention Center. [^2] The new domestic terminal at Chongqing Jiangbei
International Airport was completed in December 2004. During Post's
visit to Chongqing in July 2005, most major roads in the city center
were under simultaneous construction in order to complete infrastructure
upgrades in time for the October Summit. The municipal government is now
expanding its Jiulongpo, Cuntan, Wanzhou and Fuling docks to enlarge
their combined capacity to 1.2 million
TEUs.[^3]![](media/image4.jpeg){width="3.2875in"
height="2.191666666666667in"}

An Olympic Sports Center was completed in 2004 to host part of the Asian
World Cup. In December 2003, Chongqing completed a project called
"8-hour travel within Chongqing" involving the creation of a vast
high-speed traffic network, which allows Chongqing residents from all
over the municipality to reach the city center within 8 hours. A 19-km
monorail system capable of transporting 200 million passengers a year
opened in November 2004 after less than 5 years of construction, and
extensions are already in the planning stages.

### Focus on Heavy Industry

Heavy industry has been the base of Chongqing's economy for decades. In
2004, industrial production climbed 17% over the 2003 figure to reach
USD \$11.2 billion, accounting for half of the municipality's economic
growth.[^4] A large contributor to this was the transportation equipment
manufacturing industry, which grew 23% to USD \$2.2 billion. The Changan
Ford Joint Venture plant produces the Fiesta and Mondeo models at its
Chongqing facility, sending many of the cars down the Yangtze on barges
toward Shanghai. Several major motorcycle companies are based in
Chongqing including the well-known Chinese brand Lifan. Local auto and
motorcycle parts suppliers provide the large plants with much of their
required inputs.

Along with cars and motorcycles, Chongqing is a significant producer of
machine tools, steel, cement, and natural gas. In addition, Sony,
Ericsson, and Nokia all have plants outside the city center. In 2004
Chongqing's industrial exports, which rose 26% to USD \$1.6 billion,
accounted for over 75% of the municipality's total exports.

Overall, Chongqing's total exports reached USD \$2.1 billion in 2004, up
32% over 2003. Total imports rose significantly in 2004 to USD \$1.8
billion, up 75% over 2003.

## Sector Analysis: Agriculture

Chongqing's special status as a directly governed municipality means
that it encompasses a very large amount of agricultural land. Thus,
despite the municipality's focus on industry, two-thirds of Chongqing's
land is classified as rural and the municipality is a significant
producer of certain agricultural products. According to China's
Statistical Yearbook, in 2003 Chongqing ranked #3 in China in the
production of tubers, #8 in silkworm cocoons, #8 in citrus, #9 in
tobacco, and #10 in rapeseed.

### Chongqing's Exports: Silk Products Top the List

Trade numbers for Chongqing are difficult to pin down. Although the city
is technically a port and has customs clearing facilities, the vast
majority of trade is cleared in coastal ports such as Shanghai and
Guangzhou, then shipped overland by truck or barge to Chongqing. Such
trade is impossible to quantify, as official statistics only track these
items as far as the port of entry.

Chongqing's government has spent increasing amounts of money on training
programs designed to help local traders learn regulations governing
import-export transactions. With strong government support, agricultural
exports direct from the city to overseas destinations totaled USD \$154
million in 2004, an increase of 7% over the previous year.[^5]
Agricultural products exported direct from Chongqing are dominated by
silk, silk products and linen, most destined for India for further
processing.

### 

Due to its location deep in China's interior, very few agricultural
exports to Chongqing reach the city directly. Most pass throught
Guangzhou, Shanghai or other large port cities---arriving by boat on the
Yangtze, by air or by land. As a result, Chongqing's actual imports of
food products are difficult to estimate. One exception is direct soybean
imports, which, according to one municipal official, reached
approximately USD \$30 million in 2004. Municipal statistics show that
soybean imports have skyrocketed in 2005, with imports from January
through June reaching USD \$62 million. Local officials attribute this
to growth in the soy crushing industry. In late 2002, the Xinfun Food
Company established a plant with funds from the Singaporean Fanlian
Group. Its soybean oil, bottled under the brand names *Xinlongfei* and
*Luzu*, and soy by-products can be shipped to Shanghai by boat along the
Yangtze in 4-5 days.

## Current Market Situation

Chongqing currently has two major markets for US agricultural exports:
the hotel sector and the supermarket sector. The restaurant industry is
not a significant importer, and most international fast food outlets
import goods through their own centralized distribution systems via
coastal cities.

### 5-Star Oases Offer Taste of Home & High Quality Western Food

Chongqing city is home to several 5-star hotels including Hilton,
Marriott, Harbour Plaza, and Holiday Inn. An Intercontinental hotel will
open shortly, and both Sheraton and Hyatt are planning to build new
hotels as well. Catering to the increasing numbers of domestic and
international travelers visiting Chongqing for business, conferences,
and tourism, these high-end hotels reflect Chongqing's rising importance
in China's Southwest. At the same time, increased competition in the
international hotel market is forcing hotels to cut rates, thereby
reducing budgets available to hotel chefs. One hotel manager commented
to Post that the average rate of a 5-star hotel room in Chongqing is
about USD \$55 including breakfast, whereas a similar room in Shanghai
can cost over USD \$300. Of the USD \$55 charged in Chongqing, about USD
\$4 is allocated to the chef's breakfast budget.

#### Clients

Chongqing's 5-star hotels are frequented by local and international
business people, government officials, expatriates working for
Chongqing's large international companies, and a small number of
students studying abroad. Although many high-end hotels would like to
expand their client base to include mid-range customers, high prices
relative to local options continue to slow their advance into the middle
class market. Five-star hotels sell meals and prepared food in their
bars, coffee shops, and restaurants. Some also provide breads, cheeses
and other hard-to-find Western food items at retail counters, in the
form of small bakery shops, as a service to clients and companies who
use hotel services for conferences, long-term stays, and other
functions. At the time of Post's visit, the Hilton was sponsoring an
American Cuisine Promotion during the month of July in celebration of US
Independence Day, followed by a general meat promotion in August. While
catering mainly to the international business community, promotions also
aim to lure more local customers by offering a unique dining experience
and a taste of Western food. Hotels in Chongqing have found that
promotions can also be helpful in developing supply chains for new
products.

#### Imports

Star-rated Western hotels import products for several reasons: to
provide Western-style food to guests as required by their internal
standards, to meet customer demand for foods not readily available
elsewhere, and to address food safety concerns. Several hotels used
imported angus beef in the past with decent success because angus
appealed to customers as a unique product. Yet, as reported by suppliers
and chefs, the price was considered too high for sustained use, and
Chinese regulations currently prohibit imports of US beef due to BSE
concerns. Hotels sometimes use expensive imports for promotions, but
later switch to cheaper local substitutes as in the case of goose liver.
One hotel reportedly switched from an expensive imported goose liver
(1,000 RMB per kilo) to a local product that was one tenth the cost, but
was able to charge customers the same high price because few could tell
the difference. Thus, consumer education programs are needed to develop
more understanding and appreciation of fine imported foods. In other
cases, individual hotels order relatively small amounts, requiring
distributors to build a large base of clients before trading can become
profitable.

One chef at a 5-star hotel in Chongqing informed Post that his hotel
uses the following imported items: frozen salmon (Europe), frozen
poultry (US), dry spices (US/UK/Australia), condiments (US), pastry
products (some from US, but mostly France), purees/frozen berries
(Europe), and wines (many countries). He noted that several Western food
products were difficult to find in Chongqing: corn chips, salsas,
tomato-based products (as bases for pizza sauces), chocolate products,
baking components, bases for muffin mixes. Although there appears to be
fairly high demand among hotels for such imported products, few traders
have stepped in to supply the goods. High transportation costs have made
most imported fresh fruit too expensive for hotel use, and the bulk
comes from domestic sources (one hotel reports that 80% of its fruit
supply is flown in from Beijing). Similarly, some hotels fly in fish
from coastal cities, including Hong Kong. Most 5-star hotels offer at
least a few US wines, but the U.S. labels face stiff competition from
Chilean, New Zealand, and Europe. Food safety is a major concern for
international hotels, so some produce highly perishable goods like ice
cream on their own rather than bringing them in from the outside.

#### Challenges

Hotels and distributors face significant challenges in Chongqing. For
example, distributors often require hotels to order very large
quantities of a single item in order to guarantee supply, but limited
hotel storage space makes this difficult. Poor communications channels
between hotels and traders have added barriers as well. One trader noted
that his company had to seek out a supplier of frozen turkey for his
hotel customers because no poultry suppliers had ever approached him
about doing business in Chongqing. At present, his company provides each
of its hotel clients with about 30-40 turkeys every Christmas.
Expatriates in Chongqing form a sound base of purchasing power at
international hotels, but still do not constitute a large enough market
to merit large quantities of imports. One recent *Wall Street Journal*
article noted that Ford's Chongqing plant employs about 25 expatriates,
many of whom live long-term with their families in one of the city's
5-star hotels.

### Supermarkets and Retail Outlets![](media/image5.jpeg){width="3.1555555555555554in" height="2.1034722222222224in"}

Chongqing is home to several international supermarket chains: Carrefour
(3 outlets), Metro (1 outlet), and Wal-Mart (1 outlet, opened June 30,
2005), all of which have plans for further expansion in the region. The
Chinese company Hualian has multiple supermarkets in the city, as do
other Chinese chains like New Century (*Xin Shiji*) and the Chongqing
Department Store Supermarket (*Chong Bai Hou*). One recent *China Daily*
article noted that, as of May 2005, there were 76 supermarkets in
Chongqing city, covering a total area of 1.08 million square meters and
involving a combined investment of 4.2 billion RMB (USD \$508
million).[^6]

Despite the proliferation of international supermarkets, a recent visit
to one of the smaller outlets found just 3 products imported from the
U.S.: apples, microwave popcorn, and one variety of wine. Larger
outlets, particularly newer stores, sell more U.S. products, but the
variety of imports clearly falls far short of more developed interior
cities such as neighboring Chengdu. A merchandising manager for one of
the newer international supermarkets in Chongqing noted that US wine and
snack foods might sell well for mid-Autumn Festival, so there appears to
be interest among some outlets for more international products.
Retailers also expressed a willingness to participate in promotions and
expand their list of U.S. products.

In May 2005, Carrefour announced plans to expand sales of pork meeting
the "Green Food" standard to Chongqing. "Green Food" is a term used for
foods grown within a specific set of standards for pesticide and
fertilizer use in areas identified as free from contamination. Although
the product costs about 30% more than standard pork, sales in Beijing
have increased steadily since it was introduced on a trial basis in
early 2004. The decision to offer this product in Chongqing may signify
a rise in the number of middle-income customers who are willing to pay
extra money for higher quality food. It also confirms Post's experience
in Chengdu, where high quality U.S. pork products sold extremely well.
Such growth bodes well for U.S. products, which tend to thrive in
China's higher-priced niche markets.

## Prospects for the Future

Companies arranging promotional activities in Southwest China often
overlook Chongqing, focusing on more developed markets in cities like
Chengdu in Sichuan Province and Kunming in Yunnan Province. Local
traders note that they have received promotional materials from
suppliers, but no personal visits or telephone calls. Chongqing is not
generally considered a center for international cuisine, and the head
chef at one of the most expensive Chinese restaurants in Chongqing noted
that restaurants in Chengdu can charge more per dish than in Chongqing.

Yet even in this challenging environment, traders have found success
selling several U.S. products such as canned goods (corn, beans, beets,
fruit, peas), tomato products, nuts, dairy products, condiments, and
sauces. Price continues to be a major issue, as imports are not often
available in Chongqing at the competitive prices found in nearby cities
like Chengdu. In addition, inexpensive local substitutes for products
like nuts and pork are available, which means that consumers must be
convinced that the U.S. products are sufficiently different to warrant
the higher price.

As in most other large Chinese cities, Chongqing is home to a rising
group of middle and upper-income consumers. The expatriate community is
also expected to grow as international companies build up their
operations in Chongqing. The population of domestic business people
traveling through and living in Chongqing is already climbing, and
massive new villas for Chongqing's elite are being built outside the
city center. The most expensive of these villas costs a reported 30
million RMB (USD \$3.6 million), indicating the presence of an extreme
high-end but very small niche market. These high-income domestic and
international residents could potentially develop into a sizeable market
for US-made goods, much like their counterparts in other major cities.

  --------------------- -------------- ---------------------------------------
  **Chongqing: Best                    
  Product Prospects**                  

  **Product**           **Market**     **Notes**

  Baking ingredients,   Hotel          Baked goods are an important staple for
  bread bases                          Western hotels, so demand for baking
                                       ingredients should increase as more
                                       5-star hotels open in the city.

  Dried fruit and nuts  Hotel/Retail   Common as snacks and as ingredients in
                                       Western pastries and other dishes,
                                       dried fruit and nuts have excellent
                                       potential. Local substitutes are
                                       available, but usually have a
                                       significantly different texture and
                                       taste than US products.

  Tomato products       Hotel          Although Western hotels use tomato
                                       bases for multiple dishes (pizza,
                                       pasta, basic sauces), few high-quality
                                       tomato products are currently
                                       available.

  Seafood               Hotel          Several hotels and traders are already
                                       importing fish, including Norwegian
                                       salmon. US seafood producers will need
                                       to differentiate their products from
                                       local and import competitors.

  Canned goods          Hotel/Retail   Canned goods have already reached the
                                       Chongqing market (non-perishable items
                                       do better in interior cities). Traders
                                       are advised to investigate local taste
                                       preferences to determine which products
                                       fit well with local palates.

  Condiments & sauces   Hotel          International hotels frequently use
                                       imported condiments and sauces to offer
                                       international guests a flavor from
                                       home, so growth in the hotel sector
                                       could benefit US producers of
                                       condiments and sauces.

  Meat                                 Logistics remains the primary barrier
  (pork/poultry/beef)                  for these sensitive products. Chicken
                                       wingtips and paws are popular
                                       throughout China, and likely to do well
                                       in Chongqing. US Pork has done well in
                                       neighboring Chengdu, which bodes well
                                       for Chongqing.
  --------------------- -------------- ---------------------------------------

## ATO/Cooperator Activities

ATO/Shanghai organized a Chef Seminar in Chongqing on September 21 to
raise awareness of US-made food products. The promotion brought together
30-40 Chinese and Western chefs from Chongqing's 4 and 5 star hotels. A
Chinese guest chef from Hong Kong, now working in Chongqing, led a
half-day training session to introduce US products, demonstrating
various ways to incorporate them into Chinese cuisine. ATO/Shanghai will
continue to work with cooperators to explore the possibility of
arranging marketing, training, and other promotional activities to
develop the market for U.S.-made food products in Chongqing.

## 

## Contact Information

ATO/Shanghai is continually working on new activities in Chongqing,
Southwest China, and the Yangtze River area. For more information,
please contact us directly.

U.S. Agricultural Trade Office, Shanghai

Shanghai Center, Suite 331

1376 Nanjing West Road

Shanghai 200040, China

Phone: (86-21) 6279-8622

Fax: (86-21) 6279-8336

E-mail: atoshanghai@usda.gov

[^1]: "2004 Chongqing Municipality Economic and Social Development
    Statistical Report." Available in Chinese at:
    www.cq.gov.cn/jjsh/tjzl/tjgb/20050321431.HTM

[^2]: "Chongqing: Urban look improving daily." *China Daily*, Special
    Supplement. May 16, 2005.

[^3]: "Effective traffic network underway." *China Daily*, Special
    Supplement. May 16, 2005.

[^4]: Statistics in this section from "2004 Chongqing Municipality
    Economic and Social Development Statistical Report." Available in
    Chinese at: www.cq.gov.cn/jjsh/tjzl/tjgb/20050321431.HTM

[^5]: Statistics in this paragraph from "Chongqing January to December
    2004 Agricultural Exports." Available in Chinese at:
    www.ft.cq.cn/content.asp?filename=txt/70152906

[^6]: "Municipality targets commerce centre." *China Daily*, Special
    Supplement. May 16, 2005.