Voluntary Report - public distribution

**Date:** 3/24/2006

**GAIN Report Number:** CH6406

CH6406

**China, Peoples Republic of**

**Market Development Reports**

**City Profile: Harbin, North China Emerging Market**

**2006**

**Approved by:**

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

U.S. Embassy, Beijing

**Prepared by:**

Yang, Mei, Li, Xueqing, Norman Xiao

**Report Highlights:** Known as China's Winter Wonderland, Harbin has
quickly emerged as a major regional market for Northeast China, and
beyond. The Northeast has gone through a series of dramatic changes, yet
renewed and government-led initiatives have revitalized the economy of
Harbin, and surrounding Heilongjiang Province. Traditionally
cosmopolitan and commercially oriented, Harbin is the major trade,
transportation, and communications hub for North China with a wealth of
natural resources, bountiful supply of skilled labor and excellent
positioning on the Chinese-Russian Far East border right next to Korean
and Japan. Harbin offers considerable market opportunities for U.S.
food, and agricultural products.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Beijing \[CH1\]

\[CH\]

**Winter Wonderland, "City of Ice"**

Located in southern Heilongjiang Province along the banks of the
Songhuajiang River, on the Songnen Plain, Harbin is the major trade,
transportation, and communications hub for Northeast China. At the
vortex of the two most important railroads in Northeast China, Harbin is
also the main freshwater port for the Songhuajiang River. Harbin is
China's premier ski and winter holiday destination. Also, it is
increasingly a popular summer travel destination for urban travelers
from the South seeking cooler climes, and fresher air.

Harbin's strategic geographic positioning, well developed transportation
systems, wealth of natural resources, large talent pool, somewhat
progressive government, and blue skies all combine to make the city a
highly attractive place to do business. China's Central Government
initiative known as \'Revitalize the Northeast\', has resulted in
significant changes and development over the past two to three years.
Middle class consumers are on the rise along with an explosion in
retail, HRI and entertainment venues. Perhaps Anheuser-Busch
International, CEO & President, Steve Burrows sums it up best, "Harbin
is the commercial center for Northeast China and an important commercial
hub for all of northern Asia."

**Harbin, "Revitalized Economy"**

Heilongjiang or 'Black Dragon River' Province derives its name from the
rich black topsoil of the area. In spite of its northern latitude and
very frigid winters, Heilongjiang is referred to as China's 'Bread
Basket.' Historically, the region was the primary source of grain,
timber, oil and coal. Heilongjiang and Harbin were at the center of
China's State-planned mining, steel production, and heavy engineering
industrial period, but as China's market economy evolved, these
State-operated industries declined along with Harbin\'s economic
fortunes.

Harbin has gone through a series of dramatic changes and renewed
development over the past few years thanks to a Central Government-led
initiative known as \'Revitalize the Northeast.\' A US \$1.8 billion
Harbin-Daqing-Qiqihar (HDQ) industrial corridor development initiative
is currently under way, and is expected to continue over the next 15
years. Pearl River and Yangtze River Delta development successes
indicate just how important regional co-operation can be to development.
Northeast China's economic integration is enabling the rapid development
of its three provinces: Jilin, Liaoning, and Heilongjiang. Co-operation,
resource sharing as well as information and planning remain key to HDQ
Initiative success. Located at the geographic center of the region,
Harbin is benefiting as neighboring Korean and Japan continue a shift
from manufacturing to high-tech industries. Heilongjiang's geographic
location on China's border with the Russian Far East, its wealth of
natural resources, and bountiful supply of skilled labor all reinforce
the Northeast's revitalization.

**Investment Developments** In 2004, Anheuser-Busch purchased China's
4^th^ largest beer brand 'Harbin Brewery', demonstrating both confidence
in the China market but more importantly Northeast China's market
potential. Other developments in the region include the opening of the
first processing facility in Harbin by McCain Foods Ltd last year, the
world\'s largest frozen French fry manufacturer. Its first processing
facility in Asia, the plant is servicing Chinese as well as regional
markets in Korea and Japan. Also, in 2005 Chinese home appliance maker
giant 'Haier' opened a regional production, and distribution center to
service both the growing Northeast China, Russian Far East, and North
Asia markets.

**Retail Industry, "Heritage in Full Play"** Harbin quickly developed
into a cosmopolitan city after being declared an \'Open City\' in 1917.
Flooded by White Russian refugee's in the same year, the city had one of
the largest European populations in East Asia. By the 1930's, Harbin
boasted 16 foreign consulates, 200,000 expatriates, more than 1,000
manufacturing and financial businesses with a well established
multi-modal transportation network. The contribution of thousands of
Jewish refugees was largely responsible for Harbin's flourishing
banking, insurance, medicine, retailing, catering businesses and
world-renowned symphony orchestra of the era. Historical imprints can be
found all around the city including an old Jewish Section on the city's
busiest shopping street 'Central Street', several synagogues including
one recently restored into a museum located in this area as well.

In 2004 Harbin's GDP ranked 17^th^ in China at US \$17.149 billion, and
for the very first time, per capita GDP broke through a US \$2,000
ceiling. Today, similar to many Chinese cities, as the economy and
consumers mature, traditional wet markets are disappearing only to be
replaced with modern retail formats. However, unlike many other cities,
Northeasterner's prefer to buy bulk once every week or two rather than
shopping daily. A flurry of retail madness swept Harbin in 2005 with
many new stores forced to close or sell out by year's end. Key retail
players include Carrefour, Metro, Wal-Mart, Lianhua, and others
expanding into the Harbin market. Local supermarkets, convenience stores
and other retail formats have a complex ownership structure, making them
likely candidates for future consolidation.

Real estate development is booming with new modern communities springing
up complete with mid-high income consumers seeking higher quality,
consistency, improved sanitation, and convenience. Most new stores are
located in mall settings that include restaurants, theatres, fashion and
sporting goods stores, and other specialty shops. The new retail formats
have extensive dry and frozen products along with a large offering of
domestic and imported fresh fruit, seafood, etc. Thanks to the climate
and tradition, the city is also the hands down fur fashion capital and
de facto trading center for China's growing up-market fur fashion trade.
Of the top 9 fur wholesale and retail operations in China, 5 are located
in Harbin with combined annual sales of 15,000 garments at prices
averaging in excess of US \$5,000. China is now the US's largest farmed
mink market on a volume and value basis.

Source: ATO Beijing

\* Convenience stores in Harbin have limited hours of operation compared
to similar formats in other parts of China. However, store formats and
product offerings are similar. Winter weather, and cold temperatures
drive the Northeast China market.

> On the last day of 2005, Dashang, a regional retail chain based in the
> port city of Dalian, announced its merger with the Harbin No. 1
> Department Store, one of largest department stores in China. Dashang
> currently operates 120 stores in 26 cities in Northeast and North
> China. The new venture preserves the name of the Harbin No. 1
> Department Store, and creates on its original site, a large retail
> shopping-pedestrian mall in Harbin's fashionable Daoli District. The
> merger should expand and strengthen Harbin's growing retail sector.

**Consumer\'s View toward Imported Products:**

-   Price is still a major concern, particularly in Northeast China

-   Market promotion is very important, with money and effort required
    to educate consumers (product availability, how to use products,
    nutritional benefits, etc.)

-   Compared to other Dongbei (Northeast) cities, Harbin consumers are
    often more willing to try and accept new concepts and products

-   The 'Holiday-Tourist' economy is 'hot' like a number of other cities
    in China. January-February is a peak retail-HRI sales season due to
    'Ice Festival', Spring Festival, etc.

Currently, the volume and diversity of imported products available in
local retail formats is limited, yet increasing considerably in recent
years. For example, Yuanda Tiantian Supermarket expanded its imported
food offerings (many from the US) from one shelf to an entire section
last year. Harbiner's are very quality oriented, increasingly health
conscious, and willing to pay a slight premium for the high quality or
healthy food products.

# Harbin's Tourism/Exhibition Economy Triggering HRI Sector Rise Harbin is an ethic melting pot given its history as home of two Chinese dynasties - Jin (1115-1234) and Qing (1644-1911). Chinese nationalities include Han, Manchu, Korean, Mongolian and six other ethnic minorities. Saint Sophia, a Russian Orthodox Church completed in 1932 is still one of the city\'s leading landmarks and tourist attractions. As a result of moderate summer and fall temperatures, during China's National Day (Golden) Week, nearly 800,000 tourists visited Harbin. Yet, Harbin is probably best known for its 'Ice and Snow' Festival, first held in 1985, that has evolved into an international event. Large ice sculptures, often 2-3 stories high with colorful electric lights frozen inside the structures has made the annual festival a major international tourist and trade event. The operators of the Yabuli Ski Resort, one of the best winter sports facilities in China, are promoting Harbin as a possible potential site for the 2014 Winter Olympic Games. 

![](media/image2.jpeg){width="4.104166666666667in"
height="1.961111111111111in"}As Harbin\'s traditional heavy industries
restructure, tourism has become a key economic driver for Harbin and
Heilongjiang. The City has plans to develop an ecological friendly
'Garden City' given Heilongjiang's status as one of six pilot provinces.
And, the annual International China Harbin Trade and Economic
Cooperation Fair (Harbin Trade Fair) is second only to the Canton Trade
Fair in China. Held each June, the 16th Harbin Fair in 2005 had more
than 12,000 trade visitors from over 80 countries. While not specific to
the food trade, it's a possible venue for US food trade exporters and
commodity organizations wishing to showcase products in Northeast China.
Harbin's privileged status as a regional Chinese-Russian trade hub makes
it doubly important to domestic and international traders.

While the city's tourism and exhibition sectors are booming, Harbin
continues to suffer from a lack of high-end lodging-accommodations.
Currently, only 3 5-star, 9 4-star and 18 3-star hotels are operating
with only the Shangri-la, Singapore, and Good Fortune Hotels having
International management. However, we understand several overseas
operators are seriously looking at the Northeast market, Harbin and
Dalian in particular.

![](media/image3.jpeg){width="2.25in"
height="1.6784722222222221in"}Based on interviews and staff outreach
experiences, post has a first-hand appreciation for Harbin's
well-deserved reputation as a drinking and meat eating culture. Food
consumption patterns there often resemble more those of westerners than
countrymen in southern China. Historically the city's restaurants
included Russian, Greek, German, French and British cuisine. As incomes
and the standard of living continue to rise, Harbiner's are returning to
their cosmopolitan roots. A recent survey found 60% of Harbiner's
frequent restaurants every week, probably as a result of Northeastern
social habits. Harbin's restaurant sector alone accounts for nearly US
\$500 million with per capita restaurant consumption around US \$100
annually in more than 10,000 restaurants. The absolute size of Harbin's
high end HRI market (defined as US \$8 and above per capita), is about
5% that of Beijing. However, portions sizes are large and about 3,000
restaurants have seating capacity above 1,000.

![](media/image4.jpeg){width="2.3430555555555554in"
height="1.757638888888889in"}

**ATO Beijing, "Market Development in Action"**

As Harbin is a major emerging city market in Northeast China, ATO
Beijing actively began market development outreach to the area in 2005.
Two highly targeted and successful marketing activities were held there
in 2005:

-   The "Russia River Garden Menu Promotion" in two mid-to-high end
    Chinese Kitchen restaurants, with about 40 dishes developed to
    feature Alaska Seafood, U.S. Pork, California Almonds, U.S. Poultry
    and U.S. Potatoes. The 10-day event generated great trade and
    consumer interest, and excellent sales

-   ATO Beijing and USMEF co-sponsored chef training for 50 Chinese
    chefs at the Xiang E Qin Restaurant in the Russian River Garden
    District area. The training focused on how US pork and other product
    use in the Chinese Kitchen. Post also arranged for Harbin traders to
    participate in Beijing activities in 2005: FHC Beijing, WGA Visit,
    etc.

-   Beijing also worked with NASDA to recruit key players from Harbin
    for participation in both the FMI and NRA Exhibitions sponsored by
    USDA in Chicago each May.

The success and high level of interest in these and other activities
carried out by cooperator groups demonstrates the willingness of people
in North East China to try new things and more importantly, try American
food products prepared in the Chinese style. More recently, post ATO
Menu promo, sales agents for California Almonds and US French fries have
appeared in Harbin. Known for it's traditionally high per capita
consumption of tree nuts, post understands CA Almonds now account for a
30% share of the local HRI almond market.

**Market Entry Tips**

ATO Beijing interviewed several local importer, distributor and buyer
contacts, and they offer the following tips for those interested in the
Harbin market:

[]{.mark}

######## Education: Many products fail because end-users have no idea what or how to use them - sometimes the distributor doesn't know either (i.e. Mustard, Salsa, Tortillas...)

######## Increase product visibility: product demos in the Chinese Language including usage instructions, advertising support, and other marketing promotions

######## Price: Like most other major emerging city markets, Harbin is still a price-sensitive market. Establishing a brand or item as 'premium quality' is a must if selling products in a highly competitive environment

######## Research: Take time to survey the market, find a good distributor. Successful ventures require qualified-experienced distributors who know the local market

######## Baby Steps: Take baby steps in the beginning; be prepared to offer limited quantities, or mixed containers, etc. 

######## Holidays: Demand for imported products is increasing, particularly during holiday seasons when U.S. food products may confer or display status

######## Multiplier effect: Harbin is a regional trade hub, so think beyond just Harbin and to the Northeast as a region when considering establishing trade 

######## Use leads: Successes of local peers and veterans in China, and the US can be helpful

######## Best potential US products: Beef, Pork, snack food, fruit (for holiday gift giving)

######## Contact Information and Useful Websites

**Agricultural Trade Office, Beijing**

**American Embassy in China**

Phone: 86-10-8529-6418

Fax: 86-10-8529-6692

E-mail: <ATOBeijing@usda.gov>

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

### U.S. Consulate in Shenyang

Phone: 86-24-2322-0848

Fax: 86-24-2322-2374

<http://www.usembassy-china.org.cn/shenyang/>

**Official Harbin Website**

<http://www.harbin.gov.cn/english/>

**International China Harbin Fair**

<http://www.00615.net/e14th/index.php>