Required Report - public distribution

**Date:** 11/7/2006

**GAIN Report Number:** CH6821

CH6821

**China, Peoples Republic of**

**Exporter Guide**

**China Exporter Guide 2006**

**2006**

**Approved by:**

![](media/image1.wmf)Wayne A. Batwin

ATO Shanghai

**Prepared by:**

David Kiefner, Sonny Chu, Freddy Xu

**Report Highlights:**

In 2005, China Customs reported total agriculture, fisheries and forest
product imports of over \$35 billion. Imports of consumer-oriented
agricultural products ( not including fisheries, bulk or intermediate
products )accounted for over \$3 billion of this total. The U.S.
continues to hold the top position in both overall agricultural exports
to China and in consumer-oriented products, despite setbacks in beef
exports to China. As incomes continue to grow, China is showing signs of
becoming a more consumption-driven economy.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Shanghai ATO \[CH2\]

\[CH\]

Table of Contents

[**Section I. Overview 3**](#section-i.-overview)

[I.1. Economic Situation 3](#i.1.-economic-situation)

[I.2. Demographic Developments 3](#i.2.-demographic-developments)

[I.3. Consumer Buying Habits 4](#i.3.-consumer-buying-habits)

[I.4. Consumer Foods Market Size and Growth
4](#i.4.-consumer-foods-market-size-and-growth)

[I.5. Advantages and Challenges Facing U.S. Suppliers of Food Products
to China
5](#i.5.-advantages-and-challenges-facing-u.s.-suppliers-of-food-products-to-china)

[Section II. Exporter Business Tips
6](#section-ii.-exporter-business-tips)

[II.1. Local Business Customs 6](#ii.1.-local-business-customs)

[II.2. Consumer Tastes 6](#ii.2.-consumer-tastes)

[II.3. Regulatory Framework 7](#ii.3.-regulatory-framework)

[Section III. Market Sector Structure and Trends
8](#section-iii.-market-sector-structure-and-trends)

[III.1. Food Retail 8](#iii.1.-food-retail)

[III.2. Hotel, Restaurant and Institutional (HRI)
9](#iii.2.-hotel-restaurant-and-institutional-hri)

[III.3. Food Processing 9](#iii.3.-food-processing)

[Section IV. Best High-Value Product Prospects
11](#section-iv.-best-high-value-product-prospects)

[Section V. Key Contacts and Further Information
12](#section-v.-key-contacts-and-further-information)

[Appendix 1. Statistics 12](#appendix-1.-statistics)

# Section I. Overview

## I.1. Economic Situation

![](media/image2.jpeg){width="3.416535433070866in"
height="2.436220472440945in"}

China's economy, now the fourth largest in the world, continues to grow
rapidly, posting 10.2% growth in 2005 and a forecast 10.5% in 2006,
despite government efforts to cool the economy. Concerns about
overheating continue to weigh on Chinese policymakers, as inflation
continues to creep up, although it is still low at less than 2%. Much of
the increase has taken place in food prices, causing ambivalence among
policymakers who are worried about inflation but also seeking ways to
improve farm incomes.

Efforts to cool down property markets have yielded mixed but generally
good results as central government authorities moved to pull back on
bank lending and tighten approvals for new industrial and real estate
developments.

## I.2. Demographic Developments

![](media/image3.wmf)the growth of second and third-tier cities across
China. These emerging city markets fall into three broad categories:
coastal population centers, satellite cities, and inland giants.
**Coastal Population Centers:** China's eastern coast is dotted with
major cities that have cashed in on growth in export markets to fuel an
economic boom independent of the major urban centers of Guangzhou and
Shanghai. Cities such as Qingdao, Dalian and Xiamen are becoming
independent export powers. **Satellite Cities:** By contrast, a large
number of satellite cities close to and economically dependent on
Guangzhou and Shanghai have also sprung up in large numbers in recent
years. Growth in these cities is driven by businesses seeking to escape
ever higher costs in the metropolis, while still cashing in on the large
consumer and export markets, distribution, and logistics infrastructure.
These include both freewheeling commercial boomtowns like Shenzhen
(Guangdong) and Jiaxing (Zhejiang), and storied, historic power centers
like Suzhou (Jiangsu) and Hangzhou (Zhejiang). **Inland Giants:** Growth
is no longer passing China's interior cities by---some cities such as
Chengdu and Nanchang have seen aggressive growth in the past two or
three years and are becoming focal points for industrial development.
These cities are focused on a mix of domestic and low-end export
manufacturing. Although large, the regulatory climate in these cities
can be unpredictable and they are overall considerably less wealthy than
coastal cities. These are good markets for exporters with a long-term
focus. Those interested in Chinese markets should also keep an eye on
the government's drive to build new cities to relieve the population
pressure on major cities. The flagship project for this policy is a
planned community for 700,000 people being constructed near Suzhou, just
an hour's train ride from Shanghai.

Another important demographic element is generational. The population
currently is divided into three groups: those born from 1946-1964, who
have lived through some of China's most turbulent times; those born from
1965-1976, who came of age during China's drive to development; and
those born after 1976, who have grown up in an increasingly affluent and
stable environment. While there are significant differences between the
first two groups, they share similar spending habits: they are both
extremely price sensitive and conservative about spending, with
extremely high savings rates. The most recent generation of consumers is
different, having embraced a consumption-oriented lifestyle. They are
more willing to spend money, willing to experiment, are much more style
conscious, and are more sensitive to advertising. These consumers are
gaining rapidly in importance, as they become income earners in their
own right. This generation also does not shy away from taking loans: a
significant part of China's housing boom is being led by young, white
collar workers who are taking advantage of newly available long-term
mortgages with low interest rates to buy their own apartments. In the
process, they are leaving home and establishing households before they
get married, yet another major break with tradition.

## I.3. Consumer Buying Habits

According to official statistics, total consumer expenditure (GDP by
expenditure: China Statistics Book) increased by 10.4% in 2005 compared
to 11.7% in 2004. In 2005, consumer expenditures grew faster for rural
households, growing by 10% compared with 8.2% for urban households.
However, the urban/rural consumption ratio remained almost the same.
Long-term consumption is expected to continue growing. China's
increasingly wealthy citizens have limited vehicles for investment and
low interest rates for home loans, a situation that encourages consumers
to spend or to put their money into homes.

![](media/image4.wmf)

Generational distinctions aside, Chinese consumers tend to be
conservative and price sensitive when it comes to personal spending.
Exceptions to this rule include spending on education, medical care,
gifts and entertainment, and children. The greatest successes for
high-end U.S. food products have been those aimed at hotels and
restaurants (seafood and pork, for example), and high-end products given
as gifts (fresh fruit, wine and liquor). Acceptance of imported products
as guarantee of safety and high quality is common, and U.S. products in
particular have benefited.

Food safety itself has become a major issue, especially in the major
urban centers. Food safety or adulteration problems are nothing new in
China, but they have recently become favorite topics for the Chinese
media, and even minor incidents in the most far-flung areas are now
often reported nationwide. This, along with SARS, swine disease and
avian influenza scares, has created a widespread perception that many
food products are unsafe. This feeling appears to be strongest at higher
income levels, where consumers rely more heavily on processed or
pre-packaged foods. As a result, consumers in these income brackets are
placing a premium on famous brands or buying in venues with a solid
reputation. Also, higher-income consumers tend to be very health and
nutrition conscious, from both a traditional Chinese and a more
science-based perspective.

## I.4. Consumer Foods Market Size and Growth

The total value of the Chinese food market has continued to grow at a
rapid clip. This trend was bolstered as the inflationary trend of 2003
accelerated. Price changes for food through the years 2000 -- 2005 were
2.6%, 0%, -0.6%, 3.4%, 9.9% and 3.1%, respectively (CSB Yearbook, 2006).
Combined wholesale and retail food sales exceeded RMB 1 trillion in
2005, but this figure falls to RMB 503 billion when tobacco and liquor
revenues are excluded. Total dining revenue, including restaurants,
snack counters and cafes reached nearly RMB 38 billion. The actual
figure is likely several times higher, since many restaurants in China
under-report their total sales revenue. Stagnation in food wholesaling
appears to be ending, as consolidation and modernization start to pay
off. If tobacco and liquor are excluded, however, retail and catering
continue to grow at a faster pace. This reflects rapid development in
modern retail formats and a growing trend toward dining out.

## I.5. Advantages and Challenges Facing U.S. Suppliers of Food Products to China

+-----------------------------------+-----------------------------------+
| ###### Advantages                 | ###### Challenges                 |
+-----------------------------------+-----------------------------------+
| Chinese consumers spend nearly    | Chinese consumers are             |
| half of their disposable income   | price-sensitive: imported         |
| on food and beverages.            | products have difficulty          |
|                                   | competing with domestic           |
|                                   | substitutes on price.             |
+-----------------------------------+-----------------------------------+
| Imported goods are generally      | Imports are regarded as luxury    |
| regarded as safe and high in      | goods: the vast majority of       |
| quality.                          | consumers do not believe they can |
|                                   | afford them.                      |
+-----------------------------------+-----------------------------------+
| New markets for imported products | Transportation and logistics for  |
| are appearing in fast-growing     | these cities remains difficult,   |
| cities throughout China.          | and many lack the presence of a   |
|                                   | qualified distributor for         |
|                                   | imports.                          |
+-----------------------------------+-----------------------------------+
| Many U.S. brands, such as         | Most of the U.S. brands widely    |
| Budweiser, Coca-Cola, M&Ms and    | available in China are            |
| Pringles are widely recognized in | manufactured locally or in other  |
| China.                            | parts of Asia.                    |
+-----------------------------------+-----------------------------------+
| Overseas fast-food chains are     | Foreign fast-food chains source   |
| extremely popular, and provide    | most of their products locally.   |
| exposure for foreign foods.       |                                   |
+-----------------------------------+-----------------------------------+
| Overseas retail chains are        | Few of these chains import        |
| growing quickly, and carry more   | directly from overseas, working   |
| imported products than domestic   | instead through distributors.     |
| counterparts.                     | Many charge high listing fees to  |
|                                   | promote new products.             |
+-----------------------------------+-----------------------------------+
| Overseas retail chains and        | Although interested in quality    |
| convenience chains are            | for their house labels, these     |
| increasingly interested in        | chains are tough negotiators, and |
| establishing house brands. This   | will leave suppliers with little  |
| is creating opportunities for     | room for profit.                  |
| bulk shipment of quality foods.   |                                   |
+-----------------------------------+-----------------------------------+
| Under WTO, China's duties on      | Increased access for imports has  |
| imported foods have fallen, and   | resulted in greater competition   |
| more products are shipped         | from other exporting countries    |
| directly to China, instead of     | for products like beef, seafood   |
| through Hong Kong.                | and pistachios.                   |
+-----------------------------------+-----------------------------------+
| Food is an essential part of      | The Chinese have very strong      |
| Chinese culture and social life.  | taste preferences. While they are |
| Key life events revolve around    | willing to experiment, they are   |
| food, and little expense is       | less willing to incorporate       |
| spared.                           | foreign tastes into their daily   |
|                                   | life.                             |
+-----------------------------------+-----------------------------------+
| China is incomprehensibly large.  | China is incomprehensibly large.  |
| Though many consumers still lack  | Regional differences in culture   |
| the income to purchase imports,   | and taste can be quite stark.     |
| millions join the middle class    | Promotions with limited budgets   |
| every year.                       | must target specific groups.      |
+-----------------------------------+-----------------------------------+
| The Chinese market often moves    | If a product is successful, it is |
| en-masse. If a product becomes    | likely to be counterfeited or     |
| trendy, sales can skyrocket       | imitated.                         |
| overnight.                        |                                   |
+-----------------------------------+-----------------------------------+

# Section II. Exporter Business Tips

## II.1. Local Business Customs

China possesses an ancient and vibrant mercantile culture of its own.
Although this culture values efficiency, value and profit, there are
important differences from western business culture. Key features
include: a) respect for age and hierarchical position, b) the importance
of personal relationships, c) group orientation and d) the concept of
face. Food is a key component of Chinese culture, and this extends to
business culture: working lunches and dinners are an important part of
doing business in China. These events help to build those all-important
personal relationships, provide information not available in formal
business meetings, and are an opportunity to establish face with your
business contacts. To help U.S. exporters on their travels in China, FAS
has prepared several reports outlining the key points: [Chinese Business
Etiquette]{.underline} (CH6820) and [Business Travel in
China]{.underline} (CH4836). These reports are available on the FAS
website at [www.fas.usda.gov]{.underline} (look under 'Attache
Reports').

## II.2. Consumer Tastes

It is dangerous to assume anything about China. Tastes vary widely from
place to place and are constantly evolving. As a general rule, Chinese
tastes favor Asian products, particularly those with a strong similarity
to Chinese foods or heavily influenced by China. For example, some local
quick service restaurants have learned that although Chinese customers
like the efficiency and atmosphere of American style chain restaurants,
they want to see more traditional Chinese food items such as rice,
noodles or spicy dishes on the menu. Moreover, in a country where
refrigerated trucks are still scarce, it is difficult for the modern
supermarkets to match the fresh produce -- and low prices -- of typical
wet markets where most Chinese traditionally shop. The lack of
refrigerated trucks also encourages each region to develop its own
dairy, brewing and meat industries, making bulk purchasing harder.

![](media/image5.wmf){width="3.666535433070866in"
height="3.1251968503937007in"}Nonetheless, consumers are willing to
experiment with new tastes, and it is difficult to predict what products
will succeed without conducting actual research. For example, pizza has
proven immensely popular, despite a widespread myth that Chinese people
do not like cheese. One promotion in the inland city of Wuhan found
Mexican foods to be a runaway success, while another in Chengdu scored a
success for boneless pork butt. Key regional distinctions include North
and Northeast China (Beijing and north), where dishes tend to be salty;
East China (centered on Shanghai) where the taste is sweet and spicy
dishes are unpopular; Central China (Sichuan and Hunan), which are
famous for hot and spicy food; and South China, famous for delicate
tastes, seafood and an appetite for the exotic. Keep in mind, though,
that consumers in any of these places may be willing to experiment with
new tastes, including those from other parts of China.

In addition to regional patterns, there are some overall preferences
shared by most Chinese consumers:

\- Chinese prefer fresh meats, soups and produce to canned or processed
ones. Many buy fish or fowl live to be butchered on the spot.

\- Consumers prefer small-sized packages to 'economy' sizes, even though
the unit cost may be higher.

\- In the case of snacks, candies or breakfast cereals, Chinese
consumers like to see the actual product inside the package. It is a
good idea to include a transparent 'window' on the package. This goes
double for new-to-market products.

\- The attractiveness of the package is important. Size, colors and
design are all taken into consideration.

\- Chinese buyers are attracted to established brand names, which are
seen as a guarantee of authenticity and superior quality.

**Before jumping into the Chinese market, U.S. exporters are advised to
invest in targeted market research and taste testing.** In a country the
size of China, it is absolutely critical to identify a specific target
group of consumers, and confirm the product's appeal to that group. For
example, one might target new mothers in the Shanghai area, or,
alternatively, teens from affluent families in Guangzhou. Whichever
group one chooses to target, both the product and the approach will be
entirely different. Failure to take the preferences of Chinese consumers
into account is a common reason for the failure of new products.

## II.3. Regulatory Framework

# II.3.1 Import Regulations and Standards

Over the past few years, the Chinese government has published a host of
regulations governing standards and labeling for food products.
Enforcement of these regulations is also becoming more rigorous.
Although reputable distributors often deal with these issues on the
exporter's behalf, exporters making a serious commitment to the China
market are advised to study the relevant laws carefully and ensure that
they are in compliance.

To help U.S. exporters understand these regulations, FAS has prepared a
series of unofficial translations. Collectively, these reports are
called the **China Food and Agricultural Import Regulations and
Standards Report** (or **China FAIRS Report**). The translations
available are listed in the FAIRS Report Working Index, which is posted
on the FAS website ([www.fas.usda.gov]{.underline}).

# II.3.2. Intellectual Property Rights (IPR) Protection

Though China strengthened its legal framework and amended its
intellectual property rights (IPR) laws and regulations to comply with
its WTO agreements, IPR infringements of U.S. agriculture and food
products remain a serious problem. Examples include:

-   "Stickering" and labeling domestic and third-country product with
    U.S. identifications such as Washington apples, California table
    grapes and pistachios, Wisconsin ginseng, etc.

-   False branding and packaging of domestic and third-country products
    with U.S. identification such as Sunkist citrus, Sunmaid raisins,
    U.S. wines and even U.S. grass seeds.

-   Counterfeiting or mixing of domestic or third-country product
    together with U.S. food and beverage products, including poultry,
    beef, pork, mohair or wool.

-   Unauthorized sale and use of U.S. PVP protected plant materials and
    germplasm.

The U.S. industry needs to play an active role to protect food product
IPR's -- initially identifying that problems exist in the first place.
Ideally, IPR protection should begin prior to when companies or trade
associations begin exploring the China market for their food or beverage
goods. Interested parties should also recognize the importance of
registering and protecting trademarks in both English and Chinese
languages, including obtaining collective marks for U.S. collective
organizations and USDA Cooperators or certification marks.

Furthermore, it is essential to recognize that even if U.S. goods are
not being sold in China, IPR protection could be helpful to prevent
infringed-upon goods produced in China from being exported to third
country markets. Chinese Customs provides an on-line recordal service
that is usually a prerequisite for Customs detention of infringing goods
bound for export.

Interested parties are strongly encouraged to review the U.S. Embassy's
"China IPR Toolkit which can be found at
<http://www.usembassy-china.org.cn/ipr/> and FAS Beijing on-line reports
CH2049, containing information on China's patent, trademark and
copyright legislation and enforcement and CH4059, on plant variety
protection, both found at
<http://www.fas.usda.gov/scriptsw/AttacheRep/default.asp>.

# Section III. Market Sector Structure and Trends

## III.1. Food Retail

![](media/image6.jpeg){width="1.9838582677165355in"
height="2.95in"}Growth in retail sales has been driven by the rapid
development of food retail chains across China. Supermarket chains are
now present in virtually every city in China, while hypermarkets exist
in most large cities. Of particular interest to exporters is the rapid
growth of foreign-invested hypermarket chains such as Wal-Mart,
Carrefour, Lotus and Metro, which are more aggressive than local chains
in seeking out and promoting high-margin imported products. While some
of these chains are moving toward centralized purchasing, initial
efforts have been largely unsuccessful. Foreign-invested stores are
popular with the large and growing expatriate population, but are also
favored by local Chinese as venues for buying food and other items to be
given as gifts, especially during the spring festival. The spring
festival, which takes place generally around late January and early
February, is a 15-day celebration of the Lunar New Year. This is the
period of high consumption as local Chinese purchase food product for
themselves, as well as gifts for relatives, co-workers, and friends;
therefore packaging is critical in this particular niche. Many exporters
and/or distributors have developed special gift package versions of
their products. China's packaging industry is extremely sophisticated,
and a growing number of U.S. exporters are choosing to ship in bulk and
pack their products in China, a practice that may also help to resolve
product labeling issues.

In response to the growth of foreign-invested retailers, Chinese retail
chains are consolidating, and now have nationwide reach. Although the
recent merger of China's two largest food retail chains, Lianhua and
Hualian, created an entity several times larger than any other chain
operating in China, the two retailers appear to be continuing to operate
independently. Both had previously absorbed a large number of smaller
chains, and are still incorporating them into their management
structure. Domestically-owned hypermarkets are a reasonable prospect for
imported products, but loose management of supermarket chains continues
to make that sector a poor prospect for imports other than dried fruit,
nuts and frozen vegetables.

Retail sales have also been boosted by the rapid growth of convenience
store chains, particularly in East China. Shanghai alone is home to as
many as 4,000 convenience stores, mostly domestic chains.
Foreign-invested convenience stores have established a significant
presence in Guangzhou, and the convenience store format is now making an
appearance in Beijing. Management of these chains is strong, and most
relies on centralized purchasing and distribution. These stores also
rely less on deep discounting, making them a reasonable prospect for
imported products. An ATO/Shanghai sponsored food promotion with
Lawson's convenience stores introduced a wide variety of new products,
and encountered fewer complications than promotions at hypermarkets, due
to the high level of standardization and well-developed distribution
systems. Refrigerator and freezer cases are routinely available in
hypermarkets, supermarkets and convenience stores, and microwave ovens
are common in both convenience stores and homes. USDA's Cold Chain
Initiative, supported by ATOs in Shanghai and Guangzhou, is further
helping to ensure that the quality of temperature sensitive imports can
be maintained, creating opportunities for new products.

Retail growth received a boost in 2005, when China removed restrictions
on foreign ownership of businesses, leading Wal-Mart to open its first
store in Shanghai. There are now 66 Walmart stores in China, second only
to the Carrefour chain with more than 80 stores. Other important trends
in the retail sector include a rapid increase in personal ownership of
refrigerators, freezers and microwave ovens, which has boosted sales of
frozen and heat-and-eat products. Hypermarkets and convenience stores
also now offer a wide variety of ready-to-eat foods, including box
lunches and rotisserie chicken. For more detail on China's retail food
sector, please refer to FAS/China's **Food Retail Sector** reports,
available on the FAS website at [www.fas.usda.gov]{.underline}.

## III.2. Hotel, Restaurant and Institutional (HRI)

HRI is one of the most dynamic sectors of the economy, as seen in the
rapid growth of revenue for the dining industry. This sector covers the
entire spectrum, from roadside stands to massive cafeterias to
world-class gourmet restaurants. Previous statistical series have been
discontinued, making it difficult to identify trends in the HRI sector.
Under the new nomenclature, statistics are only available for chain
catering services, which excludes the legions of independent family
restaurants that form the bulk of the industry. Using these definitions,
snack counters dominate the catering industry, at nearly 60% of total
industry revenues, with restaurants lagging behind at 39%. The new
series is useful, however, in showing the extremely rapid growth of the
snack counters, which increasingly provide quick meals (steamed
dumplings, for example) or meal starters (such as roasted chickens) for
China's growing population of busy professionals.

![](media/image7.wmf){width="3.900787401574803in"
height="2.3318897637795275in"}

HRI is a key player in introducing imported foods. High-end restaurants
and hotels are less constrained by price considerations and more
interested in presenting dishes and products that are unique. If
successful, their efforts are likely to be copied by other restaurants,
bringing them closer to mainstream middle-class consumers. Another
important trend is the recent emergence of medium to high-end restaurant
chains. Like other high-end restaurants, these are interested in
offering consumers something different and unique, but unlike them, if a
product is successful, they can purchase directly and in bulk, reducing
cost considerably. This development holds a great deal of promise, as
Chinese consumers view restaurant chains as a guarantee of quality in a
largely unregulated industry. Though still in its infancy, this trend
may become an important factor for imports.

It is important to note that while the sector as a whole has great
potential, many parts of the HRI industry are not strong candidates for
imported foods. Catering operations that run cafeterias and provide box
lunches as well as small family-owned restaurants, account for a large
portion of the industry and are extremely price-sensitive. For example,
lunch box manufacturers typically aim for a production cost of \$1.00 or
less, making them a poor candidate for most imported foods. Once again,
exporters are advised to research the market and pick their targets
carefully. For more analysis on China's HRI sector, please refer to
FAS/China's **HRI Sector** reports, available on the FAS website at
[www.fas.usda.gov]{.underline}.

## III.3. Food Processing

The food processing industry is another of the fastest growing segments
in the Chinese economy, with the China Food Industry Association citing
annual growth of 10-12%, while official statistics (which typically
exclude the legions of small-scale processors) show significantly higher
growth. Still in its infancy, the recent development of this sector also
makes it one of the most modern. Poor regulation, however, makes it
difficult to determine the exact size of the industry. Official
statistics indicate that there were 23,647 food processing ventures with
total sales of \$158 billion in 2005. The majority of these are involved
in primary processing, while food and beverage manufacturing account for
roughly 20% each. Currently, only 30% of China's food consumption is
processed, as compared to 80% in more developed countries. According to
Chinese officials, the main barrier to further development of this
sector is China's underdeveloped agricultural production and
distribution systems.

Food safety has become a major concern for the Chinese government, after
a series of poisoning and contamination incidents culminated in a major
scandal over sales of substandard infant formula, which resulted in the
deaths of a number of infants. Food contamination incidents get
widespread media coverage, and have become a fixture in many consumers'
minds. Many will now buy food only from well-known and reputable
manufacturers, and some manufacturers have opened their own retail
stores or booths in order to prevent adulteration of their products.
Government efforts to improve quality and inspection of food
manufacturing facilities are likely to accelerate the trend toward
consolidation.

The food processing sector provides growing opportunities for U.S.
exporters. The industry is concentrated primarily in Guangdong, Shanghai
and Shandong provinces. Although inputs are primarily domestic, many
processors are seeking new ingredients to help distinguish their
products from competitors. U.S. products that have been particularly
successful in this area include nuts (almonds and pistachios), dried
fruit (particularly raisins and prunes), soy flour, flavorings and
sauces, and dairy ingredients and supplements. ATOs in Shanghai and
Guangzhou have launched a series of seminars for Chinese bakeries,
promoting the use of U.S. food ingredients, and baking ingredients
continue to be one of the best export prospects. Frozen and dehydrated
potato products continue to be successful, due largely to the lack of
local equivalents. For a more in-depth analysis of the food processing
sector, please refer to FAS/China's **Food Processing Sector** reports,
available on the FAS website at [www.fas.usda.gov]{.underline}.

# Section IV. Best High-Value Product Prospects

The following chart shows China import statistics on the most valuable
export products from the U.S., as well as their market development
constraints.

+-------------------+---------+--------+---------+---------------------+
| Product Category  | 2005    | 3-Yr   | Import  | Key Constraints on  |
|                   |         | Avg    | Tariff  | Market Development  |
|                   | Imports | Import | Rate    |                     |
|                   | (\$m    | Growth |         |                     |
|                   | illion) |        |         |                     |
+-------------------+---------+--------+---------+---------------------+
| Red Meats         | 252     | -6.48% | 12 --   | Competition from    |
| Fr/Ch/Fz          |         |        | 25%     | other import        |
|                   |         |        |         | sources             |
|                   |         |        |         | (Australia),        |
|                   |         |        |         | limited capacity    |
|                   |         |        |         | for handling fresh  |
|                   |         |        |         | imports, growing    |
|                   |         |        |         | competition from    |
|                   |         |        |         | domestic product,   |
|                   |         |        |         | BSE restrictions on |
|                   |         |        |         | beef.               |
+-------------------+---------+--------+---------+---------------------+
| Processed Fr. &   | 612     | 35.2%  | 5 --    | Competition from    |
| Veg.              |         |        | 30%     | Asian countries     |
|                   |         |        |         | with similar        |
|                   |         |        |         | tastes; rapid       |
|                   |         |        |         | development of      |
|                   |         |        |         | domestic industry.  |
+-------------------+---------+--------+---------+---------------------+
| Poultry Meat      | 335\*   | 2      | 20%     | Import quotas,      |
|                   |         | 5.4%\* |         | sanitary barriers,  |
|                   |         |        | (s      | and competition     |
|                   |         |        | pecific | from other          |
|                   |         |        | duties  | exporting           |
|                   |         |        | are     | countries.          |
|                   |         |        | applied |                     |
|                   |         |        | to      |                     |
|                   |         |        | broiler |                     |
|                   |         |        | cuts)   |                     |
+-------------------+---------+--------+---------+---------------------+
| Dairy Products    | 476     | 14.5%  | 6 --    | Competition from    |
|                   |         |        | 20%     | New Zealand and     |
|                   |         |        |         | Australia.          |
+-------------------+---------+--------+---------+---------------------+
| Fresh Fruit       | 483     | 17.5%  | 10 -    | Competition from    |
|                   |         |        | 30%     | domestic products.  |
|                   |         |        |         | U.S.' advantage is  |
|                   |         |        |         | in special          |
|                   |         |        |         | varieties.          |
+-------------------+---------+--------+---------+---------------------+
| Tree Nuts         | 100     | 10.7%  | 0 --    | Competition from    |
|                   |         |        | 25%     | low-price, low      |
|                   |         |        |         | quality exporters;  |
|                   |         |        |         | counterfeits.       |
+-------------------+---------+--------+---------+---------------------+
| Fruit & Veg.      | 74      | 1.3%   | 7.5 --  | Competition from    |
| Juices            |         |        | 30%     | other exporting     |
|                   |         |        |         | countries.          |
+-------------------+---------+--------+---------+---------------------+
| Breakfast Cereals | 8       | 7.2%   | 20 --   | Breakfast cereals   |
|                   |         |        | 30%     | are still a novelty |
|                   |         |        |         | in China.           |
+-------------------+---------+--------+---------+---------------------+
| Cheese            | 26      | 69.1%  | 12-15%  | Strong competition  |
|                   |         |        |         | from New Zealand    |
|                   |         |        |         | and Europe.         |
+-------------------+---------+--------+---------+---------------------+
| Nursery Products  | 69      | 24.3%  | 0-23%   | Lack of phyto       |
| and Cut Flowers   |         |        |         | protocols, lack of  |
|                   |         |        |         | approved import     |
|                   |         |        |         | quarantine          |
|                   |         |        |         | facilities.         |
+-------------------+---------+--------+---------+---------------------+
| Salmon            | 239     | 53.2%  | 10 --   | Cost and            |
|                   |         |        | 14%     | competition from    |
|                   |         |        |         | other exporters,    |
|                   |         |        |         | esp. Norway.        |
+-------------------+---------+--------+---------+---------------------+
| Groundfish &      | 1,592   | 31.9%  | 10%     | Limited supplies    |
| flatfish          |         |        |         |                     |
+-------------------+---------+--------+---------+---------------------+
| Crustaceans       | 306     | 7.9%   | 5 --    | Limited supplies.   |
|                   |         |        | 19.2%   |                     |
+-------------------+---------+--------+---------+---------------------+
| \*2004 poultry    |         |        |         |                     |
| imports suffered  |         |        |         |                     |
| a sharp drop due  |         |        |         |                     |
| to avian          |         |        |         |                     |
| influenza         |         |        |         |                     |
| concerns, drawing |         |        |         |                     |
| down the          |         |        |         |                     |
| long-term         |         |        |         |                     |
| average. Data     |         |        |         |                     |
| indicates that    |         |        |         |                     |
| the market had    |         |        |         |                     |
| recovered in      |         |        |         |                     |
| 2005.             |         |        |         |                     |
|                   |         |        |         |                     |
| Note: All data    |         |        |         |                     |
| are derived from  |         |        |         |                     |
| Global Trade      |         |        |         |                     |
| Atlas. Commodity  |         |        |         |                     |
| groupings are     |         |        |         |                     |
| based on FAS BICO |         |        |         |                     |
| report            |         |        |         |                     |
| categories.       |         |        |         |                     |
+-------------------+---------+--------+---------+---------------------+

## 

# Section V. Key Contacts and Further Information

For a list of Chinese government regulatory agencies in Beijing,
Shanghai and Guangzhou, please see FAS/China report number CH1068,
available on the FAS website at www.fas.usda.gov.

For a list of importers and distributors, please see FAS/China report
number CH1068, also available on the FAS website.

For further information, please contact the appropriate ATO office.
FAS/China has ATOs in Beijing, Shanghai and Guangzhou. E-mail and fax
numbers are as follows:

ATO Beijing; ATOBeijing@usda.gov, (8610) 8529-9962

ATO Shanghai: ATOShanghai@usda.gov, (8621) 6279-8336

ATO Guangzhou: ATOGuangzhou@usda.gov, (8620) 8667-0703

FAS/China will also open two additional offices in the future: Chengdu
(Spring 2007), and Shenyang (Summer 2008).

# Appendix 1. Statistics

**Table 1. Key Trade and Demographic Information**

  ---------------------------------------------------------- ------------
  Agr. Imports From All Countries (2005) (\$mil)/US Market   34,952/20%
  Share (%)                                                  

  Consumer Food Imports From All Countries (\$mil)/US Market 3,463/19%
  Share (%)                                                  

  Edible Fishery Imports from All Countries (\$mil)/US       2,914/12%
  Market Share (%)                                           

  Total Population (millions)/Annual Growth Rate (%)         1,307/0.6%

  Urban Population (millions)/Annual Growth Rate (%)         562/3.6%

  Size of Middle Class (Millions)/Growth Rate (%)            NA

  Per Capita Gross Domestic Product (US Dollars)             1,755/14%

  Unemployment Rate                                          4.2%

  Per Capita Food Expenditures (urban residents only; rural  \$364
  exp. NA)                                                   

  Percent of Female Population Employed                      NA

  Exchange Rate (as of October 27 2006)                      7.894

  (Source: China Statistical Yearbook, 2006, except import   
  statistics which are from UN Data sources)                 
  ---------------------------------------------------------- ------------

**Table 2. Consumer Food and Edible Fishery Product Imports**

  ----------------------------------------- --------- --------- ---------
  China (Peoples Republic of) Imports of                        
  Agriculture, Fish & Forestry Products                         

  (In Millions of Dollars)                                      

                                            2003      2004      2005

  CONSUMER-ORIENTED AGRICULTURAL TOTAL      2,827     3,206     3,463

  Snack Foods (Excl. Nuts)                  77        94        112

  Breakfast Cereals & Pancake Mix           7         7         8

  Red Meats, Fresh/Chilled/Frozen           296       322       252

  Red Meats, Prepared/Preserved             8         3         4

  Poultry Meat                              462       154       335

  Dairy Products (Excl. Cheese)             366       455       476

  Cheese                                    10        22        26

  Eggs & Products                           2         0.9       0.9

  Fresh Fruit                               351       436       483

  Fresh Vegetables                          2         3         3

  Processed Fruit & Vegetables              342       528       612

  Fruit & Vegetable Juices                  75        61        74

  Tree Nuts                                 85        113       100

  Wine & Beer                               84        87        102

  Nursery Products & Cut Flowers            45        51        69

  Pet Foods (Dog & Cat Food)                3         4         4

  Other Consumer-Oriented Products          614       867       801

                                                                

  FISH & SEAFOOD PRODUCTS                   1,884     2,363     2,915

  Salmon                                    108       126       239

  Crustaceans                               304       330       306

  Groundfish & Flatfish                     917       1,156     1,592

  Molluscs                                  261       333       268

  Other Fishery Products                    276       393       487

                                                                

  AGRICULTURAL PRODUCTS TOTAL               24,133    33,871    34,952

  Source: Global Trade Atlas                                    
  ----------------------------------------- --------- --------- ---------

**Table 3. Top Suppliers to China of Consumer Foods and Edible Fishery
Products**

######## Consumer Foods

  ------ ------------- --------------- --------------- --------------- -------- -------- -------- -----------
  Rank   Partner       US Dollars                                      \% Share                   \% Change\
         Country                                                                                  2005/2004

                       2003            2004            2005            2003     2004     2005     

         World         2,829,539,875   3,206,911,459   3,462,871,077   100.00   100.00   100.00   7.98

  1      United States 1,001,886,933   657,986,636     660,401,879     35.41    20.52    19.07    .37

  2      Thailand      289,708,109     524,649,849     600,039,618     10.24    16.36    17.33    14.37

  3      New Zealand   289,019,860     388,039,886     380,738,359     10.21    12.10    10.99    -1.88

  4      Brazil        50,292,688      110,283,709     192,822,056     1.78     3.44     5.57     74.84

  5      Australia     90,155,865      136,995,630     126,212,571     3.19     4.27     3.64     -7.87

  6      France        67,860,224      81,079,913      120,912,064     2.40     2.53     3.49     49.13

  7      Japan         92,717,884      116,131,947     116,208,472     3.28     3.62     3.36     .07

  8      Netherlands   52,728,883      73,709,206      114,989,847     1.86     2.30     3.32     56.00

  9      Vietnam       112,542,768     85,992,898      112,751,303     3.98     2.68     3.26     31.12

  10     Denmark       84,370,688      99,094,329      104,382,470     2.98     3.09     3.01     5.34

  11     Philippines   86,094,677      88,709,576      97,372,643      3.04     2.77     2.81     9.77

  12     Canada        77,572,804      101,650,640     87,310,106      2.74     3.17     2.52     -14.11

  13     Chile         50,011,515      77,496,437      78,133,377      1.77     2.42     2.26     .82

  14     Singapore     39,905,641      58,837,539      64,431,233      1.41     1.83     1.86     9.51

  15     Korea, South  43,112,983      53,080,925      61,481,653      1.52     1.66     1.78     15.83

  16     Indonesia     14,186,243      37,387,622      51,279,235      .50      1.17     1.48     37.16

  17     Italy         22,746,549      31,613,024      41,437,929      .80      .99      1.20     31.08

  18     Taiwan        37,655,831      40,013,709      41,333,103      1.33     1.25     1.19     3.30

  19     Argentina     6,133,981       92,902,526      38,231,849      .22      2.90     1.10     -58.85

  20     Ireland       21,284,611      19,452,946      34,687,234      .75      .61      1.00     78.31
  ------ ------------- --------------- --------------- --------------- -------- -------- -------- -----------

######## Edible Fishery Products

  ------ ------------ ------------- --------------- ----- --------------- --------------- -------- -------- -------- -----------
  Rank                Partner       US Dollars                                            \% Share                   \% Change\
                      Country                                                                                        2005/2004

                                    2003                  2004            2005            2003     2004     2005     

                      World         1,884,258,819         2,363,457,436   2,914,950,213   100.00   100.00   100.00   23.33

  1                   Russia        663,177,145           780,877,650     1,093,710,979   35.20    33.04    37.52    40.06

  2                   United States 133,458,978           245,257,323     343,188,935     7.08     10.38    11.77    39.93

  3                   Japan         119,437,955           110,572,747     171,495,057     6.34     4.68     5.88     55.10

  4                   Canada        105,370,188           136,754,014     170,744,554     5.59     5.79     5.86     24.86

  5                   Norway        91,609,549            129,669,362     155,641,803     4.86     5.49     5.34     20.03

  6                   Korea, South  49,012,010            78,803,295      110,259,527     2.60     3.33     3.78     39.92

  7                   Korea, North  206,871,277           261,906,742     92,954,728      10.98    11.08    3.19     -64.51

  8                   New Zealand   37,962,806            57,523,071      67,779,026      2.01     2.43     2.33     17.83

  9                   Netherlands   23,508,376            52,013,350      64,761,702      1.25     2.20     2.22     24.51

  10                  Thailand      27,903,010            41,642,063      59,796,825      1.48     1.76     2.05     43.60

  11                  India         47,015,945            47,502,762      57,255,185      2.50     2.01     1.96     20.53

  12                  Iceland       21,232,690            25,561,881      42,435,988      1.13     1.08     1.46     66.01

  13                  Indonesia     25,407,706            34,979,951      41,171,058      1.35     1.48     1.41     17.70

  14                  Denmark       28,391,247            24,052,414      33,731,250      1.51     1.02     1.16     40.24

  15                  Germany       10,286,265            10,093,860      32,971,428      .55      .43      1.13     226.65

  16                  Greenland     22,120,626            20,465,242      29,433,768      1.17     .87      1.01     43.82

  17                  Chile         20,332,380            13,817,693      27,349,768      1.08     .58      .94      97.93

  18                  Peru          10,037,007            32,150,264      26,854,785      .53      1.36     .92      -16.47

  19                  United        15,445,734            16,322,934      26,771,587      .82      .69      .92      64.01
                      Kingdom                                                                                        

  20                  Vietnam       12,253,305            16,081,767      26,613,400      .65      .68      .91      65.49

         ***Source:                                                                                                  
         Global Trade                                                                                                
         Atlas***                                                                                                    
  ------ ------------ ------------- --------------- ----- --------------- --------------- -------- -------- -------- -----------