Voluntary Report - public distribution

**Date:** 1/25/2007

**GAIN Report Number:** CH7603

DRAFTCH7603

**China, Peoples Republic of**

**Market Development Report**

**Xiamen: Fujian's Booming Southern Port City**

**2007**

**Approved by:**

![](media/image1.wmf)Joani Dong

U.S. Consulate General

**Prepared by:**

Vivian Xian

**Report Highlights:**

With the rapid expansion of the retail, restaurant, hotel and tourism
sectors as well as higher income levels, post expects the Xiamen market
will present more opportunities for U.S. agricultural products in years
to come. However, the market is highly competitive so U.S. products need
to differentiate themselves from competitors through pricing, unique
attributes and/or strong product support. A well-defined market plan
plus commitment to long-term strategy and market promotion are key. This
report is based on interviews with senior supermarket managers,
restaurant executives, top governmental officials and major traders in
Xiamen.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Guangzhou \[CH3\]

\[CH\]

# Xiamen Overview

![](media/image2.png){width="2.2881944444444446in"
height="1.136111111111111in"}

Situated on the Southeast coast of China, the province of Fujian's
southern port city of Xiamen faces Taiwan Island across the Taiwan
Strait. The city covers a land area of 1,565 square kilometers (386,745
square miles) and a sea area of over 300 square kilometers (74,132
square miles). By the end of 2005, Xiamen officially reached about 2.3
million permanent residents, of which around one-third can afford
imported products. In 2005, there were officially 17 million tourists to
Xiamen, mainly on business. Among them, 940,000 came from

overseas, primarily from other parts of Asia. Most visitors come from
within China. Two golf courses attract Korean and Japanese tourists. As
one of China's first Special Economic Zones dating back to the late
1970's, Xiamen boasts one of the most vibrant economies on the Southeast
coast of China. The city has successfully attracted many international
manufacturing companies, including *Dell*, *Kodak* and *Siemens*.

Xiamen and the surrounding area, including Zhangzhou and Quanzhou,
accounts for 45.4% of the Fujian province's total consumption. Thousands
of entrepreneurs in the region create a significant demand on high
quality and high-value consumer products. Xiamen enjoys a high living
standard within China on a per capita disposable income of RMB16,403
(US\$2,103). But a more accurate indicator of purchasing power to
industry sources is car or home ownership and professional status.

  ------------------------------- ---------------------------------------
  Xiamen City at a glance - 2005  

  Population                      2.3 million

  GDP                             RMB 102.9 billion (US\$13.19 billion)

  GDP Growth Rate                 16% from 2004

  Per Capita Disposable Income    RMB 16,403 (US\$2,103), up 13.6% from
                                  2004

  Total Import Value              US\$11.3 billion, up 11.4% from 2004

  Total Export Value              US\$17.2 billion, up 23.8% from 2004

  Major Export Agricultural       Vegetables, processed eels, canned
  Products                        mushroom, aquatic products

  Major Import Agricultural       Soybean, fishmeal, timber, raw skins &
  Products                        hides

  Major Export Products           Electrical & mechanical products,
  (non-agricultural)              textiles, shoes, chemical products,
                                  stone materials and products, plastic &
                                  rubber products

  Major Import Products           Electrical & mechanical products,
  (non-agricultural)              chemical products, plastic & rubber
                                  products, mineral products, vehicles,
                                  vessels & transportation equipment,
                                  wood pulp, paper & pasteboard, textile
  ------------------------------- ---------------------------------------

Source: Xiamen Statistic Yearbook & Xiamen Trade Development Bureau

Xiamen benefits from having top-notch port facilities in China, with
total imports and exports valued US\$28.5 billion in 2005. The U.S.
ranked as its second largest business partner. Major U.S. agricultural
imports through the Xiamen ports are soybean, fishmeal, timber and
lumber.

![](media/image3.wmf)

  ----------------------------------- -----------------------------------
  2005 Xiamen Agricultural Imports    
  from the U.S.                       

  Soybean                             198,000 tons

  Timber                              90,000 cubic meters

  Cotton                              1,075 tons

  Raw hides and skins of bovine       20,000 tons

  Wet-blue bovine skin                2,300 tons

  Raw skins of swine                  1,600 tons

  Fish Meal                           1,600 tons

  Whey powder                         2,900 tons

  Gelatin                             750 tons

  Frozen seafood                      300 tons

  Frozen potato products              US\$2.1 million worth
  ----------------------------------- -----------------------------------

Sources: China Customs Statistic & Xiamen CIQ

# Fast Growing Retail Business

The Xiamen retail sector is highly competitive and booming. It has
several international retailers, including two *Wal-Marts*, one
*Carrefour*, four *Trust-Marts* and one *Metro*. Local retailers *New
Huadu* and *Minkelong* also have found niche markets. In addition to
hypermarkets, the city has several convenience stores and community
stores such as *Beatrice*, *Tunnel 88* and *Yes*. The retail business
reached a total of RMB27.2 billion (US\$3.49 billion) in 2005, a 16%
increase from the previous year. Industry sources expect a 10% annual
sales increase in coming years.

Because of price competitiveness, concerns for a cleaner and better
shopping environment including parking spaces for increasing number of
car owners, more Xiamen consumers want to shop in supermarkets rather
than traditional wet markets. According to retail sources, those with a
monthly income higher than RMB3,000 (US\$385) tend to shop more
frequently at supermarkets. Customers also include those who live within
a one-hour radius of Xiamen near factories where grocery stores are
scarce. Fresh products like vegetables, fruits and meats are a major
revenue earner for retailers.

> ![](media/image4.png){width="1.3722222222222222in"
> height="1.8173611111111112in"}
>
> A select group of Xiamen consumers are willing to pay a 10 - 20%
> premium to try imported products. However, typically only a limited
> amount of imported food products, like *Sunkist* lemons, *Red
> Delicious* and *Granny Smith* apples from Washington state, Thai rice
> and Italian olive oils, are found on shelves since retailers are more
> interested in offering competitively priced products to cost conscious
> customers. Imported alcoholic beverage products and selected snack
> foods are mentioned as products with good potential.

U.S. exporters interested in the Xiamen market should consider
organizing joint promotions with retailers to increase consumer
awareness of U.S. packaged food products. Discounted prices and free
tastings are the most effective way to spur sales. Tying purchases with
souvenirs or value coupons draw customers. Using holiday themes and
Chinese symbols help create excitement. Prepaid shopping cards are used
for gift giving. Proper education of specific product information is
crucial to local consumers. U.S. exporters should work with local
partners to register Chinese labels for their products. Consistent
supply and stable price are other factors that affect retailers'
long-term purchasing decision. Consumers are becoming increasingly
concerned about health, hygiene and status.

# Wal-Mart

*Wal-Mart* has eight stores, including one *Sam's Club*, in the Fujian
province. There are two *Wal-Mart* stores in Xiamen, one of which opened
in 2000. Both centralized purchased and locally sourced products are
supplied to the Xiamen stores. However, imported food products are
mainly purchased through the Shenzhen based headquarters. Grocery and
fresh products account for 50% of the store revenue. The outlet has two
aisles of shelves dedicated to imported grocery products. American
products for sale include breakfast cereals, blueberry cookies, hot
chocolate drinks, snack foods like almond, peanuts, cashew nuts and
mixed nuts, soft drinks, canned soups and seasoning products like pasta
sauces. There are U.S. wines and liquors available in the store.
According to the store manager, although imported foods only generate a
slim profit compared with local products, the store still prefers to
include some imported foods to differentiate from its competitors and to
attract high-income customers and expatriates. Coffee, crackers (if
competitively priced) were mentioned as
![](media/image5.png){width="1.3680555555555556in"
height="1.8173611111111112in"}

having potential for locals and expatiates alike. U.S. products account
for 50% sales of imported grocery products. High price is the major
obstacle for U.S. packaged foods. For fresh products, we noticed a
significant sales volume of *Sunkist* oranges, *Red Delicious* apples,
*Gala* apples and *Granny Smith* apples from the U.S. in the *Wal-Mart*
store. *Wal-Mart* Shenzhen headquarter directly imports the oranges
while suppliers from Guangdong provide the apples.

# Carrefour

With 17 stores in South China, the first *Carrefour* store in Xiamen
opened in 2006. Very limited imported items are found in the Xiamen
*Carrefour* store, except for some seasoning sauces from Europe,
Washington apples, wines & liquors. More than 60% of revenues are
generated from grocery and fresh food products. As a latecomer to the
market, the store is striving harder to get its market share through
direct discounted price and cash coupons. Its high-income customers own
their own cars and homes and are the main target customer for high-value
imported products. *Angus* beef and health foods from the U.S. would
meet the criteria for good taste and health.

# Trust-Mart![](media/image6.png){width="2.1631944444444446in" height="1.6263888888888889in"}

First opened in Xiamen in 2000, *Trust-Mart* now has four stores in
Xiamen. The Taiwan-based supermarket chain now has 108 outlets
throughout the country. Most *Trust-Mart* products are manufactured
locally, with a few imported products such as Thai rice and Italian
olive oil. Imported fruits from the U.S. like *Sunkist* lemons, *Red
Delicious* apples and *Granny Smith* apples from Washington State were
also seen on store shelves. Imported fruits are supplied through a
Guangdong based importer. Located in the center of the city, the
*Trust-Mart Fushan* store receives more than 10,000 customers daily, of
which 8,000 purchase on average RMB80 (US\$10.25) per person. According
to the store manager, other *Trust-Mart* stores in the Xiamen area have
an average sales of RMB50 (US\$6.40) per check.
![](media/image7.png){width="1.50625in" height="1.8680555555555556in"}

# Metro

*Metro* mainly targets the HRI sector rather than the regular consumer.
The HRI sector accounts for 80% revenue while institutions account for
the rest. The Xiamen store opened in 2003 and ranks among the top three
of all the China stores in terms of sales revenue. With 33 stores in
China, *Metro* has established six outlets in South China and plans to

open three more by the end of 2007. A large percentage of imported foods
are available in the store, to accommodate the needs of Western
restaurants and hotels. Raisins,

syrups, baking soda, cookies, tortilla crisps, breakfast cereals, cake
mixes, microwave popcorns, soups, canned vegetables and sauces from the
U.S. are found. The most popular U.S. products include chocolate, syrup,
cake mixes and microware popcorn. However, tomato puree from Italy for
and biscuits from European are the best selling imported items. Olive
oil consumption is also getting popular due to health concerns. *Metro*
conducts regular in-house customer panels from professional ranks to
collect ideas on service and products. *Metro* conducts professional
product training, especially on new products as a useful way to funnel
information to HRI executives and to generate interest and purchases.

**Quickly Expanding Hotel and Restaurant Sectors**

The Xiamen people have a relatively high disposable income, and many of
them have relatives living overseas. They are open to new dining
experiences and willing to try different cuisines. Industry sources say
most tend to dine out at least once to twice a week, which provide
strong support to the expansion of restaurant business. Several *Fortune
500* investors have been lured to the city. Expatriates also create
demand for foreign cuisines.

The moderate climate and relaxed atmosphere helps Xiamen attract a
steady stream of tourists from both overseas and within China. There are
two international five-star hotels (*Sofitel* and *Sheraton*) and 18
four-star hotels, which are targeted to business and meeting purposes
including western brands such as *Marco Polo*, *Howard Johnson*,
*Holiday Inn* and *Best Western*. Prominent domestic four-star hotels
include *Seaside* and *Xianglu*.

There will be ten more five-star hotels within three years which will
include almost all major international brands such as *Grand Hyatt*,
*Hilton* and *Shangri-La*. Increased competition among hotels will
create opportunities for local hotels to incorporate advanced management
methods. ![](media/image8.png){width="2.4131944444444446in"
height="1.0229166666666667in"}

Rooms and food and beverages are the main source of revenue for the
hotel sector. Thus, food helps a hotel differentiate itself from
competitors and attract more customers. International hotels tend to
attract most expatriates to dine in while some local western style
restaurants are frequented by local dinners who want to experience
western style of foods. Considering the cost and acceptable quality of
local produce, only limited amounts of imported food products like olive
oil, cheese, sun dried tomato and beef are included in the hotel menu.

Usually purchasing is handled by purchasing departments of hotels along
with executive chefs. However, maintaining quality and receiving a lower
price is the top concern for the hotel. Most of the imported ingredients
are sourced from distributors based in Guangzhou, Shenzhen or Hong Kong.

Imported ingredients like pasta, olive oil and Italian sausage, have
already found their way into leading five-star hotels in Xiamen. U.S.
beef enjoyed a renowned reputation in local food service market. Local
consumers are starting to accept various cheese products through the
introduction of Western style of food, like pizza. Consistent quality of
imported product is one of the advantages that leading hotels and
restaurants appreciate to maintain the authentic taste of western style
dishes. Other products of interest are high value seafood, include King
crab, Boston lobster, grapefruit and cooking ingredients such as
seasoning products.

Consumption of red wine is growing steadily in Xiamen for health and
status. Thus, middle-to-high priced imported wine could find their
market niche in this market. Many upscale restaurants and hotels have a
comprehensive wine collection from around the world and state-of-the-art
wine cellars. Italy and Australian wines are popular owing to steady
promotions like wine tasting, wine dinner and wine bazaars. American
wines are keeping a low profile because of much less promotional
activities. Given the good prospect that the Xiamen market demonstrates,
several major wine importers like *ASC*, *SummerGate* and *Montrose*
have established sales office in Xiamen. U.S. wineries should consider
more assertive joint promotion with those importers to obtain and
maintain a foothold into the market. Follow-up educational events, like
wine tasting, are vital to maintain the customer attention.

Western style fast food chains are getting popular among the younger
generation. The city boasts seven *McDonald's*, ten *KFC* and five
*Pizza Huts* restaurants. Various cheese products, like Mozzarella and
tomato sauces for pizza toppings are imported while French fries and
whole corn-on-the-cob are sourced from the United States. A Xiamen based
importer told ATO/GZ that the company imports 100 containers of U.S.
French fries per month to supply to a popular American fast food
restaurant chain. The same company also brings in cheese sticks from the
U.S. for pizza toppings. However, due to its good quality and relatively
cheap price, New Zealand is still the biggest dairy products supplier to
the market. This contact believes that it's crucial for U.S. exporters
to think beyond shipping products and more in terms of how they and
their products need to differentiate themselves from competitors. It's
vital for U.S. exporters to establish long-term relationships to promote
themselves and their products if they want to obtain and maintain a firm
hold on the market. Providing good support services greatly adds value
to a product.

# Processing Industry

In addition to food and beverage products, other U.S. origin
agricultural products, like fishmeal, whey powder, food additives,
timber and raw hides, have also found their niche in Xiamen for further
processing. Imported soybeans are mainly crushed for oil, and meals used
as a main protein source for feed. The feed industry consumes a large
quantity of fishmeal, while the food manufacturing industry in Xiamen
uses whey powder and food additives in daily production. Price and
consistent supply are major concerns for local manufacturers to decide
on the use of imported ingredients. For wood products, most imported
timber are used for office furniture and kitchen cabinet manufacturing
by Taiwanese invested factories, then re-exported to overseas markets.
However, the local demand for high quality wood products is growing
steadily. Xiamen's surrounding area has a relatively large leather
manufacturing industry which mainly targets the export business. Due to
environmental protection concerns, the local government has began to
limit development of tanning factories and will eventually suspend them.
Thus, post expects raw skin exports from the United States to shrink in
a few years.

# Well Developed Infrastructure Facility![](media/image9.png){width="2.0381944444444446in" height="0.78125in"}

Thanks to superior natural conditions, the Xiamen port is a deep-water
sea berth port that could serve 100,000 DWT vessels. The port ranked as
the seventh largest container port in China or 26^th^ in the world. It
handled nearly 4 million TEUs (20 foot equivalent unit) in 2006.

Starting on October 15, 2006, three more ports previously under the
supervision of Zhangzhou have been reassigned the management role for
the Xiamen Port Authority. The consolidation of port areas means the
Xiamen Port Authority manages eight ports with a combination of bulk,
container and passenger ports. The Xiamen port now has 122 berths in
operation; among them, 33 are deepwater berths. The port has set up 53
shipping lines with all major ports in China and the world. The total
handling capacity of the Xiamen port reaches 20 million TEUs yearly. The
Xiamen Port Authority expects a 25% increase in container within the
coming years.

![](media/image10.png){width="1.6541666666666666in"
height="2.379861111111111in"}![](media/image11.png){width="1.6458333333333333in"
height="2.379861111111111in"}

Xiamen Port Area

In addition to cargo services, the Xiamen Port Authority is planning to
cooperate with several companies that operate luxury passenger vessels
around the world to establish routine routes between Xiamen and selected
world-class resort destinations, such as Miami. The city has already
finished construction of its international tourist quay, which can
accommodate the largest cruise ship in the world. If the proposed routes
take place, Xiamen will surely attract more wealthy overseas visitors,
and the demand for high quality imported foods is expected to rise.

In addition to ports, Xiamen has a comprehensive transportation network,
consisting of highways, railways and air routes. Known as *Gaoqi
International Airport*, Xiamen is the forth-largest airport in Mainland
China. There are 107 air routes between Xiamen and 75 cities both in
China and overseas. The city also has scheduled direct cargo flights to
Chicago and Los Angeles in the U.S., Tokyo, Nagoya and Osaka, Japan as
well as Luxemburg and Hong Kong. Xiamen is connected to the national
railway network through the Yingtan-Xiamen railway. Well-developed
highways connect Xiamen to major cities in the Pearl River Delta and the
Yangtze River Delta within an 8-hour radius.

**Summary**

With the rapid expansion of the retail, restaurant, hotel and tourism
sectors as well as higher income levels, post expects the Xiamen market
will present more opportunities for U.S. agricultural products in years
to come. However, the market is highly competitive, so U.S. products
need to differentiate themselves from competitors through pricing,
unique attributes and/or strong product support. A well-defined market
plan plus commitment to long-term strategy and market promotion are key.

Appendix

  ------------ ------------------- -------------------- --------------------
  **Sector**   **U.S. products in  **U.S. products with **Available
               the Xiamen market** good potential**     competitors'
                                                        products**

  Retail       Red Delicious       Cookies, coffee,     Cookies, red wine,
               apples, Gala        fresh fruits, infant liquor, beer, pasta,
               apples, Granny      foods, health foods, olive oil, candy,
               Smith apples,       microwave popcorns,  sauces, rice, fresh
               Sunkist oranges,    red wine, liquor     fruits, tomato
               hot chocolate                            puree, biscuits
               drinks, almonds,                         
               cashew nuts, soft                        
               drinks, canned                           
               soups and                                
               vegetables,                              
               seasoning products,                      
               cookies, cereals,                        
               raisins, microwave                       
               popcorns, cake                           
               mixes, tortilla                          
               chips, syrups                            

  HRI          Sauces and          Cheese, red wine,    Cheese, red wine,
               seasoning products, high-value seafood   liquor, beef,
               frozen potato       products, beef,      seasoning products,
               products, cheese,   sweet corn,          olive oil, sun dried
               pork, sweet corn,   seasoning products,  tomato, sausage
               fruits              sauces, almonds,     
                                   olive oil, frozen    
                                   potato products,     
                                   grapefruit           

  Processing   Whey powder, food   Almonds, soybean,    Soybean, whey
               additives, hides    whey powder, food    powder, food
               and skins, soybean, additives, fishmeal, additives, fish meal
               fishmeal, gelatin   gelatin, DDGS        
  ------------ ------------------- -------------------- --------------------

# Post Contact Information

ATO/Guangzhou is continually working on new activities throughout the
South China region. For more information, please contact:

# U.S. Agricultural Trade Office (ATO), Guangzhou

14/F, Office Tower

China Hotel, Guangzhou

Tel: (86-20) 8667-7553

Fax: (86-20) 8666-0703

E-mail: <atoguangzhou@usda.gov>

Website: [www.usdachina.org](http://www.usdachina.org/)