Date: August 2004

1.   MARKET              :      CHINA MAINLAND


     Table 1:       Description of the confectionery term refers to food items rich in
     sugar. Thus we find "sweets" in British English and "candy" in American
     English. In the general classification terms, the categories or types of
     confectionery items include sugar confectionery, chocolate confectionery, gum,
     jelly, preserved fruits, biscuit, cake, dessert, bread, ice cream etc. Here in the
     context, we narrow down and define the confectionery as Chinese classification
     i.e. sugar confectionery, chocolate confectionery and chewing gum. (Source
     from Confectionery Specialized Commission of China National Food Industry

      HS CODE                  ITEM DESCRIPTION
      1704.1000                Sugar confectionery (including white chocolate),
                               not containing cocoa: chewing gum, whether or
                               not sugar-coated
      1704.9000                Other sugar confectionery
      1806.2000                Other chocolate and preparations containing
                               cocoa in blocks, slabs or bars weighing more than
                               2kg or in liquid, paste, powder, granular or other
                               bulk form in containers or immediate packings, of
                               a content exceeding 2 kg
      1806.3100                Other preparations, in blocks, slabs or bars: filled
      1806.3200                Other preparations, in blocks, slabs or bars: not
      1806.9000                Other preparations, not in blocks, slabs or bars
     Source: China Customs


     In 2003, China’s total imports of confectionery products amounted to US$
     68.83 million (RM261.55 million), an increase of 7.43 percent as compared to
     the import volume of US$ 64.08 million (RM243.50 million) recorded in the
     previous year. The confectionery products accounted for 10.3 percent of
     China’s total imports of *food & beverages products in 2003, followed by
     miscellaneous food (46.47%), baking related food (22.16%) and preserved

           food (22.42%).

           Malaysia was the thirteenth (13) biggest supplier of confectionery products to
           China in year 2003. China’s imports from Malaysia declined to US$1.35 million
           (RM5.13 million) in 2003, accounting for 2.0% of China’s total imports of
           confectionery products from the world and a decrease of 19.6% from the import
           volume of US$ 1.69 million (RM6.42 million) recorded in the previous year. Italy
           was the biggest supplier with 21.8% market share of China’s imports of the
           products, followed by United States with 16.5% market share, Hong Kong with
           7.2%, Singapore with 6.9% and Australia with 6.2%. Details of China’s imports
           of confectionery products are as shown in Table 2.

           Table 2:      China’s Imports of Confectionery Products by Major Imports

                                                                             (Unit:    million
            2001                                   2002                                2003
    TOTAL: 64.71(7.83)                  TOTAL: 64.08(-0.98)               TOTAL: 68.83(7.43)
    United States 13.70(7.8)              Italy   14.14(23.5                Italy    14.99(7.4)
1                                  1                              1
         Italy          11.45(-          United     10.82(-              United        11.37(6.0)
2                                  2                              2
                         14.6)           States      21.0)               States
      Australia       6.52(28.5)       Hong Kong 5.64(16.0)            Hong Kong        4.94(5.0)
3                                  3                              3
     Hong Kong        4.87(65.9)         Korea,       4.00(7.5)        Singapore       4.59(-12.5)
4                                  4                              4
    Korea, South      3.72(31.9)       Singapore     3.57(29.0)           Australia    4.25(28.7)
5                                  5                              5
    Malaysia (11)     1.36(12.5)        Malaysia     1.69(24.0)           Malaysia     1.35(-19.6)
                                         (10)                              (13)
    Source: China Customs
    *indicates percent change from the previous year.

    Table 3:       China’s Global Total Import Confectionery in 2003 by Category

                                                                        (Unit: million USD)
         HS Code                Description                       2003          (%)
     1   17049000 Sugar confectionery not containing cocoa        17.39         -2.3
                  Chocolate, etc, not in blocks, slabs or
     2   18069000 bars                                            16.99         24.8
                 Chocolate, etc, in blocks, slabs or bars,
 3    18063100   filled                                      14.75       7.2
                 Chocolate, etc, in blocks, slabs or bars
 4    18062000   >2kg                                        10.42      38.8
                 Chocolate, etc, in blocks, slabs or bars,
 5    18063200   not fill                                     5.74       -6.3
 6    17041000   Chewing gum                                  3.55      -32.7
        Total    Confectionery                               68.83       7.4

Table 4:     China’s Imports of Confectionery from Malaysia in 2003, by

                                                                  (Unit: 1,000 USD)
      HS Code                   Description                  2003         (%)
                 Chocolate, etc, in blocks, slabs or bars
 1    18062000   >2kg                                        990       59.33
 2    17049000   Sugar confectionery not containing cocoa    340      -51.62
                 Chocolate, etc, not in blocks, slabs or
 3    18069000   bars                                         20      -91.54
                 Chocolate, etc, in blocks, slabs or bars,
 4    18063100   filled                                      1.304    -99.02
 5    17041000   Chewing gum                                 0.037    N/A
                 Chocolate, etc, in blocks, slabs or bars,
 6    18063200   not filled                                    0     -100.00
        Total    Confectionery                               1,350    -19.61

* Food & Beverages products include: HS1704, 1806,19, 20, 21, 2201 & 2202


4.1    Import Duty & Value Added Tax (VAT)

         HS Code        Import Duty Rate         Value Added Tax
                           (MFN) (%)                      (%)
         1704.1000             12                       17
         1704.9000             10                       17
         1806.2000             10                       17
         1806.3100              8                       17
                 1806.3200            10                       17
                 1806.9000             8                       17

      4.2   Import Regulations:

                 Products    Import Requirements
                             Trade Documents
                                 Commercial Invoice
                                 Bill of Lading/ Air waybill / Cargo
                                 Certificate of Origin
                                 Packing List
                                 Import License
                                 Import/Export Inspection : selective
                                   items required inspection prior to
                                   importation, quota and licences.
                                 Labels : Required
                                 Country of Origin Labelling : Required

      Standard and Labelling Requirements:
          Border Hygienic Quarantine Law and Food Hygiene Law governs all imported
            foodstuffs, food additives, food containers, food packaging materials and food-
            related tools and equipment.
          Food products are subject to mandatory inspection by the China Commodity
            Inspection Bureau (CCIB). Standards for inspection are specified in the
            contract of sale, including standards for quality, weight, quantity, packing and
            inspection methods. Such standards must not be lower than the corresponding
            national standards.
          Safety license and other regulations are also applied to the importation of
            foods. Once a quality certificate for a product is issued, a safety laser label can
            be affixed.
          All products sold in China must have Chinese language labels. The labels state
            types of food, brand name, trade mark, manufacturer name and address,
            country of origin, ingredients, date of production and expiry date, etc..


Classification          Market Characteristics

                        Sugar Confectionery:                     Chocolate Confectionery: Gum:
                        Hard candy (milk creamy, fruit, nut) Solid pure/dark chocolate
                        Standard chewing gum
                        Soft candy                               Milky chocolate
                        Functional chewing gum
                        Filled/non-filled candy                  Chocolate with mint/nuts        Sugar-
                        free chewing gum
                        Crisp candy                              /raisin/biscuit etc.            Bubble
                        Functional candy
                        Low-sugar/sugar-free candy
Appearance &            bar, slab, flake, drop, diversified shapes such as animal, star, stick etc.
                        GMP, ISO9000, HACCP
                        twist-wrapped, pillow-packaged, boxes/bags (paper, iron and plastic) etc.
                        kids, teenagers, young girls & women
Major Consumers


        6.1   China is changing rapidly and so are its tastes. As a consumer society emerges,
              so new products are appearing with increasing regularity. Confectionery products
              are among them.

              China’s market of confectionery products has undergone considerable changes
              in the past decade, mostly influenced or driven by a buoyant national economy,
              rising living standards and incomes, as well as the influx of high-quality products
              carrying foreign brand names. Meanwhile, the increased exposure to western
              and international cuisines, a greater array of goods in the supermarket and an
              increasingly sophisticated consumer base demanding quality products and
              international brands are all combining to increase sales of confectionery products
              in China.

              The product mix of the industry has improved with the development of different
              types of chocolates, soft and special candies. This has not only injected new
              vitality into the industry but has prepared it for coming challenges.

      Historically, confectionery within Chinese society has been restricted to dried and
      preserved fruits. However, western influences have caused a sweetening of the
      Chinese palate, and this has included creating the demand for a wider array of
      new confectionery products. Another key driver of growth in the confectionery
      sector is its growing presence on supermarket shelves. The share of
      confectionery sales accounted for by supermarkets and convenience stores is
      growing globally, and this is especially significant in developing markets where
      the improved storage conditions offered by modern stores has improved the
      quality of confectionery at the point of sale.

      Compared to the global annual consumption of sweets of 3 kg per capita,
      consumption per capita in China is currently still low at 0.8 kg. Daily consumption
      of sugar should be around 50g (including sugar intake by other means),
      according to world hearth standards.

      The market for sweets and related products in China is worth more than US$12
      billion a year(including confectionery, packaged baked goods,biscuits,ice
      cream,savoury snacks) and the Chinese confectionery market has undergone
      rapid and continuing growth since 1998, has been growing at around 8.5% a
      year over the past several years. According to the Industrial Tenth Five-Year
      Plan (2001- 2005), the confectionery industry will grow above 10% annually.

                      Market Value of Confectionery in China
                                  (1999 – 2002)
                               1999              2000           2001            2002
 Sugar Confectionery         2,485.69          2,650.75       2,839.59        3,062.39
Chocolate Confectionery       348.01            377.90         414.95          459.63
         Gum                  351.55            400.52         455.81          509.03
         Total               3,185.24          3,429.17       3,710.35        4,031.05

6.2   As against many Western markets, China is characterized by the overwhelming
      dominance of the sugar confectionery segment, attributing to traditional tastes.
      Chocolate and particularly gum have, however, experienced stronger growth in
      recent years, although the sugar segment is expected to experience an even
      stronger period by 2007.

6.3   According to the purchasing initiatives of Chinese consumers, it may
      classify/name the confectionery consumption market as daily consumption
      market, holiday/festival consumption market and celebration events consumption

      6.3.1 From a long time ago, average Chinese people get used to buy
      candies/sweets for family or to prepare candies/sweets to entertain
      visitors, trays with loose toffee or hard candy regularly adorn the dinner or
      tea table in home; or, to present as a common gift together with the fresh
      fruits, cakes, tobacco and liquors when visit relatives and friends.
      Generally, the daily consumption market goes quite constantly and
      steadily. The major consumer groups are those sweet-lovers like children
      and young girls/women. Other groups like the aged people and teenagers,
      though they have changed their hobby somewhat, still have the strong
      potential for confectionery products with healthcare functions or novelty.

      As self-consumption, most of people more concern and are sensitive to
      the quality, taste, nutritional value and functions of products. They buy in
      small volume ordinarily but with high frequency and prefer packing in
      small package. The main shopping places are supermarket, chain store,
      grocery and convenient shop, which are nearby the residential area.

6.3.2 As mentioned, candies or sweets are regarded as a common gift item in
      Chinese culture. Particularly during the major holidays, people are custom
      to buy in large quantity purposely and give to relatives and friends. In
      addition to the Chinese traditional holidays such as Chinese New Year,
      Lantern Festival, Labor Day (May 1-3), National Day (October 1-3), Mid-
      Autumn (Moon-cake) Festival etc.; the new-fashion western holidays like
      Christmas Day, New Year Holiday, Valentine’s Day, Mother’s Day and
      Father’s Day are also listed in the calendar.

      The Chinese New Year is the peak period for candy sales season. Many
      confectionery manufacturers record up to a third of their annual revenues
      during the month preceding the festivities. Christmas and Valentine’s Day
      are the other two peak seasons for candy, not only because increasing
      foreigners living in China but the local young generation, educated and
      wealthy people are happy to follow the trend of celebration. The major
      shopping places are large-scale supermarkets and shopping complexes.
      For expressing the special meanings in the specific occasion, buyers
      emphasis on the brands and fantastic packing of the products. But, more
      often than not, today's candy gifts are starting to include chocolate bars
      and boxes, soft candy, gummy candy, jelly candy and toy packages.

6.3.3 Another demanding force in the candy industry is what we call the
      celebration events consumption market. Chinese people buy
      candy/sweets for the events like wedding ceremony or anniversary,
      birthday party, granulation party and others.

      For example, the gift candy for Chinese weddings: this tradition has
      practically created a niche sub-sector of the candy industry, the “xi tang”
      or "happy candy". Historically, the xi tang was a pocket-size sachet pack

            containing eight pieces of toffee or hard candy, all wrapped in red (or
            occasionally gold) with the Chinese character for double happiness as its
            central design element. Nowadays, new couples will distribute packs of
            candy in advance and during the wedding ceremony to the relatives,
            friends and colleagues to express joyfulness, respect and gratitude.
            Sometimes, candy also can be used as the props in the small game to set
            off the happy atmosphere. Hence, some confectionery producers specially
            categorize out “Happy Candy” series to meet this big potential market.
            While this market has changed from dominated by the old traditional
            Chinese brands to foreign brands, from hard candy to chocolates and soft
            candy. The consumers concentrate on packing, especially prefer wedding
            gift package, and then the brand name or taste.

6.4   Young girls and women aged between 19 to 30 year-old especially unmarried,
      who consume nearly 80 percent of all candies in China, continue to be the
      primary marketing targets. We can easily find out at least one or two kinds of
      sweets in the drawers of young ladies, and no doubt even more in their dormitory
      and homes. Normally, they are loyal to their favorites but never miss any
      opportunity to the “New Arrival” on the racks. The young office ladies or so-called
      white-collars and student-girls are usually lured by the premium packing, new
      culture and unique taste.

      However, marketing managers are attempting to change this trend by targeting
      boys as well as girls, hoping their products will become childhood favorites that
      the kids are likely to continue to consume as they grow up. Though, kids are
      another main consumption force of sweets, but contemporary parents tend to
      restrict and control the volume carefully, due to the concern of potential danger
      on dental health and obesity.

6.5   Traditionally, candy in China came only in bulk form. Bulk candy, perceived as
      cheaper, is still widely sold to retail consumers. Some department stores go so
      far as to tear open fancy packs and dump the chocolate cases in the bulk candy
      bins because they sell better there. But another important concern of seller is to
      cater to the ordinary consumers’ mentality. It might exist two standards or
      principles in consumer’ mind: one is for self or daily consumption, people
      emphasis on the quality and price other than packing; the other is for outsider,
      which referring to those beyond the closest relationship, or family members,
      people seem to prefer showing off, concern much to brand names, exterior
      packing and novelty.

      The sales venues are diversified such as supermarket (JV and local, large-scale
      and small-medium size, luxury and ordinary), convenience shops, individual
      retailing stalls beside the street, shops in gas station and vending machines etc.

6.6   China’s confectionery industry is mainly base in Guangdong province, Shanghai

      and Beijing, with a total market share of 48.9%, 11.4% and 9.5% respectively.
      Confectionery manufacturers (state-owned enterprises or private enterprises of
      annual sales revenue above RMB5 million yuan) located in the above three
      areas are 51, 24 and 11 out of total national wide 220 enterprises. The following
      provinces are Jiangsu province (6.01%) and Fujian Province (5.77%).

                          (JANUARY - JULY 2002)

           Tianjin     Hebei        Zhejiang         shangdong




           Jiangsu        Beijing         Shanghai

      From January to July of 2002, the total production of confectionery products in
      China was 26,500 tones, total sales revenue was RMB5.49 billion yuan (USD
      660 million). Confectionery product categories were above 1,000 items. The
      sales value of the top 10 manufacturers was RMB3.02 billion yuan (USD 365
      million), 55.07% of grand total of the confectionery industry, but compared by
      staff number and fix asset only was 22.25% and 37.72% of the total respectively.

      In the same period, China exported 14,077 tons, USD14.65 million confectionery
      products to the international market, among approximate 84 countries/regions,
      Hong Kong, Philippines, Malaysia, Japan and Indonesia ware ranked as the top
      5 major export destinations. On the other hand, China imported 9,424 tons,
      USD11.34 million confectionery products from 36 countries/regions, United
      States, South Korea, Japan, Singapore and Australia were the major import
      origins. Generally speaking, the exportation tended to stably increase, but
      importation was in obviously in a continuous upward trend.

6.7   Chocolate Confectionery

          6.7.1 Although chocolate was an alien invent(something new), Chinese
                traditional confectionery enterprises have been paying increasing
                attention to chocolates in recent years. International brands have done a
                lot of publicity on chocolates and have been developing products under
                different packaging to tempt the sweet tooth. The spread of air-
                conditioned supermarkets has also stimulated the growth in the sales of
                chocolates, as it means chocolates can be sold all year round.

                Chocolate is treated as an “elegant” foodstuff for its fine and smooth taste,
                silk-like feeling and special cocoa fragrant. In China market, the price gap
                between the quality chocolate with exquisite packing is more than ten
                times of the one in rough, dim color and vulgar packing.

       Referential Retailing Prices Comparison of Selected Imported, JV and Local
                                 Produced Chocolate Products
                Imported*                        Foreign Brand         Domestic Brand
                                           (Joint Venture Produced)
           Brand               Price           Brand         Price     Brand      Price
 Ferrero           Rocher 39.5/8 drops Dove               9.9/80g   Yake        4.5/125
 (Italian)                                                                      g
 Lindt (Swiss)              125.0/265g Cadbury            7.9/77g   Le conte    7.5/70g
 Leonidas (Belgian)         45.0/50g      Nestle Kitkat   25.6/280g Yili        7.0/90g
 Ducd’o (Belgian)           57.0/100g     Hersheys        16.0/146g
 Guylian (Belgian)          107.0/200g
 Alprose (Swiss)            57.4/200g
 Paton’s (Australian)       39.2/110g
Note: In normal packing, not in gift-box packing
       * Source from Beijing Yansha Shopping Center

                From year 2001, domestic chocolate industry is growing dramatically by
                10% to 15% annually and expected up to 20% of growth rate within the
                next 10 years. Chocolate confectionery is treated as a special nitrous
                foodstuff, quality and flavors are the preferential points but not price in the
                market competition. The tendency of the international chocolate industry
                development is to increase content of raw ingredients, R&D new flavors,
                enhance brand image, minimize the gap between producer and consumer
                and match the various demands. The consumption capacity of China’s
                chocolate confectionery market is around RMB3.8 billion yuan (USD 460
                million), but most of market shares occupied by foreign branded products.
                Furthermore, 100 percent imported chocolates is another strong market
                holder. Comparison between the imported and local produced chocolate
      confectionery products, the advantages of imported products as against
      locally made products may be differentiated, as follows:

      1. High quality of raw ingredients: pure chocolate made of natural and
         quality ingredient will substitute those made of cocoa butter;
      2. Scientific technology: art-to-date refining and grinding technology
         improve chocolate’s smooth and fragrance taste;
      3. Diversification and nutritious: added in milk and nuts increase nutrition,
         low-calorie and non-sugar
      4. Exquisite packing: advanced packing materials and technology
         upgrade product and guarantee product quality;
      5. Production integration: widely utilize pure chocolate into new product
         categories such as chocolate filled, chocolate coating, aerated
         chocolate and so on, in reasonable price as the value added chocolate

6.7.2 Indicators from the market survey showed that oriental or Chinese people
      prefer milk chocolate to the dark/pure chocolate. This is due to the fact
      that milk chocolate balance the cocoa and milk favor and comparably
      sweeter. In addition, Chinese people show partiality for diversified tastes
      i.e. solid chocolate with inclusions such as “Toblerone”; enrobed or
      moulded chocolate with candy, fruit, or nut centers such as “Snickers” and
      “M&M”; and enrobed or moulded chocolate with bakery centers such as
      “Ferrero Rocher”. Different from European, Chinese people prefer
      chocolate with nuts especially peanuts and biscuit favor instead of solid

6.7.3 China’s chocolate confectionery production in scale initiated from 70’s of
      20th century, from 90’s foreign giant chocolate producers penetrated
      Chinese market and occupied most of market shares gradually. Mars,
      Cadbury, Nestle, Hershey established their Joint Venture manufacturing
      companies in China and held nearly above 50% of market share. Besides
      the major JV chocolate products, certain 100 percent imported chocolate
      brands like Lindt, Ferrero Rocher, Leonidas, Mozart and Toblerone etc.
      about 10 brands 70 categories were the other powerful market player.

6.7.4 Consumers treat imported chocolates as a special product that other
      chocolate will not be mentioned in the same breach. For example, in the
      yearly chocolate-sale campaign for Valentine’s Day celebration, especially
      in those expensive shopping centers, a special area for selling imported
      chocolate will be considerately adorned and they were always the best-
      sold winner at last. Although labeled in the screaming price, these
      chocolates still captured most of consumers’ attention and pockets for
      their incredible genuine favors and unique handmade techniques,
      attractive and elegant exterior packing, as well as typical exotic cultural

              characters. However, those foreign JV brands might withdraw to the
              corner at the moment, the local brands even could not easy to be found.
              To be the affectional gift in the Valentine’s Day, buyers definitely take
              priority to the product’s taste and grade but price.

6.8   Gum Confectionery

      68.1    Chewing gum in Chinese is named as “fragrant breath candy”. Chinese
              people were familiar with and get used to chewing gum only in a short ten-
              year history. From the curiosity at the beginning until now the carry-on
              items, taking chewing gum is gradually becoming a daily habit like brush
              tooth. Nowadays, young generation treat chewing gum as a cool fashion
              similar as drinking coffee and listening to the pop music. You can easily
              buy chewing gum in various shops, vending machine and even in the
              newspaper & magazine stand.

              Chewing gum belongs to the fast-consumption foodstuff. Chinese
              consumers’ monthly consumption capacity of chewing gum is still in the
              low level. Mature consumer groups have not yet existed. China’s chewing
              gum market has grown steadily by over 10% a year for several years. The
              five major brands under Wrigley company i.e. Doublemint®, Supearmint®,
              Juicymint®, Extra® and Cool-air®, are in the overwhelmingly leading
              position and occupied more than 50% of China’s market. Other brands
              such as Xylitol®, Blackblack® and Flavono® etc. belonged to Lotte
              company from South Korea, is ranked as the No. 2 foreign brands
              chewing gum group. Few domestic brands are unable to compare with
              foreign brands and were in an absolutely inferior position.

      6.8.3    “Functional chewing gum” is the key development area of China chewing
              gum market. Increasing the range of functionality offered by gum is
              expected to continue to widen its appeal. Not only the chewing gum
              makers are eyed on this market, but also the dental goods makers. Gum
              in particular has embraced the sugar-free concept, but with improvements
              in the taste and texture of artificial sweeteners in recent times, there are
              now increasing opportunities for sugar-free products as diverse as boiled
              sweets to chocolate. In the already mainly sugar-free gum sector, the
              move is now towards tooth-whitening products or gums containing cavity-
              reducing ingredients such as xylitol, and it is predicted that sales of these
              products will continue to grow as a broader range of consumers gain
              greater dental health awareness. Based on its established brands image
              and reputation, mature consumers community, as well as the diversified
              promotion channels, the two foreign giant chewing gum producers in
              China have been focus on the new development and taken the market


7.1   The Chinese confectionery industry is looking sweeter, with large state-owned
      enterprises successfully reorganizing themselves and private enterprises steadily
      expanding. This development is attracting an increasing number of new investors
      into the industry. Although the arrival of newcomers has intensified competition, it
      is also giving it a big boost, with a larger market being the desired prize.

      Over the past five years, foreign confectionery companies have been extensively
      testing their brands and products in the Chinese market. Initially, all foreign
      branded products were imported and distributed by local companies. Mars,
      Wrigley and Nestle were the first to establish local representation, and later, joint
      venture or wholly foreign owned production facilities. The overall trend set by the
      multinational companies interested in capturing a leading market share is to
      establish a local production facility. In this way, they not only take advantage of
      inexpensive skilled labor and eliminate the burden of import duties and
      formalities, but also are able to freely distribute their product in the domestic

      Despite the arrival of foreign confectionery giants, which have made great
      inroads into the market, the Chinese confectionery market remains dominated by
      products suited to the local Chinese taste preferences for fruit flavours, and so
      the domestic industry remains buoyant and competitive. Meanwhile, the
      domestic industry is increasingly adopting the use of equipment and ingredients
      from foreign suppliers.

      One way to test the Chinese market is through a licensing agreement with a local
      confectionery manufacturer, whereby the foreign company supplies the
      technological know-how and intellectual property rights. An alternative marketing
      option, relatively unexplored in China, is the repackaging and branding of
      imported bulk confectionery for use by private labels.

      Although import duties are rather low (8-10 percent for chocolate and 10-12
      percent for sugar confectionery), only a fraction of imported products enter China
      through direct channels. In current stage, still a vast majority entered through
      Hong Kong, unaccounted for by Chinese Customs. This is particularly true for
      cheaper unbranded Southeast Asian products as well as higher end European
      products with some brand name recognition.

      Most leading sources of imported sugar confectionery, Korea, Malaysia, France,
      Italy and Switzerland, ship through Hong Kong’s gray channels. In contrast,
      American, Australian and Belgian chocolate producers tend to invest more in
      their brand names, develop a longer-term marketing strategy and bring most of

      their products through legitimate channels.

7.2   However, rising health awareness is a new trend among confectionery
      consumers. Mothers concerned about their children’s dental health are careful
      not to let them eat too much sugar. People might aware that more and more little
      obesity boys and girls behaving clumsily that raised social concerns. Young
      women increasingly abstain from food products high in calories. Different articles
      on advantages and disadvantages of chocolate confuse consumers’ justification.
      Furthermore, consumers in the big cities become more health conscious than
      rural places.

      This hurts some of the traditional confectionery producers, but on the other hand,
      it creates healthy, good for dental health and anti-inflammations candy and an
      opportunity for various quality low-fat, sugar-free foreign products, which
      emphasizing its nutrition value and dental protection function. The sugar-free
      confectionery market is underdeveloped in China. Sugar-free confectionery
      represents half of the entire confectionery market in advanced countries. In
      China it still accounts for less than 1% of the total market.

      Consumption trends in the candy and chocolate industry are relatively short-
      lived, so innovation and product improvement are major driving forces of
      success. Chinese producers have little or no research and design capabilities, so
      they are slow to introduce new/novelty candy products to the market. Innovative
      packaging, novelty candy and cross-branding are very scarce and
      underdeveloped. Good-quality foreign products that do not melt in the summer
      can capture market share during the traditional low season. Foreign
      confectionery companies have a competitive edge in this market, thanks to
      advanced, high-tech and innovative products that have been developed and
      tested in the West over the past few decades.

      Foreign manufacturers lure confectionery consumers with novel and unique
      flavors, shapes and packages. The downside is that these impulsive market fads
      only last for several months and local manufacturers are quick to come up with
      cheap counterfeits as soon as there is evidence of consumer demand. Copies of
      products appear in the marketplace as soon as a branded product is relatively
      successful. Nevertheless, foreign companies have the opportunity to introduce
      advanced, trendy products to the Chinese mass candy market. The best
      products are ones that are technologically advanced enough so that they are not
      easily reproduced by Chinese manufacturers. A number of foreign chocolate
      brands have entered the market in the past 5 years and most of them have
      established domestic manufacturing. Local producers are acquiring Japanese
      and Korean technology for products that have had successful pilot sales in the
      Chinese market.

7.3   New standards were introduced for the confectionery industry in July 2002,

         giving access to about 500 types of foreign candies produced with new
         technologies, equipment and raw materials, including semi-solid candies or
         sweets with filling. These were barred from the China market when the old
         standards were in force. China’s new standards were in response to the latest
         market trends, and in compliance with its WTO commitments. They are more
         scientific in approach, and in line with international standards. Major international
         confectionery companies are indeed expected to launch new products into China
         after the introduction of the new standards.

         China General Administration of Products Quality Supervision, Inspection and
         Quarantine (AQSIQ) authorized National Food Quality Supervision and
         Inspection Center to draft the rules on market entry permit related to
         confectionery and chocolate products. The rules will stipulate requirements on
         HACCP, production technology, product quality and sanitary standards. Those
         enterprises not complied with the rules, whose products will not be allowed
         distributing in the market, moreover, not qualify to produce confectionery and
         chocolate products.

         In addition, a new regulation will be stipulated out and effect from 1 st January
         2005, chocolate and preserved-fruits products from Hong Kong SAR exporting to
         China mainland will not be levied on import duty. The China Customs will reduce
         tariff respectively from 8%, 10%, 8% and 30% to 0% on products under HS code
         18063100 (Chocolate, etc, in blocks, slabs or bars, filled), 18063200 (Chocolate,
         etc, in blocks, slabs or bars, not fill) and 18069000 (Chocolate, etc, not in blocks,
         slabs or bars) below 2kg package and preserved-fruits products.


        Locate precise market position for the products by terms of brand image,
         packing and price. Malaysian confectionery manufacturers shall focus on a
         certain class of consumers, i.e. upper class, middle class or lower class. To
         distinguish or differentiate Malaysian products from the other competitive brands,
         they need to promote with own brand image, product functions or characteristic

        Conduct thorough market research, including popular acceptance of taste,
         packaging, concept and price point for any new-to-market product. To establish
         network with the local professional associations for accurate and detailed
         information, as well as get relevant assistance to search local partners;

        Approach the market with realistic expectations, especially when projecting the
         size and growth rate of your business in China. For example, when Wrigley
         company initiated China’s market in 1989, most of Chinese people did not know
       about the chewing gum. Wrigley cultivated Chinese people habit to get used to
       chewing the gum so that it created Wrigley’s current strong monopolization
       position in China’s chewing gum market;

      Experiment with a lot of products, but ultimately consolidate around the proven
       winners. For instance, although the local consumption market of chocolate
       confectionery bias to foreign brands or imported products, but face to Malaysian
       branded chocolates, Chinese consumers are still not familiar with or know
       nothing. If most of European and American manufacturers promote their
       chocolate products by pure/dark chocolate, chocolate with milk, mint or wine
       taste, hazelnut, almonds and raisin etc., so Malaysian chocolate might be
       specialized in tropical fruits flavors like coconut flavor chocolate;

      Follow the international trend to research and develop new categories of
       confectionery products such as de-cariole, low-sugar or sugar-free, multi-
       functional, healthcare;
      Develop a long-term strategy and build a brand. It is the only way you can
       differentiate your product from the rest and ensure long-term success in this very
       competitive market;

      Capital backup for market promotion/publicity/advertisement. It’s no doubt that
       the advertisement on TV, newspaper/magazine, radio, outdoor advertising board
       and on-site sales promotion etc. are the most popular ways to disseminate the
       products information to consumers.

      Malaysian companies can take advantage of advanced technology, management
       system and mature marketing operational experiences such as recruiting agents,
       distribution channel, logistics, products displaying, promotion strategy,
       professional marketing personnel etc.

      Register product’s patent or know-how in the relevant local government agencies
       to protect Malaysian companies’ interests.


Source: China National Food Industry Association(CNFIA)
      China National Candy Association (CNCA)

Annex I: Other Useful Contacts and Information

Local Associations:

         Confectionery Specialized Committee of
          China National Food Industry Association
          Address: 1-102, Building 6, No. 48 Tiantandongli, Chongwen District,
          Beijing 100061 China
          Tel/Fax: 8610-67164830
          Contact person: Mr. Wang Haining (Secretary-General)

         China National Food Industry Association
          No.5 Taipingqiao Dongli, Guanganmen Wai, Beijing 100073 China
          Tel: 8610-63448975
          Fax: 8610-63402364
          Contact person: Mr. Bian Lei (Deputy Director, Market Development Dept.)

         China Association of Bakery & Confectionery Industry
          Address: No.22B, Fuwai Street, Beijing 100833 China
          Tel: 8610-68396530
          Fax: 8610-68396567
          E-mail: or
          Contact person: Mr. Zhou Guangjun (Secretary General)

Professional Publications:

Name            :       “China Candy”
Publisher       :       Confectionery Specialized Committee of China National Food
                        Industry Association
Type            :       Bi-monthly magazine in Chinese language
Profile         :       Professional publication regarding to general information on the
                       China’s and international confectionery industry including sweets,
                       candy, chocolate, ice cream, cakes/biscuits, preserved fruits etc.
                       and published in nation wide. There are various news and articles
                       about rules & regulations, industrial technology development,
                       enterprises etc. Company was allowed to do the advertisement in
                       the magazine. Reader can subscribe the magazine charged by
                       RMB560.00 or RMB260.00 per year, more services available once
                       to be the subscriber.
Contacts   :   Rm. 10102, Building 6, No. 48 Tiantandongli
               Chongwen District, Beijing 100061 China
               Tel: 8610-6712 0872
               Fax: 8610-6716 4830
               (Contact person: Mr. Lu Shuang)

Exhibitions Related To Confectionery Industry in China:

             Exhibition       :      Sweets China
             Date             :      September 21 to 24, 2004 (9.00a.m. – 5.00p.m.)
             Venue            :      Shanghai Everbright Convention and Exhibition
             Period      :           Annual
             Organized by:           Koelnmesse Pte. Ltd.
                                     Shanghai Modern International Exhibition Co.
                 Co-organized by:    China National Food Industry Association(CNFIA)
                                     China National Candy Association (CNCA)
                 Product Segments:
                                      Cocoa, Chocolate and Chocolate Products
                                      Biscuits
                                      Snack Products
                                      Sugar Confectionery
                                      Ice and Raw Pastes

             Website: www.

Exhibition   :         FHC 2005 - Food & Drink
                       (The 14th International Exhibition of Food & Drink)
Date         :         15 - 18 November 2005 (9:00am to 4:00pm)
Venue        :         INTEX Shanghai, 88 Loushanguan Road ShanghaiMart, 99 Xingyi
                       Road, Shanghai China
Period       :         Annual
Organizer    :         China International Exhibitions (A member of Allworld Exhibitions)
Featuring    :
                      Confectionery China
                      Wine & Spirits China



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