Chinese Economic Miracles by shahrukhcress

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The presentation discusses the economic miracles of China

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									Chinese Economic Miracles




                            1
   Readjustment and recovery:
   "Agriculture First," 1961-65

 Government faced with economic collapse
  in the early 1960s
 Organizational changes in agriculture
 Economic support for agriculture
 Decentralization of industry


                                            2
Contd…
 Economic stability
   - Agricultural output growth 9.6% / year
   - Industrial output growth 10.6% / year
   - Spread of rural & Small-scale industries




                                                3
        China‟s Agriculture in Context
                 Annual GDP                  vs.   Breakdown of the
                                                      Labor Force
                               Agriculture
                                   11%

                                                   Services
             Services                               32 %        Agriculture
              39.5%                                                43%

                               Industry
                                 49.5%
                                                     Industry
                                                       25 %




                                                                              4
Source: CIA, World Fact Book
Events during the Cultural Revolution
          decade, 1966-76
 High Tide of the Cultural Revolution 1966-68
 - 14% Decline in Industrial Production
   - Causes
    * Political activity of students and workers.
    * Extensive disruption of transportation
    * Direction of factories was placed in the
      hands of revolutionary committees
    * Dire shortage of highly educated
      personnel
                                                    5
Contd…
 Resumption of systematic growth, 1970-74
  - Revival of efficiency in industry
 Gang of Four, 1974-76
  - Consequences
    - Economic decision makers were paralyzed
    - Economic activity slowed
    - Output for the year in both industry and
      agriculture showed no growth
                                                 6
Contd…
 Consequences of Post-Mao interlude, 1976-78
  After the fall of the Gang of Four, the leadership under Hua
  Guofeng made new policies
    - New policies, which strengthened the
      authority of managers and economic
      decision makers.
    - Foreign trade was to be increased
    - Above polices were included in Ten year plan,
      called for high rates of growth in both industry
      and agriculture
    - Industrial output jumped 14 percent in 1977 and
      increased by 13 percent in 1978
                                                                 7
Reform of the economic system in
               1978
 National Party Congress's economic reform
  - Purpose of the reform program
    - substantially increase in the role of
      market mechanisms
    - reducing--not eliminating– government
       planning and direct control
  - Result of the reform program
    - increasing supplies of food and other consumer
      goods
    - reforms also created new problems and
      tensions                                      8
Period of readjustment, 1979-81
 Major goals of the readjustment process
 - Expand exports rapidly
 - Overcome key deficiencies in transportation,
   communications, coal, iron, steel, building materials, and
   electric power
 - Redress the imbalance between light and heavy industry
   by increasing the growth rate of light industry and reducing
   investment in heavy industry.
 Central policies of the reform program
 - The contract responsibility system of production in
   agriculture
                                                                  9
Contd…
 -The responsibility system allowed individual farm families to
   work a piece of land for profit in return for delivering a set
   amount of produce to the collective at a given price
 Result of policy
 - Increased the autonomy of enterprise
   managers
 - Reduced emphasis on planned quotas
 - Allowed enterprises to produce goods outside the plan for
   sale on the market
 - Permitted enterprises to experiment with the use of
   bonuses to reward higher productivity
 - These enterprises were allowed to pay a tax on their profits
   and retain the balance for reinvestment and distribution to
   workers as bonuses                                             10
    You Have Already Heard:

          1.3 Billion
 China is the world‟s largest market for US
  food and agricultural products.

 More than 25% of urban Chinese can afford
  to buy imported food products.


                                               11
    You Have Already Heard:

              11.4%
 China‟s GDP grew 11.4% in 2007.
 This is the 5th consecutive year of double-
  digit growth – including SARS in 2003.
 By comparison US GDP grew 3.4% in 2007.




                                                12
                         Economic Overview
 Economic Overview
        World‟s Second Largest Economy (PPP)
        GDP Growth
          2006:      11.1 %
          2007:      11.4 %
        World Bank estimates 2007 GDP per capita
         $9,800 (PPP), CIA estimates $5,300
        Unemployment: 6.1%

                                                    13
Source: CIA World Fact Book, EIU, 2007
        China‟s Agriculture in Context
                 Annual GDP                  vs.   Breakdown of the
                                                      Labor Force
                               Agriculture
                                   11%

                                                   Services
             Services                               32 %        Agriculture
              39.5%                                                43%

                               Industry
                                 49.5%
                                                     Industry
                                                       25 %




                                                                              14
Source: CIA, World Fact Book
             Did You Know?

         $150 Billion
 China‟s HRI sector is valued at $150 Billion.
 China is the world‟s second largest economy,
  surpassed only by the US.
 By 2030, estimates indicate China will be
  ranked 1st.
 It is already the world‟s largest recipient of
  Foreign Direct Investment (FDI).
                                                   15
             Did You Know?
 China is home to an estimated 500,000 plus
  millionaires.
 China is home to 42 Billionaires.
 China‟s has 200-500 million middle class
  consumers with annual household income
  between $7,322 - $61,016.



                                               16
 International Events Set the Stage
for Food Products and Food Service
 Beijing expects nearly 600,000 international as well as
  more than a million domestic visitors during the Olympics.
 Over 30,000 official Olympic hotel rooms in prime
  locations at 122 three to five star hotels.
 More than 10 thousand local chefs in Beijing will be
  trained to serve during Beijing Olympics.
 Large impact on the Olympic host cities: Tianjin, Qingdao,
  Qinhuangdao, Shanghai and Hong Kong.


                                                          17
Olympics: China‟s Show Time
        to the World




                              18
 International Events Set the Stage
for Food Products and Food Service
             Experts predict the 2010 Expo will bring
             the largest-ever tourism boom to the
             Shanghai area.

              During the 6 month Expo, China has 70
             million Chinese visitors are expected to
             trigger a tourism boom in East China.

             Industry experts predict interest in China
             as a travel destination will only increase
             after the Olympics and Expo.




                                                           19
What does China‟s growth
 mean to Your Sector?




                           20
   China‟s Restaurants - Top
                 You will hear these terms:
                Innovative Chinese Cuisine
                Contemporary Cuisine
                Fusion Chinese
                Modern Chinese Cuisine

                Dining in Beijing, Shanghai, and
                Guangzhou is at or near international levels.

                 Hotel dining and local stand-alone
                restaurants are joined by internationally
                known players.
    Jasmine
Restaurant in
      Beijing                                               21
China‟s Restaurants - Top
          A mix of Asian and international cuisine
         is available at China‟s highest-end
         establishments.
          With Chinese and Fusion cuisine in the
         clear lead.




                                                      22
         China‟s Restaurants - Top
Chefs say:

   “Our goal is to discover great
    traditional and new cuisine
    through remarkably attentive
    service and an unintimidating
    environment that takes guest‟s
    taste buds on an exciting
    culinary journey.”

   “We are creating modern
    Chinese cuisine with more
    varieties of food products.”

   “Imported food products give
    us more space for creating
    innovative Chinese fusion
    cuisine.”
                                     23
  The Old Meets the Modern




So What Do You Think Is Modern
      Chinese Cuisine?

                                 24
    China‟s Restaurants - Mid

 Places most Americans
would recognize have
made a name for
themselves.

 In China, there is a KFC
opening daily.


                                25
China‟s Restaurants - Mid

              American QSRs
               have been
               successful in
               China -- with
               some local
               modifications.



                                26
     China‟s Restaurants - Mid
 Yum! Brands Inc. China Division is the
  largest food service establishment in China.

 As of March, Yum! has over 2,100 KFC‟s,
  over 350 Pizza Hut‟s with 60 that deliver.

 Yum! Brands Inc. China Division generated
  over $3 Billion revenue in 2007.
                                               27
China‟s Restaurants - Low
           Lower end local food service
          still attracts a strong customer
          base.

           In smaller cities, low-end or
          snack restaurants are popular.

          Health and safety standards are
          lacking at the low end, but
          increasingly customers seek
          clean, efficient, safe alternatives.


                                             28
 Evolving Food Service Sector

 HRI is one of China‟s
                                                            Revenue from Meals, Chain Catering Enterprises

                                           35
most dynamic sectors                                                                                                 30.31

with rapid growth of                       30
                                                                                    24.78

dining industry revenues.                  25                                                                22.31




                             Billion RMB
                                                                            18.55
 This sector covers the                   20                                                                                Others
                                                                                                                             Cafe

entire spectrum from                       15                                                                                Tea Shop
                                                                                                                             Fast Food
food stalls, cafeterias to                 10                                                                                Restaurant

world-class gourmet                         5           7
                                                            0.
                                                                 7          2                    82      9 3
                                                                                                      0 . 0 .0
                                                 0.
                                                    6
                                                                     0.
                                                                        0                   0.
restaurants.                                0
                                                                 2005                                 2006
                                Source: China Statistical Yearbook, 2007




                                                                                                                                    29
  Evolving Food Service Sector
 International melting pots:
  Beijing, Shanghai or
  Guangzhou.
 Food Culture vs. Lifestyle:
  Demand for restaurants,
  cafes, bars or fast food
  establishments.
 International players join
  the local hotel dinning and
  stand-alone restaurants.


                                 30
    New and Modern Restaurants Where
      Western Cuisine Meets the East
Chef Too: Best                  LAN Club: Best For
Restaurant of the Year          Impressing Visitors



                         SALT: Best Restaurant
                         of the Year




                                                      31
                              Catering
              Catering to the Masses…
 Double digit growth in the Catering sector over the past 15 years.
 Up to 40% of HRI revenues come from institutional food service.
 Working lunches, student meals, office and factory worker catering services,
travelers, conferences, exhibitions and other public and private events make
up this large and growing segment.




                                                                                 32
                 Trends…
Lifestyle Shift from Occasional Eating Out to
  More Casual Gatherings

 Dining plays an important role in Chinese culture
  for business, holidays and personal celebrations.

 Rising disposable income plays an important role
  at nearly double digit growth yearly and should
  continue robust growth.
                                                      33
                   Trends…
Chain Food Service Outlets Are Moving Into
 the Fast Lane

 Chain operators are currently developing rapidly,
  generating greater revenues from economies of
  scale compared to single outlets.

 Independent players will face fiercer competition
  with more chain establishments.
                                                      34
                           Trends…
American Chains Have Had Great Success in
 China‟s Market
                    Top 10 Chained Fast Food Brands in China
   Rank    Brand               Company
   1       KFC                 Yum! Brands Inc
   2       McDonald's          McDonald's Corp
   3       Dicos               Ting Hsin International Group

   4       Café De Coral       Café de Coral Holdings Ltd.
   5       Ajisen              Ajisen Ramen Chain
   6       Malan Lamian        Malan Lamian Fast Food Chian Co. Ltd.
           Daniang
   7       Dumpling            Jiangshu Grand Mother Dumplings
           Laobian
   8       Dumplings           Shenyang Laobian Dumplings Co. Ltd.
   9       Haagen-Dazs         General Mills Inc

   10      Mian Dian Wang      Shenzhen Mian Dian Wang Foodservice Co Ltd
   Source: Euromonitor International 2007
                                                                        35
                          Trends…
Food Safety and Hygiene is Becoming More Important
   Chinese consumers have a long tradition (obsession) with flavor
    and food hygiene and safety been given less attention in the past.

 People are becoming increasingly concerned about reliable food
  quality with over 95% Chinese consumers saying food safety is a
  “very important” factor.

 The increasing concern over food quality is becoming a key driver
  for food service establishments to differentiate themselves from the
  competitors.




                                                                         36
                          Trends…



 Increased health and nutrition consciousness demand for healthier
  food and beverage products.

 Calorie counting, controlled portions, and low-fat alternatives are
  very popular, particularly in urban areas.

 „Light‟ and „healthy‟ options sell well.



                                                                        37
                    Trends…
Raising Capital to Grow with the Market
 It is rare to see Chinese food service companies
  go public as most are very small and somewhat
  independent in scope and style.

 Private or family type business lack of capital and
  management skills.

 Going public will raise capital from equity markets
  to contribute expansion nationally or internationally,
  as well as to build stronger brands.
                                                        38
        Chinese Food Services
     Establishing Global Presence
 Quanjude (Group) Co Ltd, China's oldest
  Peking duck restaurant chain with 144 years
  history went to public on Shenzhen Stock
  Exchange in 2007.

 The company‟s net profit attributable to equity
  holders was $9 million in 2007.

 After the first went public food service
  company, others are ready to follow: Dong Lai
  Shun, Zhen Gong Fu, South Beauty, and
  many more…




                                                    39
                  Trends…
Growing Demand for Diverse Cuisine

 Rising frequency of eating away from home, local
  consumers are increasingly keen to explore and
  try new tastes.

 More food service operators are offering wider
  choices of cuisine.

 Western cuisines are becoming more popular.

                                                     40
                    Trends…
Dining environment plays an important role

 Chinese are ready to pay more for the right place with
  the right atmosphere.

 New concept restaurants with innovative ideas and
  themes are emerging and should continue to rise.
  Including:

 Natural organic food (e.g. Element Fresh in Shanghai),
 Story-themed restaurant (e.g. Allen Club in Chengdu),
 Home style (e.g. Grandma‟s Kitchen in Beijing).


                                                           41
Changing Lifestyles in Urban Cities




                                      42
Is China RICH or POOR? Globalized or
 Culturally Isolated? Urban or Rural? A
   Good Market or a Hopeless One?
          The Answer is…. YES!

     China Is Many Markets!



                                          43
China is Many Markets - Urban

                 Although 65% of China‟s
                population still lives in rural
                areas and farm on less than
                1 acre per family, China is
                urbanizing at a rapid pace.

                 Urban population expands
                around 10% annually. Urban
                Chinese generally enjoy first
                world living standards.




                                                  44
China is Many Markets - Modern
                    In urban China,
                   traditional
                   structures and
                   infrastructure co-
                   exist with the
                   modern.

                    Consumers are
                   comfortable with
                   modern / western
                   commercial
                   settings and
                   expect modern
                   amenities in hotels
                   and restaurants.      45
   China is Many Markets - Luxury
 Despite 50 years of
  austerity campaigns, in
  the last decade China
  has become the world‟s
  #3 market for luxury
  goods (only behind the
  US and Japan).

 China spends 1.3 billion
  dollars on luxury goods
  annually.

 China is expected to be
  the world‟s largest luxury
  goods market by 2020.
                                    46
China is Many Markets - Age
              China‟s oldest generation
               survived occupation, civil
               war, famine, and political
               oppression, while China‟s
               youth have 10 years of
               consecutive double-digit
               GDP growth.
              As a result, attitudes
               toward consumption, credit,
               international brands and
               products vary widely by
               generation.
                                         47
           China‟s Many Markets
   Markets are highly fragmented: language, culture, and
    tastes vary widely by region.

   Generational distinctions are prominent. Young
    consumers (under 30) are increasingly affluent and more
    adventurous than their elders.

   The expanding middle class (300 million by 2011) can
    afford imported food products but has different
    preferences than the super-rich.

   Average Chinese consumers are still very price sensitive –
    still, China will become the world‟s second-largest luxury
    goods market by 2015.
                                                              48
It is Important to Clearly Define a Target
       Market in China as Opposed to
    Marketing to “1.3 billion Consumers!”




                                             49
Let‟s Take a Look at the Following
        Market Segments :

   Regional Distinctions

   Emerging City Markets

   The Middle Class

                                     50
China‟s Many Markets: Regional Tastes
                                        Fortune Cookies
 What do Chinese Eat?                   were invented in
  A critical question for              the US and
   restaurateurs looking to enter the   cannot be found
                                        in China.
   China market.

  American „Chinese Food‟ does
   not provide a very nuanced
   understanding of Chinese cuisine
   or the Chinese palate.

                                                           51
  China‟s Many Markets: Regional Tastes
 Lamb, beef, pork, noodles dominate Northern cuisine.
 Central China loves spicy stir-fry and rice with most
  meals.
 People from coastal areas often prefer simple, fresh
  dishes and seafood.
 Western Chinese diets more closely resemble Indian
  and Middle Eastern style cuisine.




                                                     52
China‟s Many Markets: Emerging Cities

                                                    Harbin




                                                    Shenyang
                                                   Dalian
                                            Tianjin
                                                  Qingdao

                                                      Nanjing
                            Xi’an                     Hangzhou
                                    Wuhan            Ningbo
                Chengdu
                          Chongqing
                                                 Xiamen

                Kunming                     Shenzhen




                                                                 53
China‟s Many Markets: Emerging Cities
 China is home to over 100 cities with populations
  over 1 million.

 Disposable income in emerging cities grew more
  than 10% in 2007 with GDP growth above 16%.

 Emerging or „second-tier‟ cities already home to
  most of China‟s new middle class.


                                                     54
China‟s Many Markets: Emerging Cities
     China’s Population Distribution
              Our 14 ECM Beijing,      In fact, the cities
                                       most Americans
                  9%    Shanghai,      have heard of,
                         Guangzhou     such as: Beijing,
                                       Shanghai, and
                            3%
                                       Guangzhou,
                                       account for only
                                       3% of China‟s
                                       population.
      Other
      88%



                                                             55
China‟s Many Markets: Emerging Cities

In research
focusing on 14   25%

key emerging     20%

cities, GDP      15%

growth           10%


averaged over     5%


16% -- far        0%


above China‟s


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unprecedented
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growth.




                                                                                                                                   56
China‟s Many Markets: Emerging Cities
              Food Imports by Destination City

                                       Other
                                       16%




                    Beijing Shanghai           ECM
                      Guangzhou                56%
                          28%




       The 14 emerging cities in our research account for 56%
      of China’s total food imports.

       They represent only 9% of the population.

       For businesspeople looking for the “next China miracle,”
      this may just be it!


                                                                   57
China‟s Many Markets:
Evolving Middle-Class

  Chinese Academy of Social Sciences
   estimate nearly 50% of all city dwellers in
   China are now “middle class,” a figure
   expected to reach 300 million by 2011.

  Concentration of wealth among young
   professionals means China will have one of
   the youngest middle classes in the world.

                                                 58
China‟s Many Markets: Evolving
Middle-Class

                          Young market:
                          Chinese growing
                          affluence is
                          concentrated
                          among the 25-44
                          age group. In the
                          West, wealth is
                          greatest among
                          those aged 45-51.



                                        59
China‟s Many Markets: Evolving Middle
Class
        As the middle class expands,
        China is anticipated to become
        the world‟s 2nd largest consumer 844 billion RMB!
        market by 2014.
      Assuming consumers in second and third tier cities                                           76
         reach the same consumption level as key city
       residents, this is China’s projected consumption:




                                                         181 billion
                                  8                               16
                                                              108 billion                     158 billion
                           83.4 billion
                                                                 A City                         BCD/Tgts
                                 Key City
                                    Total Consumption (RMB)     Potential Consumption (RMB)    % of Urban Population
                                                                                                                       60

Source: Nielsen | Retail Index
China‟s Many Markets: Evolving Middle
Class
                                        250
                                                              Expanding Rapidly
Million households w/real PPP incomes




                                        200
            over $20,000/yr




                                        150
                                                         WTO Accession
                                        100


                                         50


                                          0
                                          90




                                                                00




                                                                                      10




                                                                                                            20
                                               92

                                                    94

                                                         96

                                                                98



                                                                     02

                                                                          04

                                                                               06

                                                                                      08



                                                                                           12

                                                                                                14

                                                                                                     16

                                                                                                            18
                                        19




                                                              20




                                                                                    20




                                                                                                          20
 Source: Global Insight’s Global Consumer Markets Service


                                                                                                                 61
  China‟s Market Trends – Exposure
By 2020, 100 million Chinese will travel abroad each year, bringing home
   international tastes and wants...

                                   Outbound Traveller Numbers
    100
    90                                                                                        100
    80
    70
    60
                                                                  50
    50
    40              29       31       34
    30     20
    20
    10
     0

          2003    2004      2005     2006                        2010                         2020
                                                              (estimated                    (estimated
                                                               by WTO)                       by WTO)
     Source: China National Tourism Administration (CNTA) World Tourism Association (WTO)
                                                                                                         62
China Market Trends – Status and
Aspiration
 After years of poverty & isolation, China is eager to join
  the modern world.

 Purchasing imported products and being able to afford
  these products confers “face” to consumers.

 American - western lifestyle and therefore, US products,
  hold powerful promise for Chinese.

 More Chinese are traveling, working, and studying
  abroad, bringing back international tastes and ideas.
                                                               63
Price and Brand Loyalty Tier 1                            Tier 2


                                           1

                                           1
           Will only purchase local
     brands even if more expensive

                                                                    32

         Look at local brands first,
                                                               29
      ultimately quality of product                                       Focus on brand and
  most important in my price range
                                                                          quality are key priorities
                                                     20                   for Chinese consumers.
       Look at foreign brands first,                                      Significant segment
                                                          24
 ultimately quality of product most                                       prefer foreign brands.
       important in my price range

                                       0
         Will only purchase foreign
     brands even if more expensive         1


                                                                          Nielsen Online survey   64
                                       0       10   20         30        40       50
China Market Trends- Branding
        Brand Consciousness is high in East
        Asia, and China is no exception:

  Chinese shoppers regularly pay a premium to give „name-brand‟
   food products as gifts. For holiday celebrations or banquets for
   guests, no expense is spared, including dining out.

  By 2015 China will become world‟s 2nd largest luxury goods market.

  Although China‟s middle class is still relatively price sensitive, the
   wealthy exhibit one of the world‟s highest degrees of brand affinity.



                                                                            65
           Branding and Re-Branding
    Perceptions of your brand can and should
    be redefined for the China market:
 McDonalds is a classy venue for college students to take a date. Pizza
  Hut is decidedly upscale family dining.

 Hooters has effectively re-positioned itself for entry into the China
  market with a more culturally appropriate take on its original theme.

 Sizzler established a strong and well-known brand in Taiwan, which it
  is now extending to the Mainland.

 Tabasco is strongly associated with Italian foods like spaghetti in
  Taiwan and Japan.



                                                                          66
                  Direct Imports
 Less than a decade ago most imported products flowing
  into mainland China arrived via Hong Kong.

 Transit times by truck to Beijing take 4 days from Hong
  Kong and from Shanghai to China‟s far western
  provinces 6 days.

 Economic and policy liberalization as well as
  infrastructure improvements

 Increasing levels of „direct imports‟ enter China via
  Shanghai, Dalian, Tianjin, and other ports, improving
  transport times and increasing market access for and
  information about the diverse variety of food and
  agricultural products consumed in China.
                                                            67
 Direct Imports: Port Facilities
               Dalian Port

Qingdao Port




                             Shanghai
                             Port


                                    68
                Direct Imports
 US consolidators fill orders for China-based distributors,
  and also fill direct orders for restaurants and hotels, US
  consolidator efficiency is considered a major advantage
  for US exporters.

 Hong Kong distributors, who frequently make use of the
  gray channel. Many have a large network of offices or
  affiliates inside China, but basically provide the
  equivalent of 3rd party logistics services.

 Cash „n Carry Outlets, such as Metro or Wal-mart that
  target commercial customers like restaurateurs for
  purchase of bulk supplies – able to reach the restaurant
  food service trade directly.
                                                               69
Direct Imports


                          Distribution Flow Chart


                               US SUPPLIERS




US Consolidators


           China Customs & Quarantine (Normally handled from Chinese side)




                     Beijing, Guangdong and
                   Shanghai- based Distributors




           Secondary                                   Cash ‘n Carry
           Wholesalers                                   Stores




    Hotels, Restaurants, Fast Food Operators, Institutional Food




                                                                             70
Improving Logistics and Cold Chain
Facilities

 Distribution improvements have been realized
  in major markets such as Beijing, Shanghai and
  Guangzhou.

 Improved expressways, ports and cold chain
  infrastructure continue to expedite
  transportation and delivery.


                                                   71
Improving Logistics and Cold Chain
Facilities
 Expanded warehousing,
 improving importer-
 local agent networks in
 Emerging City Markets
 increasingly enables
 distributors to keep key
 items in stock, despite
 long transoceanic
 shipment lead times.


                                     72
      Making Your Ways to China
 Entering China‟s market can be incredibly
  rewarding, but it requires hard work.
 Selling/distributing your product requires face-to-
  face contact, special efforts to educate the entire
  value chain, with attention to distribution details.
 Even good distributors in China lack marketing
  experience and it can also be difficult to get them
  to focus on promoting your product among the
  hundreds or even thousands they may carry.
                                                         73
                Entry Strategy
 Marketing, Sales and Education: Introducing your
  product and persuading them to use it is only the
  beginning. Chinese distributors and chefs are
  often interested in imported products, but usually
  lack proper handling and preparation knowledge.

 This can extend even to very basic products, like
  condensed canned soup or ingredients, etc. and
  strong educational effort is required.

                                                       74
               Entry Strategy
 Selecting a Distribution Channel: At the same
  time, it is also important to make sure that your
  distribution channel can provide a consistent
  supply for your customers.

 Often, the first question buyers ask about a new
  product is, “Can I order it now?” This can be and
  often is a bit of a chicken-and-egg syndrome for a
  new supplier in the China market, but an important
  consideration nonetheless.
                                                      75
Trade Shows – Your Stepping
Stones
Food Hotel China
 FHC show is one
  of the largest
  food show in
  China.

 FHC holds twice
  a year in Beijing
  and Shanghai.
                              76
 Trade Shows – Your Stepping
 Stones
SIAL
 SIAL show is one of the
  largest food show in China, it
  holds once a year in
  Shanghai.

 SIAL China 2007, held in
  Shanghai from May 10-12,
  broke new ground in terms of
  U.S. presence. With 43 U.S.
  companies exhibiting, it was
  the largest U.S. pavilion ever
  at a China show.

                                   77
                Competitors
 Food imports account for some 24% of the total
  value of China‟s Food & Beverage sector – as
  such, the imported food market is very competitive
  with suppliers from around the world battling for
  China market share.




                                                   78
                             Competitors
Product Category       2006         3-Yr Avg.   Import Tariff          Key Constraints on Market
                       Imports      Import      Rate                   Development
                       ($million)   Growth


                                                                       Competition from other import sources
                                                                       (Australia), limited capacity for handling
                                                                       fresh imports, growing competition from
                                                                       domestic product, BSE restrictions on
Red Meats Fr/Ch/Fz     223          -20.4%      12 – 25%               U.S. beef, drug residues in U.S. pork.




                                                                       Competition from Asian countries with
                                                                       similar tastes; rapid development of
Processed Fr. & Veg.   867          21.6%       5 – 30%                domestic industry.


                                                                       Import quotas, sanitary barriers, and
                                                20%
                                                (specific duties are
                                                                       competition from other exporting
Poultry Meat           463          40.8%                              countries.
                                                applied to broiler
                                                cuts)


                                                                       Fierce competition from Old World and
                                                Bottled:14%            other New World wine exporting
Wine & Beer            166          26.6%                              countries.
                                                Bulk: 20%




                                                                                                                    79
                            Competitors
                                                   Competition from New Zealand and
                                                       Australia.
Dairy Products        579      11.1%   6 – 20%


                                                   Competition from domestic products. U.S.’
                                                       advantage is in special varieties.

Fresh Fruit           512      7.7%    10 - 30%




                                                   Competition from low-price, low quality
                                                       exporters; counterfeits.
Tree Nuts             118      1.1%    0 – 25%



                                                   Competition from other exporting countries.
Fruit & Veg. Juices   99       21.4%   7.5 – 30%


                                                   Breakfast cereals are still a novelty in
                                                        China.
Breakfast Cereals     10       16.3%   20 – 30%




                                                                                              80
                                                 Competitors
                                                                                                     Strong competition from New Zealand and
                                                                                                           Europe.
Cheese                                   38                   23.5%             12-15%


                                                                                                     Lack of phyto protocols, lack of approved
                                                                                                           import quarantine facilities.
Nursery Products and Cut Flowers         70                   13.76%            0-23%



                                                                                                     Cost and competition from other exporters,
                                                                                                           esp. Norway.
Salmon                                   337                  38.2%             10 – 14%



                                                                                                     Limited supplies
Groundfish & flatfish                    1,704                16.98%            10%

                                                                                                     Limited supplies.
Crustaceans                              316                  -2.34%            5 – 19.2%

Note: All data are derived from Global Trade Atlas. Commodity groupings are based on FAS BICO report categories.




                                                                                                                                             81
                              Competitors
                               Top Products and Competitors
                  Oranges                                                        New Zealand, South Africa

                   Grapes                                                                               Chile

                    Apples                                                               Chile, New Zealand

                  Cherries                                                                      New Zealand

       Lemons and Limes                                                                         New Zealand

                                                                  Canada, Denmark, New Zealand, Australia
          Red Meat (f/c/f)        Currently beef and related products from the U.S. are not allowed in China

          Breakfast Cereal                                                 United Kingdom, Australia, Korea

                   Cheese                                                        New Zealand, Australia, EU

Frozen Processed Products                                                             Canada, New Zealand

              Frozen Corn                                                                       Australia, EU

   Dairy (not incl. cheese)                                                  New Zealand, Australia, France

                   Poultry                                                                              Brazil

                 Tree Nuts                            Russia, Korea (chestnuts), Iran (pistachios), Mongolia

       Premium Chocolate                                                 Switzerland, Belgium, Italy, France

      Premium Ice Cream                                                                France, New Zealand

                  Seafood                                      Russia, North Korea, Canada, Norway, Japan

                     Wine                                                      Chile, France, Australia, Italy

                  Ginseng                                                                     Canada, Korea
                                                                                                             82
Let‟s take a closer look at China‟s
          Hotel industry




                                      83
          Evolving Hotel Sector
 China is currently the world‟s 4th most popular travel
  destination.
 An estimated 130 million international visitors will visit
  China this year, which may bump China to 3rd place.
  China is expected to become the world‟s #1 travel
  destination by the year 2020.
 Chinese are traveling more than ever inside their own
  country due to more vacation days and increased
  disposable income.
 “Golden Weeks” of national holidays in Spring and Fall
  produce a quarter of China‟s annual $40 Billion in
  tourism revenue.
                                                               84
 New Hotels in Beijing to Open Prior
         to the Olympics
                        Westin




Park Hyatt
                                  Sofitel




                      Mandarin
                       Oriental

                                            85

        JW Marriott
 New Hotels in Beijing to Open Prior
         to the Olympics
 330 meters tall, 73 stories
  and 300,000 square meters
  of floor space.

 It is the tallest building in
  the capital composed of
  office levels, a five-star
  hotel, restaurant level and
  convention center.
                                       86
Evolving Hotel Sector – Tourism
 China will become the world‟s top tourist destination within 12
 years, with 210 million international visitors annually.
                                                                         210
           China Growth in Inbound Tourism
                                                                        Million
140
120
                                                  124       130
                                       120
100                        109                             Million
80               91

60
40             2003       2004       2005        2006     2007          2020
20
 0
                                                                   World Tourism
                          Inbound Tourists                         Organization
                                                                   Estimates     87
 Evolving Hotel Sector Development
 China‟s National Tourism Admin. reports there
  are more than 13,000 star-rated hotels in China.

 International hotel chains, both luxury and
  budget, have a growing presence in China and
  are identified with quality. From Super 8 to Ritz
  Carlton, hotels are scrambling to construct in
  time for the 2008 Olympics.

 Many Chinese hotels are state-owned or
  operated, however, market pressures are forcing
  better quality and improved management.

                                                      88
                         Hotel Development, Beijing
                   Beijing has seen a 35% increase
                   in the number of 5 star hotels in
                   preparation for the Olympics
                                                                  21% increase
                   600
                                                                        473 490
                   500
Number of Hotels




                                                                  404
                   400                                                        2
                                                                        2
                                              23% increase                    0
                                                                   2    0
                   300                                                        0
                         35% increase                              0    0
                                                                              5
                   200                                             0    4
                                                     62      69    3
                   100                   35    56
                           26    29
                     0
                                5 Star              4 Star        3 Star and Below   89

                                               Hotel Grade
       Food Safety: The Problem
 Over 95% Chinese consumers consider food safety as a “very
  important” factor.

 Rapid Development of Agricultural Production, Distribution,
  Purchasing, and Food Consumption Patterns Require Investment and
  Evolution of China‟s Food Safety System.

 China Introduces Significant Changes in Regulatory Responsibilities.

 New Draft Food Law Close to Completion.

 Keep in Mind: China Safely Feeds 1.3 Billion People Daily.



                                                                         90
             Food Safety:
        U.S. Government Action
 Agreements by USDA and HHS on Agriculture
  and Food Safety.
 Increased Cooperation on Food Safety and SPS
  Trade Issues.
 Training and Exchanges Focusing on Adoption of
  International Standards: USDA Trained Over 300
  Chinese Regulators in 2007.
 Greater USDA Focus on Market Access for US
  Products Exported to China.
                                                   91
              Problems: IPR
Although China continues to make efforts to
  strengthen its legal framework and amend
  its intellectual property rights (IPR) laws and
  regulations to comply with WTO obligations,
  U.S. agriculture and food products still face
  serious IPR infringement problems.



                                                92
IPR: The Problem




                   93
Examples of IPR Infringement Issues:
 “Stickering” and labeling domestic and third-country products with
 U.S. identification such as California Table Grapes, California
 Pistachios, U.S. Wheat Flour, Washington Apples, Wisconsin Ginseng,
 etc., is widespread.

 False branding and packaging of domestic and third-country products
 with U.S. identification such as Sunkist Citrus, Sun-Maid Raisins,
 Napa Valley Wine.

 Counterfeiting or mixing of domestic or third country products with
 U.S. food and beverages including poultry, beef and pork.

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

                                                                        94
           Protecting Your IPR
The most effective deterrent to piracy is to
 properly register:

   Patents
   Trademarks
   Plant varieties
   Geographical indicators
   Food labels
   And other such IPR at home, in China, and third-
    country markets.

                                                   95
China‟s 1.3 Billion Consumers:
Cashing In on the China Miracle

          Summary




                                  96
                         Thank You!
                       FAS China Contacts
                                    ATO Chengdu
ATO Beijing
                                    Tel: (86-28) 8526-8668
Tel: (86-10) 8529-6418
                                    email: ATOchengdu@fas.usda.gov
email: ATOBeijing@fas.usda.gov
                                    ATO Guangzhou
OAA Beijing
                                    Tel: (86-20) 8666-0821
Tel: (86-10) 6532-1953
                                    email: ATOGuangzhou@fas.usda.gov
email: Agbeijing@fas.usda.gov
                                    ATO Shanghai
APHIS
                                    Tel: (86-21) 6279-8622
Tel: (86-10) 6532-3212
                                    email: ATOShanghai@fas.usda.gov
email: theresa.boyle@fas.usda.gov
                                    ATO Shenyang
                                    Tel: (86-24) 2322-1198




                                                                       97

								
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