China’s 1.3 Billion Consumers: Cashing In on the China Miracle Presented by LaVerne E. Brabant Director Agricultural Trade Office U.S. Embassy Beijing, China

You Have Already H eard: 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 .

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 .

You Have A lready H eard: 1 1.4 % China’s GDP grew 11.4 % in 200 7. This is the 5th consecutive year of double-digit growth – including SARS in 2003. By comparison US GDP grew 3.4% in 2007.

1 1.4 %

China’s GDP grew 11.4 % in 200 7.

This is the 5th consecutive year of double-digit growth – including SARS in 2003.

By comparison US GDP grew 3.4% in 2007.

Economic Overview Economic Overview World’s Second Largest Economy (PPP) GDP Growth 2006: 11.1 % 2007: 11.4 % World Bank e stimates 2007 GDP per capita $9,800 (PPP), CIA estimates $5,300 Unemployment: 6.1% Source: CIA World Fact Book, EIU, 2007

Economic Overview

World’s Second Largest Economy (PPP)

GDP Growth 2006: 11.1 % 2007: 11.4 %

World Bank e stimates 2007 GDP per capita $9,800 (PPP), CIA estimates $5,300

Unemployment: 6.1%

China’s Agriculture in Context Agriculture 11% Services 39.5% Industry 49.5% Services 32 % Agriculture 43% Industry 25 % Source: CIA, World Fact Book Annual GDP Breakdown of the Labor Force vs .

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).

$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).

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.

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.

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 Olympic s . Over 30,000 official Olympic hotel rooms in pr ime location s 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.

Beijing expects nearly 600,000 international as well as more than a million domestic visitors during the Olympic s .

Over 30,000 official Olympic hotel rooms in pr ime location s 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.

Olympics: China’s Show Time to the World

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 .

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 .

What does China’s g rowth m ean to Y our S ector?

China’s Restaurants - Top You will hear these terms: Innovative Chinese Cuisine Contemporary Cuisine Fusion Chinese Modern Chinese Cuisine Jasmine Restaurant in Beijing 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.

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.

China’s Restaurants - Top A mix of Asian and international cuisine is available at China’s highest-end establishments . W ith Chinese and Fusion cuisine in the clear lead.

A mix of Asian and international cuisine is available at China’s highest-end establishments .

W ith Chinese and Fusion cuisine in the clear lead.

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.”

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.”

So What Do You Think Is Modern Chinese Cuisine? The Old Meets the Modern

China’s Restaurants - Mid Places most Americans would recognize have made a name for themselves . In China, there is a KFC opening daily.

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

In China, there is a KFC opening daily.

China’s Restaurants - Mid American QSRs have been successful in China -- with some local modifications .

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

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.

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.

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.

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.

Evolving Food Service Sector HRI is one of China’s most dynamic sectors with rapid growth of dining industry revenues . This sector covers the entire spectrum from food stalls, cafeterias to world-class gourmet restaurants.

HRI is one of China’s most dynamic sectors with rapid growth of dining industry revenues .

This sector covers the entire spectrum from food stalls, cafeterias to world-class gourmet restaurants.

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.

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.

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

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.

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.

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.

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.

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.

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.

Trends… American C hains H ave H ad G reat S uccess in China’s M arket Source: Euromonitor International 2007 Shenzhen Mian Dian Wang Foodservice Co Ltd Mian Dian Wang 10 General Mills Inc Haagen-Dazs 9 Shenyang Laobian Dumplings Co. Ltd. Laobian Dumplings 8 Jiangshu Grand Mother Dumplings Daniang Dumpling 7 Malan Lamian Fast Food Chian Co. Ltd. Malan Lamian 6 Ajisen Ramen Chain Ajisen 5 Café de Coral Holdings Ltd. Café De Coral 4 Ting Hsin International Group Dicos 3 McDonald's Corp McDonald's 2 Yum! Brands Inc KFC 1 Company Brand Rank Top 10 Chained Fast Food Brands in China

American C hains H ave H ad G reat S uccess in China’s M arket

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.

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.

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 wel l.

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 wel l.

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.

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.

Chinese Food Services E stablishing G lobal P resence 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…

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…

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.

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.

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).

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).

Changing Lifestyles in Urban Cities

Is China RICH or POOR ? Globalized or C ulturally I solated ? Urban or R ural ? A G ood M arket or a H opeless O ne? The A nswer is…. YES! China I s M any M arkets !

Is China RICH or POOR ? Globalized or C ulturally I solated ? Urban or R ural ? A G ood M arket or a H opeless O ne?

The A nswer is…. YES!

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

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 .

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

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.

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.

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.

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.

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.

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.

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.

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.

It is I mportant to C learly D efine a T arget M arket in China a s O pposed to Marketing to “1.3 billion C onsumers!”

Let’s T ake a L ook at the F ollowing M arket S egments : Regional Distinctions Emerging City Markets The Middle Class

Regional Distinctions

Emerging City Markets

The Middle Class

China’s Many Markets: Regional Tastes What do Chinese E at? A critical question for restaurateurs looking to enter the China market . American ‘Chinese Food’ does not provide a very nuanced understanding of Chinese cuisine or the Chinese palate. Fortune Cookies were invented in the US and cannot be found in China.

What do Chinese E at?

A critical question for restaurateurs looking to enter the China market .

American ‘Chinese Food’ does not provide a very nuanced understanding of Chinese cuisine or the Chinese palate.

China’s Many Markets: Regional Tastes Lamb, beef, pork, noodles dominate Northern cuisine . Central Chin a love s 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.

Lamb, beef, pork, noodles dominate Northern cuisine .

Central Chin a love s 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.

China’s Many Markets: Emerging Cities

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 200 7 with GDP growth above 1 6 %. Emerging or ‘second-tier’ cities already home to most of China’s new middle class .

China is home to over 100 cities with populations over 1 million.

Disposable income in emerging cities grew more than 10% in 200 7 with GDP growth above 1 6 %.

Emerging or ‘second-tier’ cities already home to most of China’s new middle class .

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

China’s Many Markets: Emerging Cities In research focusing on 14 key emerging cities, GDP growth averaged over 16% -- far above China’s unprecedented 11.4 % overall growth.

China’s Many Markets: Emerging Cities The 14 emerging cities in our research account for 56% of China’s total food imports . T hey represent only 9% of the population . For businesspeople looking for the “next China miracle,” this may just be it ! Food Imports by Destination City

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

T hey represent only 9% of the population .

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

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 professional s means China will have one of the youngest middle classes in the world.

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 professional s means China will have one of the youngest middle classes in the world.

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.

China’s Many Markets: Evolving Middle Class Key City A City BCD/Tgts Total Consumption (RMB ) % of Urban Population As the middle class expands, China is anticipated to become the world’s 2nd largest consumer market by 2014. Source: Nielsen | Retail Index 108 billion 158 billion 844 billion RMB! 181 billion 8 Assuming consumers in second and third tier cities reach the same consumption level as key city residents, this is China’s projected consumption: Potential Consumption (RMB ) 83.4 billion 16 76

China’s Many Markets: Evolving Middle Class Source: Global Insight’s Global Consumer Markets Service WTO Accession Expanding Rapidly

China’s Many Markets: Evolving Middle Class

By 2020, 100 million Chinese will travel abroad each year, bringing home international tastes and wants... China ’s Market Trends – Exposure Source: China National Tourism Administration (CNTA) World Tourism Association (WTO) (estimated by WTO) (estimated by WTO) Outbound Traveller Numbers

By 2020, 100 million Chinese will travel abroad each year, bringing home international tastes and wants...

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 .

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 .

Price and Brand Loyalty Will only purchase local brands even if more expensive Look at local brands first, ultimately quality of product most important in my price range Look at foreign brands first, ultimately quality of product most important in my price range Will only purchase foreign brands even if more expensive Nielsen Online survey Focus on brand and quality are key priorities for Chinese consumers. Significant segment prefer foreign brands.

China Market Trends- Branding 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. B y 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. 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.

B y 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.

Branding and Re-Branding 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. 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.

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. E conomic and policy liberalization as well as infrastructure improvements I ncreasing 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.

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.

E conomic and policy liberalization as well as infrastructure improvements

I ncreasing 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.

Direct Imports: Port Facilities Dalian Port Shanghai Port Qingdao Port

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.

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.

Direct Imports

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.

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.

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.

Making Your Ways to China Entering China’s market can be incredibly rewarding, but it requires hard work . S elling / distributing your product requires face-to-face contact, special effort s 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 .

Entering China’s market can be incredibly rewarding, but it requires hard work .

S elling / distributing your product requires face-to-face contact, special effort s 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 .

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.

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.

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.

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.

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.

Food Hotel China

FHC show is one of the largest food show in China.

FHC holds twice a year in Beijing and Shanghai.

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.

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.

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.

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.

Competitors Fierce competition from Old World and other New World wine exporting countries. Bottled:14% Bulk: 20% 26.6% 166 Wine & Beer Import quotas, sanitary barriers, and competition from other exporting countries. 20% (specific duties are applied to broiler cuts) 40.8% 463 Poultry Meat Competition from Asian countries with similar tastes; rapid development of domestic industry. 5 – 30% 21.6% 867 Processed Fr. & Veg. Competition from other import sources (Australia), limited capacity for handling fresh imports, growing competition from domestic product, BSE restrictions on U.S. beef, drug residues in U.S. pork. 12 – 25% -20.4% 223 Red Meats Fr/Ch/Fz Key Constraints on Market Development Import Tariff Rate 3-Yr Avg. Import Growth 2006 Imports ($million) Product Category

Competitors Breakfast cereals are still a novelty in China. 20 – 30% 16.3% 10 Breakfast Cereals Competition from other exporting countries. 7.5 – 30% 21.4% 99 Fruit & Veg. Juices Competition from low-price, low quality exporters; counterfeits. 0 – 25% 1.1% 118 Tree Nuts Competition from domestic products. U.S.’ advantage is in special varieties. 10 - 30% 7.7% 512 Fresh Fruit Competition from New Zealand and Australia. 6 – 20% 11.1% 579 Dairy Products

Competitors Note: All data are derived from Global Trade Atlas. Commodity groupings are based on FAS BICO report categories. Limited supplies. 5 – 19.2% -2.34% 316 Crustaceans Limited supplies 10% 16.98% 1,704 Groundfish & flatfish Cost and competition from other exporters, esp. Norway. 10 – 14% 38.2% 337 Salmon Lack of phyto protocols, lack of approved import quarantine facilities. 0-23% 13.76% 70 Nursery Products and Cut Flowers Strong competition from New Zealand and Europe. 12-15% 23.5% 38 Cheese

Competitors Canada, Korea Ginseng Chile, France, Australia, Italy Wine Russia, North Korea, Canada, Norway, Japan Seafood France, New Zealand Premium Ice Cream Switzerland, Belgium, Italy, France Premium Chocolate Russia, Korea (chestnuts), Iran (pistachios), Mongolia Tree Nuts Brazil Poultry New Zealand, Australia, France Dairy (not incl. cheese) Australia, EU Frozen Corn Canada, New Zealand Frozen Processed Products New Zealand, Australia, EU Cheese United Kingdom, Australia, Korea Breakfast Cereal Canada, Denmark, New Zealand, Australia Currently beef and related products from the U.S. are not allowed in China Red Meat (f/c/f) New Zealand Lemons and Limes New Zealand Cherries Chile, New Zealand Apples Chile Grapes New Zealand, South Africa Oranges Top Products and Competitors

Let’s take a closer look at China’s Hotel industry

Evolving Hotel Sector China is currently the world’s 4 th most popular travel destination. An estimated 130 million international visitors will visit China this year, which may bump China to 3 rd place. China is expected to be come 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.

China is currently the world’s 4 th most popular travel destination.

An estimated 130 million international visitors will visit China this year, which may bump China to 3 rd place. China is expected to be come 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.

New Hotels in Beijing to Open Prior to the Olympics Park Hyatt JW Marriott Westin Mandarin Oriental Sofitel

New Hotels in Beijing to Open Prior to the Olympics 330 meters tall, 73 stor ies and 300,000 square meters of floor space . It is t he tallest building in the capital composed of office levels , a five-star hotel, restaurant level and convention center.

330 meters tall, 73 stor ies and 300,000 square meters of floor space .

It is t he tallest building in the capital composed of office levels , a five-star hotel, restaurant level and convention center.

Evolving Hotel Sector – Tourism China will become the world’s top tourist destination within 12 years, with 210 million international visitors annually . 2003 2004 2005 2006 2020 210 Million 2007 130 Million World Tourism Organization Estimates China Growth in Inbound Tourism

China will become the world’s top tourist destination within 12 years, with 210 million international visitors annually .

Evolving Hotel Sector D evelopment 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 .

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 .

Hotel Development, Beijing 35% increase 23% increase 21% increase 2005 2004 2003 Beijing has seen a 35% increase in the number of 5 star hotels in preparation for the Olympics

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 .

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 .

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 .

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 .

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.

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.

IPR: The Problem

E xamples of IPR I nfringement I ssues : “ Stickering” and labeling domestic and third-country product s 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 .

“ Stickering” and labeling domestic and third-country product s 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 .

Protecting Your IPR The most effective deterrent to piracy is to properly register : P atents T rademarks P lant varieties G eographical indicators F ood labels A nd other such IPR at home, in China, and third-country markets.

The most effective deterrent to piracy is to properly register :

P atents

T rademarks

P lant varieties

G eographical indicators

F ood labels

A nd other such IPR at home, in China, and third-country markets.

China’s 1.3 Billion Consumers: Cashing In on the China Miracle Summary

Summary

Thank You! ATO Beijin g Tel: (86-10) 8529-6418 email: [email_address] OAA Beijing Tel: (86-10) 6532-1953 email: Agbeijing @fas.usda.gov A PHIS Tel: (86-10) 6532-3212 email: [email_address] ATO Chengdu Tel: (86-28) 8526-8668 email: [email_address] ATO Guangzhou Tel: (86-20) 8666-0821 email: [email_address] ATO Shanghai Tel: (86-21) 6279-8622 email: [email_address] ATO Shenyang Tel: (86-24) 2322-1198 FAS China Contacts

ATO Beijin g

Tel: (86-10) 8529-6418

email: [email_address]

OAA Beijing

Tel: (86-10) 6532-1953

email: Agbeijing @fas.usda.gov

A PHIS

Tel: (86-10) 6532-3212

email: [email_address]