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LEADING SECTORS FOR US EXPORTS AND INVESTMENTS
A. Best Prospects for Non-Agricultural Goods and Services
1. Pharmaceuticals
2. Medical Devises
3. Insurance
4. Franchising
5. Telecommunications Equipment
6. Computers and Peripherals
7. Computer Software
8. Cable Television Equipment
9. Airport and Ground Support Equipment
10. Pollution Control Equipment
11. Machine Tools
12. Plastic Materials & Resins
13. Building Materials
14. Power Generation
15. Fine and Specialty Chemicals
16. Agricultural Chemicals
Below are the descriptions and statistics for the best prospective U.S. commercial exports to China for 1998-2000 (in $ millions). The exchange rate used was 8.27 RMB to $1. All statistics are unofficial.
1. Pharmaceuticals (DRG)
Until recently, China's pharmaceuticals market has been one of the fastest growing markets in the world. From 1990-1999, the western pharmaceuticals market grew almost 20% annually and has now expanded into a $22 billion market. While overall demand should continue to grow at 10%, import and joint-venture product market share and profits are expected to fall. Joint venture drugs account for 50-60% of the drug market. In 1998, the value of imported drugs dropped to $1 billion. Due to pressures from the reimbursement system, which favors domestic medicines, import drug market share will continue to gradually shrink. The challenges facing U.S. exporters and joint venture companies exist in a changing healthcare environment which now includes great individual contributions for health insurance coverage, the prospect of individual choice for hospital services and healthcare products, and new retail outlets for medicines.
Recently implemented central and local government price and profit control measures aimed at containing the rising costs of healthcare, and in particular, medicines, may unfairly disadvantage imported and joint-venture products in pricing and treatment. Also, the government's National Essential Drug Bulletin, which lists all drugs that are available for state reimbursement, promote domestic companies by listing only those foreign drugs which do not have a domestic substitute. The lack of intellectual property rights enforcement is another key concern as are regulatory barriers.
The drug distribution system is inefficient and adds considerably to the retail cost of medicines. Now some regions are starting to introduce a tendering system in procurement of drugs which could also impact unfavorably imported and joint-venture drugs. It is hoped that WTO accession will open the distribution system by allowing private and foreign firms to operate in the distribution system.
In 1999, gross domestic output value reached $23 billion, increasing 21% over the previous year. The domestic industry is characterized by non-branded generic production, overproduction and losses. The government is undertaking the consolidation of the over 6,000 pharmaceutical enterprises, of which 71% are state- and collectively-owned.
It is estimated that most hospitals derive over 60% of their revenue from prescription sales and hospitals remain the main outlets for pharmaceuticals, with 70 - 85% of all medicines sold through hospital pharmacies. This will change with the separation of hospital pharmacies from health care services, and with the growing numbers of retail pharmacy outlets. The trend is already evident. By 1998, the retail value of drugs increased from 5% to 15%, and in some areas reached 20% - 30%. Retail pharmacy outlets are expected to grow in numbers once the government introduces its system to classify drugs as over the counter (OTC). The OTC system has been introduced in 1999, and this will further increase the volume of drugs sold through the retail outlets. The government is now encouraging development of chain drug stores, but the full effect might not be seen several years later.
The young subsector market for dietary supplements has taken off in the past several years. Experts estimate that the industry, will grow to $6.1 billion this year and $12.1 billion in 2010. The industry promises to continue this trend as growing numbers of consumers seek products with curative, weight loss and other health enhancing effects. The number of dietary supplement domestic suppliers has increased 30-fold since 1992. Complicated product registration requirements and inexperienced and inefficient distributors are common obstacles to export and sales. (The following statistics do not include this industry sub-sector.)
| 1998 | 1999 | 2000 |
| Totle Market Size | 20,116 | 22,469 | 24,718 |
| Total Local Production | 19,728 | 23,920 | 24,716 |
| Total Exports | 693 | 625 | 687 |
| Total Imports | 387 | 628 | 691 |
| Total Imports from U.S. | 35 | 52 | 57 |
The above figures are calculated in $ millions from Chinese Customs statistics (only registered imports therefore are included) and production figures from SETC (which include traditional Chinese medicine production).
2. Medical Devices (MED)
China is the second largest medical-device market in Asia (after Japan), estimated at more than $4 billion for 1999. The market is now the third largest in the world for high-technology equipment like CT (Computed Topography), Nuclear Medicine, MRI (Magnetic Resonance Imaging) and Ultrasound equipment. Imports account for 40-50% of market share, with the U.S. controlling 37-39% of the total imported product market, followed by Japan and Germany. Although figures are highly varied depending on the market segment, market growth in general is expected to be about 10% over the next three years.
There are currently more than 200 foreign medical-device companies operating in China. Domestic production capability continues to grow, although the vast majority have yet to comply with GMP (Good Manufacturing Practice) guidelines. Domestic industry strength will continue to be in the low- to medium-technology range, although a small number of local manufacturers are now capable of producing certain high-end products.
The Chinese health care system is currently in a state of change. Over the past several years, the Chinese Government has instituted a series of reform measures in both the urban and rural health care systems in a bid to brake the rapid inflation of healthcare costs. Major equipment purchases must now be preceded by a letter of need issued by the Ministry of Health. Price caps/controls and a reimbursement list, not unlike that seen in the pharmaceutical sector, are also designed to bring down costs. Regulatory system reforms have been undertaken although registering products with the State Drug Administration, which has serious resource constraints, can still be a lengthy process. Overlapping regulation by different government agencies, including the State Administration for Entry-Exit Inspection and Quarantine (SAIQ), State Administration for Quality and Technological Supervision and Inspection as well as the Ministry of Health (MOH) remains a problem for foreign medical equipment suppliers.
Decision to enter into this highly competitive market should be taken carefully, even though steady economic growth, a large and growing population, and increased wealth with a commensurate increase in access to health care should make this an attractive market in the long term. Most companies in the market today, however, report that it may take years to realize profits on an investment in China.
| 1998 | 1999 | 2000 |
| Total Market Size | 3,698 | 4,881 | 5,181 |
| Total Local Production | 3,628 | 4,363 | 4,712 |
| Total Exports | 210 | 428 | 463 |
| Total Imports | 280 | 846 | 931 |
| Total Imports from U.S. | 104 | 313 | 344 |
The above estimates are calculated in $ millions from Chinese Customs statistics (only registered imports are included and production figures are estimated from SETC and China Medical Device Association).
3. Insurance Industry (INS)
The insurance industry has shown rapid growth within the past few years, particularly the life insurance market, as Chinese citizens' average annual income has grown. In addition, the increase in private businesses, coupled with the decline of job opportunities in the state sector as a direct result of China's state reforms, has sparked people's interest in buying all types of insurance ranging from property to life.
The industry has been growing at an average annual rate of 26.7% since 1980. According to insurance specialists, in the next five years China's insurance industry should maintain a growth rate of 13%. By the end of 1999, total industry assets amounted to $30.7 billion, up 27.9% from 1998. Total insurance premiums for 1999 reached $16.78 billion, up 10% from 1998. In 1999, China's "insurance depth" (the proportion of premium income to GDP) was still only 1.67%, with an "insurance density" (average per capita premium income) of just $13.4 per person. Industry analysts estimate that by 2004, total insurance premiums should top $31.4 billion, achieving an "insurance depth" of 2% and "insurance density" of $24 per person. Other experts forecast the market will grow to about $120 billion in the next ten years.
As of the end of 1999, total assets of foreign-funded companies amounted to $0.53 billion, accounting for 1.7% of the total assets of China's insurance industry. The insurance premiums of foreign insurers in China in 1999 reached $0.22 billion, representing just 1.3% of the country's total. In Shanghai, which is one of only two cities "open" to foreign insurers, the market share of foreign-funded companies reached 13%.
By the end of 1999, there were 13 domestic Chinese insurers (four state-owned corporations and nine joint-stock companies). Insurance in China is still dominated by domestic companies. Of the thirteen domestic companies, the top five, People's Insurance Company of China, China Re, China Life, China Pacific and Ping An are national companies with the freedom to operate nationwide. Other local companies such as Hua An and Guotai have more restrictive business licenses, limiting them to particular regions.
To date there are 15 foreign insurers with operating licenses (nine in operation and six pending approval):
four from the United States (AIG and Aetna in operation, and Chubb Group and John Hancock pending approval by China Insurance Regulatory Commission), two from Britain (Royal & Sun Alliance in operation and Prudential UK pending approval), two from Canada (Manulife in operation and Sun Life Assurance pending approval) plus one each from Japan (Tokio Fire and Marine in operation), Switzerland (Winterthur in operation), Germany (Allianz Dazhong in operation), France (Axa-UAP in operation) and Australia (Colonial Mutual in operation). In addition, China agreed in the EU-China Bilateral WTO Accession Agreement to immediately grant seven (five life and two non-life) licenses to EU members. The China Insurance Regulatory Commission recently granted (pending approval) two of these life insurance licenses to ING from Holland and Assicurazioni Generali from Italy. Altogether, over 110 overseas insurers from 17 countries and regions have set up 202 representative offices in 14 cities. These representative offices are not permitted to sell insurance products. Some of them are applying for and awaiting licenses; others focus on collecting information, studying the market and establishing relationships.
Growth of the insurance sector is poised to continue with the market opening commitments in the U.S.-China Bilateral WTO Accession Agreement and the EU-China Bilateral WTO Accession Agreement. Market access barriers such as restrictive licensing have been addressed in these agreements. China has agreed to grant licenses on a prudential basis, without numerical restrictions or discretionary "economic needs" tests. Companies can obtain a license if they have more than 30 years of experience in a WTO member country; a representative office established in China for two consecutive years; and global assets of more than $5 billion.
Additional WTO commitments include:
All geographic restrictions will be phased out within three years of accession; internal branching is permitted consistent with the phase-out of geographic restrictions; reinsurance, master policy insurance and large-scale commercial risk insurance can be provided nationwide upon accession; health, pension and group products can be sold two and three years from accession, respectively; and brokerage services will be permitted.
| 1998 | 1999 | 2000 |
| Total Assets | 24,000 | 30,700 | 39,200 |
| Total Insurance Premiums | 15,000 | 16,780 | 18,800 |
| Foreign Insurers Premium | N/A | 220 | N/A |
| Insurance Depth | 1.57% | 1.67% | 1.77% |
| Insurance Density | 12 | 13 | 15 |
The above figures in the first three rows are calculated in $ millions and in the last row is calculated in $ ones, and represent official and unofficial estimates.
4. Franchising (FRA)
Strong economic growth, along with economic reform, has resulted in a tremendous expansion of China's retail industry in the past two decades. The environment of the retail sector turned sour during 1998-99, in part due to the Asian financial crisis. The growth rates of retail sales dropped to 6.8% in 1999 from an average annual growth rate of 21% during 1990-97. Latest statistics indicate that the retail sector has been improving since the beginning of 2000.
Franchising has proved a promising mode of entry into China's consumer markets and tapping into portions of Chinese spending. China's consumers are very open to experimentation with American-style shopping and food & beverage outlets. They are seeking higher standards of service, better product quality and wider selection, and more comfortable and sanitary venues in which to spend and consume. American food service franchises are exceptionally popular in China, and are poised to capture dominant shares of this burgeoning market. American brands such as the McDonald's, KFC and Pizza Hut have become household names, with hundreds of outlets established nationwide. Other American franchises such as Subway and Starbucks are also quickly making their way to more Chinese cities.
The potential for franchise development in many lucrative markets, however, is presently still unexploited. Best prospects include food & beverage, automotive servicing, film processing, health & entertainment (including video rental and movie theaters), bicycle and sporting goods outlets, education and test preparation services.
Although franchising offers many advantages to foreign companies wanting to expand to China, it also presents many potential problems:
There is a shortage of local management talent; Chinese laws on intellectual property rights are still weak; and laws governing franchises are inadequate.
As a result, some of the well-known international franchises, including McDonald's and KFC, are not operating as franchises. Instead, they are joint ventures and wholly foreign-owned outlets. Others, such as Dairy Queen and Subway, are operating as traditional franchises.
| 1998 | 1999 | 2000 |
Sales of Chain Stores
and Franchises | 12,100 | 18,100 | 23,500 |
The above figures are calculated in $ millions and represent unofficial estimates.
5. Telecommunications Equipment (TEL)
China slowed down its investment in telecommunications infrastructure in 1999, investing $18.3 billion, 14% less than 1998. The two major reasons for this were the reorganization of the telecommunications service sector following the break-up of the monopolist China Telecom and the uncertainty of the telecommunications network's future until internet protocol (IP) became the dominant application in the second half of the year.
Despite the investment slowdown, by the end of 1999, the number of fixed line telephone subscribers increased by 24% to reach 110 million and mobile phone users increased by 76% to reach 43 million. Year-end nationwide teledensity reached 13% while urban telephone penetration reached 28%. By the end of May 2000, the number of fixed line telephone users jumped to 125 million and mobile phone users to 58 million.
China's efforts to prepare for accession to the World Trade Organization (WTO) and the introduction of IP telephony have brought more players into China's telecommunications service market:
China Telecom, China Mobile, China Unicom, China Netcom, and Jitong Communications. Other entities like the Network Center of the State Administration of Radio, Film and Television (SARFT), the telecommunications division of the Ministry of Railway, and the National Power Corporation are lobbying heavily to become service providers using their existing infrastructure. These competing companies will seek the best quality products at the lowest price, possibly leading to increased equipment sales opportunities for foreign firms.
China's Ministry of Information Industry (MII) plans to expand the nationwide broadband network using fiber optic cable, microwave and satellite systems; build out the nationwide GSM mobile network and explore new services like mobile banking and internet access based on the existing GSM network; prepare for the deployment of third generation technology of mobile communications; improve management and billing systems; and promote internet usage, especially electronic commerce and electronic business.
China plans to invest $25 billion in telecommunication infrastructure in 2000. And by the end of the year, China expects to add 30 million fixed line users, 30 million mobile phone users, and 11 million data/multimedia communications users. Year-end nationwide teledensity is expected to reach 16% while urban telephone penetration will go to 29%.
Beginning in early 1999, MII required the issuance of a license for all telecommunications equipment before being marketed in China. MII encourages operators to purchase domestically manufactured products to support national telecommunications manufacturers. MII monitors the operations of all Chinese-foreign joint ventures to ensure that their performance abides by their contractual obligations. Greater flexibility is sometimes shown to foreign companies that have exclusive technology or are willing to invest in priority areas such as inland China.
Although China has delayed the deployment of the U.S.-developed CDMA system, China Unicom, the only carrier licensed to build and operate the CDMA system, has not given up its plan to build a CDMA (IS-95 B or CDMA2000 1x, or TD-SCDMA) infrastructure, which might happen in 2001. China also plans to provide more bandwidth for its access network, both terrestrial and satellite, because of its growing market demand for information services. China is aggressively laying fiber optic cables throughout the country and is updating its backbone transmission network with the latest technologies, including ATM, SDH, and DWDM.
China's telecommunications services sector remains closed to direct foreign participation. However, China's WTO accession will eventually open both the basic and value-added services markets. According to the WTO Agreements China signed with the United States and the European Union, China is committed to:
opening immediately upon accession the key telecom services corridor in Beijing, Shanghai and Guangzhou, which carries about 75% of all domestic traffic, to foreign carriers with up to 25% foreign ownership in mobile services and 30% foreign ownership in value-added services;
phasing out all geographic restrictions for valued-added services within two years of accession; mobile services within five years; and domestic wireline services within six years; and
allowing 49% foreign ownership in mobile services within three years of accession in 17 major cities and within five years for all of China; 49% in international and domestic fixed line services within six years; and 50% in value-added services within two years.
Best subsector prospects within this sector include:
Cellular networks;
Access network products;
Internet telephony networks;
Broadband transmission technologies;
Transmission media such as fiber optic cable and satellite;
Telecommunications consulting services, especially management, billing, and customer care.
| 1998 | 1999 | 2000 |
| Total Market Size | 11,500 | 13,000 | 16,000 |
| Total Local Production | 6,500 | 7,500 | 9,400 |
| Total Exports | 2,000 | 2,500 | 3,000 |
| Total Imports | 7,000 | 8,200 | 9,600 |
| Total Imports from U.S. | 800 | 850 | 1,000 |
The above figures are calculated in $ millions and represent unofficial estimates.
6. Computers and Peripherals (CPT)
The Chinese computer market grew 16.2% in 1999, despite GDP growth of 7.1%, according to CCID, a research organization under the Ministry of Information Industry. The market size changed from $17.9 billion in 1998 to $20.8 billion in 1999, and the industry total output reached $24.8 billion. Software and computer service sectors expanded by 27.5% in 1999.
Driven by the fast development of the internet, as well as educational needs of children, in 1999 China sold 4.91 million PCs, an increase of 20.4% compared with 1998. The value for 1999 was $6 billion, a 6.4% increase compared to last year. About 35% of PCs sold were purchased by families.
Domestic brand computers took 51.7% market share, while foreign brands took 25.3% of the market. Although foreign brand computers have less market share than before, they are still the major players in the business computer field.
In 1999, the scanner market increased another 100%. Since more scanners under RMB 1000 ($121) are available on the market, families have begun to purchase them. At the other end, an increase of notebook computer sales dropped from 31.7% to 25.7% due to the booming personal digital assistant (PDA) market.
A key change is the entrance of several Chinese television manufacturers in the computer business. This has increased competition. In 2000, 5.6 million computers are expected to be sold by the end of the year.
Table: Computer and Peripheral Market in $ million 1998 1999
| 1998 | 1999 |
| Sales | Increase | Sales | Increase |
| Mainframe | 175 | 18.2% | 224 | 28% |
| Mini | 1966 | -22.8% | 3645 | 85.4% |
| Station | 6225 | -19.9% | 11,759 | 88.9% |
| PC server | 108k | 8.0% | 129k | 19.4% |
| Desktop | 3,735k | 16.0% | 4,487k | 20.1% |
| Notebook | 237k | 31.7% | 298k | 25.7% |
| Monitor | 4,150k | 14.6% | 4,920k | 18.6% |
| Printer | 1,831k | 24.8% | 2,342k | 27.9% |
| Scanner | 198k | 90.4% | 406k | 105.1% |
| Switch | 134k | 34.0%1 | 62k | 20.9% |
| Hub | 383k | 66.5% | 330k | -13.8% |
| Network | card 3,245k | 170.4% | 5,050k | 55.6% |
| Modem | 960k | 60.0% | 1,450k | 51% |
| Router | 124k | 12.7% | 1,350k | 8.9% |
7. Computer Software (CSF)
Major growth in software markets is imminent, although illegal copying of software keeps the piracy rate over 90%. Significant new demand has been created by the government's commitment to buy legal copies and the removal of illegal software copies with Y2K flaws. For now, the most sought after retail products are games and entertainment software, but Windows 2000 did allow Microsoft to announce an 83% increase in China revenues. Stiff competition from Linux is emerging, which provides foreign vendors with an opportunity.
The highest dollar value software is in operating systems and database management software. Japan remains a strong competitor in the computer game industry. Most U.S. computer products appear to enter China via gray marketing channels from Hong Kong and do not appear in official Chinese trade statistics. The following figures do not include the software used in telecommunications switches.
| 1998 | 1999 | 2000 |
| Total Market Size | 1,700 | 2,220 2,800 |
| Tot. Local Prod. | 700 | 900 | 1,300 |
| Total Exports | 10 | 10 | 20 |
| Total Imports | 1,000 | 1,300 | 1,500 |
| Total Imports from U.S. | 850 | 1,000 | 1,200 |
The above figures are calculated in $ millions and represent unofficial estimates.
8. Cable Television Equipment (AUV)
China has the world's largest number of cable TV subscribers; 80 million in 2000 and an expected 150 million by 2010. Chinese households have 264 million TV sets and the average cable fee per month is $1-2 for a typical 20-channel system. The country boasts 5,300 cable operators of which 1,300 are approved by the State Administration of Radio, Film and Television (SARFT). China's cable TV network stretches over 2.4 million kilometers, including 300,000 kilometers of fiber optic lines.
The value of China's cable TV equipment market reached $1.6 billion in 2000. Growing at a 45% clip, the equipment market is expected to be worth $6 billion by 2005 and the size of the entire cable TV market, including cable TV programming services, will reach $12 billion by that time. U.S. equipment for cable TV production, headends and networks make up a whopping 60% of China's imports in this sector, and U.S. equipment compose about 45% of all cable TV equipment sold in China, according to SARFT.
China's cable TV structure is, in many ways, a bottom-up phenomenon. The 1,300 approved stations are managed and financed autonomously by local governments, local SARFT branches or local Communist party committees. The additional 4,000 networks are run by even smaller operators. For instance, about 2,000 counties, 600 townships and villages and over 1,400 work units, factories and housing compounds run their own cable networks.
Among the focal points of China's cable TV equipment market are digital compression, intra-provincial and nationwide cable TV interconnects, and value-added service offerings, including the network management system, video-on-demand (VOD), music-on-demand (MOD), billing management system; SDH transmission system; SDTV transmission system, distance learning and medicine, e-commerce, video-conferencing, high-speed internet access and cable telephony.
The following detailed list, provided by SARFT, reflects the kind of equipment that China is importing. The main breakdown is between production and headend/network equipment.
The production equipment include camera/camcorders, videotapes, cables, monitoring systems, non-liner editing systems, 3D animation software, VCD production systems, audio consoles, audio gathering recorders, editors, tripods, projectors, caption generators, non-liner video workstations, MPEG compression systems, touch screens, microphones, recording systems, editing consoles, adapters, wireless communication systems, animation workstations, teltext production & playout systems, AV distant transmissions, lighting, audio amplifier speakers, amplifiers, digital video effect, monitors, batteries, CD players, SGI workstations, special AV cards, audio workstations, lighting consoles, earphones, and fittings and accessories.
The cable TV headend and network equipment include modulators, rack/cases, combiners, audio balance converters, end-user boxes, trunk amplifiers, power supply, distribution amplifiers, scramble & descramble systems, optical receivers, fiber splitters, fiber amplifiers, demodulators, consoles, AV splitters, logo generators, channel inserters, line amplifiers, power inserters, splitters, billing software, optical splitters, optical cables, mixers, screen walls, AV switchers, TV text readers, amplifiers, equalizers, lightning arresters, fiber connectors, cables, fiber adapters, filters, auto playout systems, AV processors, switchers, source graphic generators, computer management systems, attenuators, broadband amplifiers, channel selectors, optical transmitters, and fiber jumpers.
Although Chinese authorities do not allow direct foreign investment in television broadcast units, foreign companies can build cable systems and sell cable equipment. U.S. companies have sold equipment to construct many of SARFT's disparate cable TV networks. SARFT now oversees networks that stretch through over 20 provinces in China. U.S. companies have advantages over third country competitors in almost every kind of cable TV product, especially digital technology products, but prices for some U.S. products are considered higher than those of European and Japanese products, according to some Chinese distributors.
China's Central Television Station (CCTV) in the past only broadcast programs that it made by itself, but this year CCTV adopted a new regulation that allows the company to purchase TV programs that are made by other production studios. This will result in more independent production companies making TV programs. This may enhance equipment sales because of the expected intensified competition among production studios.
| 1998 | 1999 | 2000
| | Total Market Sizes | 605 | 1,209 | 1,600
| | Total Local Production | 73 | 121 | 145
| | Total Exports | 0.60 | 0.97 | 1.09
| | Total Imports | 508 | 1,088 | 1,209
| | Total Imports from U.S. | 266 | 605 | 726
|
The above figures are calculated in $ millions and represent unofficial estimates.
9. Air Traffic Control and Ground Equipment (APG)
Although not expanding at the rates earlier predicted, China's aviation market is still growing at rates above the world average, putting tremendous strain on China's airport infrastructure. Over 40 airports throughout China have already been built or upgraded in the past five years. An equal number of airports are slated for initialization or upgrade under China's next five-year plan, which begins in 2001.
China's aviation system is undergoing a major change from having a few wide-body aircraft make a few flights per day to major airports, to smaller 50-100 seat aircraft making many flights per day to more cities, some with very small airports. China has seen the advantages of using a hub-and-spoke air routing system, and should make the changeover to this system by 2005. There is intense competition for the right to become a hub, and unlike the United States, the hubs will likely be the Beijings and Shanghais of China, rather than smaller hub cities like Pittsburgh in the United States.
Airport development and construction covers a wide range of products and services, including initial design and engineering services, construction equipment, specialized runway and air traffic control equipment, cargo inventory management facilities, telecommunications, x-ray equipment, emergency vehicles and even retail concessions and airport management services. Specialized training for air traffic controllers could also be grouped under this broad and growing sector of the aviation market. U.S. companies are seen by the Chinese as the world leaders in many of these categories.
With a country as geographically large as China, hard currency tourism revenues growing rapidly, air cargo volume taking off, and local population becoming increasingly affluent, the government has placed a high priority on improving the entire air travel system. Much of the construction on the new airports has been done with local products rather than more expensive imports. One month after the opening of the Dalian airport (which used a small fraction of imports), the roof leaked during a mild rain. Unfortunately, this scenario is played out in many other cities. To the extent that U.S. firms are able to convince airport authorities of their superior quality, and resulting lower long-term costs, they will be better able to compete against the cheaper but better connected local suppliers. Local, cheaper products don't always win though. One-upmanship can be used to U.S. firms' advantage, as some airport authorities are using imported equipment to emphasize their own high status in the aviation community.
The data provided below summarize the import trend of airport equipment and services, based on imports in several HTS categories. These categories only represent imports of radar, remote radio control apparatus, navigational aids, elevators and escalators, baggage sorting and handling equipment systems, communication systems, signaling & safety equipment for airfields, special vehicles, baggage x-ray machines, and runway friction testers, so the statistics are best viewed as incomplete, though representative of general trends.
Industry analysts and business people agree that the Chinese authorities have available funding and the interest in purchasing nearly $500 million of air traffic control equipment during the next five years, although nearly $150 million will likely go to a single company for the area control centers.
| 1998 | 1999 | 2000 |
| Total Market Size | 1,335 | 1,114 | 887 |
| Total Local Production | 539 | 328 | 315 |
| Total Exports | 191 | 178 | 173 |
| Total Imports | 928 | 922 | 745 |
| Total Imports from U.S. | 215 | 194 | 215 |
The above figures are calculated in $ millions and represent unofficial estimates. Trade numbers are based on Chinese customs figures for the HTS codes 842810, 84798940, 8526, 85281340, 85308000, 86080090, 870190, 87021020, 8705, 87091100, 90221910, and 90318090. Local production figures are calculated on the basis of combined information from the Chinese government and China Transportation Yearbook 1999.
10. Pollution-Control Equipment (POL)
Quantifying the Chinese environmental market is difficult because accurate data are scarce and environmental goods and services do not fit cleanly into standard customs classifications. China spent roughly $10 billion on environmental protection in 1999, equal to 1% of GDP and representing an increase of 15% over 1998. The Chinese hope to boost environmental spending to 1.5% of GDP by the end of 2000, but this seems unlikely at the time of publication. Although the nation as a whole appears to have fallen short of this goal, some booming coastal cities with enlightened leaders, such as Shanghai, Xiamen, and Dalian, claim to be spending 2-3% of local GDP on environment protection.
The overall market is growing rapidly, but only a portion of it is truly accessible to foreign firms due to financing and hard currency constraints, low-cost local competition, closed bidding practices and other market barriers. Products enjoying the best sales prospects include low-cost flue gas desulfurization systems, air and water monitoring instruments, drinking water purification systems, vehicle emissions control and testing devices, industrial wastewater treatment equipment, and resource recovery technologies. Most end-users and regulators hold an extremely favorable opinion of U.S. technology. Large firms or consortiums that can provide turnkey solutions often have an edge.
Most large U.S. environmental firms have concentrated on World Bank and Asian Development Bank projects. The future may be brighter as affluent coastal cities begin to dramatically increase environmental spending, multinational investors uncork new sources of demand, and municipalities experiment with new project financing models. China's accession to WTO will help U.S. environmental exporters by lowering tariffs and discouraging import substitution policies, but change is expected to be neither instantaneous nor dramatic in this sector.
China's WTO environmental services commitments cover sewage services, solid waste disposal services, cleaning services for exhaust gases, noise abatement services, nature and landscape protection services, and other environmental protection services. However, environmental monitoring and pollution source inspection are excluded. Under the bilateral WTO agreement, foreign service suppliers may provide environmental consultation services through cross-border delivery, without having to establish a representative office in China. All other foreign service suppliers may operate in China through a joint venture.
As income levels rise in a huge country with acute environmental needs, China's environmental market may grow to become one of the world's largest. However, American companies may find that competitors from other developed countries have already gained firm beachheads because these firms are now winning contracts with the help of subsidized loans, grants, and other tied aid from their governments. According to the United Nations Development Programme (UNDP) statistics, environmental tied aid programs are not drying up, and many U.S. companies cite this as their biggest competitive challenge.
| | 1998 | 1999 | 2000 |
| Total Market Size | 4,030 | 4,700 | 5,500 |
| Total Local Production | 1,800 | 2,090 | 2,420 |
| Total Exports | 50 | 65 | 70 |
| Total Imports | 2,280 | 2,675 | 3,150 |
| Total Imports from U.S. | 360 | 450 | 510 |
The above figures are calculated in $ millions and represent unofficial estimates.
11. Machine Tools (MTL)
Sophisticated American numerically controlled machine tools are always the first choice in China. However, strict U.S. Department of Commerce (USDOC) export controls on five-axis machine tools, USDOC export license rejections, U.S. Consular Service business visa rejections, and lengthy visa processing times, continue to drive Chinese buyers to look toward Germany, Japan, England, Sweden, Switzerland for their machine tool needs.
In spite of continued U.S. export control restrictions on the sale of machine tools to China, U.S. manufactured machine tools are highly desired by Chinese buyers. As China prepares for WTO accession, China's basic manufacturing industries will need the most advanced machine tools to be able to even contemplate competing globally within the WTO. For example, the Chinese auto part manufacturing industry could have a great impact on U.S. auto parts manufacturers and suppliers if China can produce the sophisticated parts required by the U.S. auto industry. China will require advanced metallurgy processes and advanced machining capability to get into this market and stay alive.
European and Japanese machine tool competitors are cutting total machine tool line price quotes in China by manufacturing the lower end of their machine tool line in China. U.S. machine tool companies are now mulling over this idea but virtually no major U.S. machine tool manufacture is making machine tools in China, although some have some limited technical licensing agreements with Chinese machine tool builders.
The major China target market for U.S. machine tools builders are firms with ready money and poised to grow with the WTO. This kind of firm is most likely going to be a private manufacturing enterprise established in Zhejiang or Jiangsu provinces. These two provinces appear to have the largest number of large private enterprise manufacturers with the best manufacturing and marketing skills and are therefore are best prospects for machine tool sellers. The companies around Beijing are mostly State Owned Enterprises with limited capital and limited entrepreneurial ability.
There is virtually no market for the sale used machine tools in China unless the used equipment is part of the capital equipment of a JV or WFOE being set up or transferred to China.
The Association of Manufacturing Technology (AMT) the spokesman for the U.S. machine tool industry, has representative offices in both Beijing and Shanghai. Contact information for AMT-Beijing is:
www.amtchina.org,
Tel (86-10)6410-7374, Fax (86-10)6410-7334
E-mail:amtbro@public.bta.net.cn
Contact information for AMT-Shanghai is:
Tel (86-21)6279-7630, Fax (86-21)6279-7649
E-mail: amt_sho@online.sh.cn
| 1998 | 1999 | 2000 |
| Total Market Size | 2,870 | 3,113 | 3,424 |
| Total Local Production | 1,713 | 1,819 | 2,001 |
| Total Exports | 234 | 221 | 243 |
| Total Imports | 1,391 | 1,515 | 1,666 |
| Total Imports from U.S. | 02 | 126 | 133 |
The above figures are calculated in $ millions and represent unofficial estimates. The source of the 1998 and 1999 figures are the China Machine Builders Tool Builders Association (CMBTA). The figures for 2000 are USFCS estimates based on CMBTA first quarter results.
12. Plastic Materials and Resins (PMR)
The plastic materials and resins market in China is being driven by the demand end-user industries for higher quality products. According to the 1999 statistics, imports accounted for 2/3 of the total market demand. However, in recent years more imports have been coming from Asian competitors whose currencies plummeted during the Asian financial crisis.
The local market requires imports of general-purpose thermoplastic resins, including polyethylene (LDPE and HDPE), polypropylene (PP), polystyrene (PS), acrylonitrile butadiene styrene (ABS) and polyvinyl chloride (PVC). This market is subject to fluctuation of up-stream supply and down-stream market demand.
Special engineering plastics and other resins, which possess special physical and chemical properties, are used widely in various industries as special materials. U.S. engineering plastics products have high-technology inputs and are very competitive in the local market. These plastics are mostly used in special parts for autos, refrigerators, computers, fiber-optic cable and other hi-tech industries. This segment is expected to grow faster than any other.
China's accession to the WTO will provide significant benefits to U.S. plastics and resins exporters. China will reduce average chemical tariffs by more than 50% by January 1, 2005. Specifically, the average rate of 14.74% will be reduced to a final average rate of 6.9%. Quotas will be eliminated on virtually all chemical products upon accession. The remaining quotas on polyethylene terephthalate slices or chips will be eliminated in 2002. China has also agreed that any entity will be permitted to import most products, including plastics and resins, into China after a three-year phase-in period. U.S. companies operating in China will also be able to freely distribute plastics materials in China.
Market estimates below show sizeable increases from last year's calculations. This is due in part to price increases due to high oil prices and the success of China's anti-smuggling drive.
| 1998 | 1999 | 2000 |
| Total Market Size | 12,282 | 13,650 | 15,150 |
| Total Local Prod. | 4,600 | 4,950 | 6,000 |
| Total Exports | 525 | 400 | 550 |
| Total Imports | 8,207 | 9,100 | 9,700 |
| Total Imports from U.S. | 570 | 600 | 680 |
The above figures are calculated in $ millions and represent unofficial estimates.
13. Building Materials (BLD)
The U.S.-China Presidential Housing Initiative, announced in 1998 in Beijing, provides for increased cooperation between the two countries on improving China's housing. Perhaps more influential to U.S. companies' ability to compete will be China's accession to the WTO. Currently, China's tariff rates for many building materials attempt to "encourage" local production over exports, thereby making U.S. marketing difficult. Having said this, the Chinese know that they lack the technology held by U.S. companies in the areas of environmentally-friendly and energy-saving building materials. Customs statistics is unavailable in these categories of materials simply because the idea is so new that specific HTS codes are not set aside for them yet.
Other technologies are also sought by the Chinese to build stronger, longer-lasting structures of higher quality with lower cost. U.S. companies already in the China market for structural products have found that their technologies are superior compared to the traditional earthen brick-based technology. U.S. companies providing these superior materials in a form the Chinese will find difficult to copy stand a good chance of entering and being successful in this market. But the International Property Right (IPR) question must be carefully considered by each firm, prior to entry. Many U.S. firms have been robbed of their ability to compete on the basis of quality because of the rampant use of poor quality counterfeits using their name and exterior design.
China's housing construction market continues to flourish. According to the Chinese Statistical Bureau, in the first four months of this year 67 million square meters of housing was started, up 33.6% from the previous year's numbers. Still, more than 90 million square meters of housing were lying idle in 1999, 21.2% more than in the same period of 1998.
Much of this discrepancy lies in the planning, or lack thereof, on the part of the developers. To take advantage of lower land costs, low income housing is often built too far away from jobs and transportation. But without adequate transportation, schools and jobs, Chinese choose to live in inferior conditions but closer to services. On the high end, properties go vacant because of an inflated impression of what expatriates will pay for poorly-designed homes with little to no storage space and quirky features unappealing to them.
China's commercial houses were sold at an average of 2,091 RMB ($253) per square meter in the first four months of 2000, up 3.8%. Housing prices for the selected regions of Beijing, Shanghai and Guangdong reached 4,704, 3,282 and 2,864 RMB ($570, $397, $347) per square meter, respectively. Projections for growth over the next few years are estimated to be into double-digits, although general economic factors could pull that down to 8-9%.
The housing mortgage system currently in place in China is unable to help the average person purchase a home. Efforts are being made to introduce a secondary mortgage market that would allow more people to use housing loans. Home loans, although having a legal limit of 30 years are usually granted for a shorter 10 – 12 year payback period after as much as 1/3 to ½ is given as a down payment. The financing is of critical importance as to how fast the housing market moves. Foreign companies are not allowed into this arena yet.
There are three basic types of housing in China. "Commodity" and "Benefit" housing, which both fall under the heading of "Economical" housing are the most common types. (Benefit housing was allotted to workers by their employers up until late 1999.) In Shanghai, for example, these two types of housing generally cost in the $272-302 (2,250 – 2,500 RMB) per square meter range. The third group amounts to less than 1% of all housing, and is geared towards expatriates and wealthy Chinese. This type of housing starts at the $700-1,000 (5,800-8,300 RMB) per square meter level.
While there is intense competition among companies (mainly from Japan, Taiwan, Germany, Italy, Hong Kong and Korea), U.S. companies have fared well in many of the sub-sector categories, shown by an analysis of official Chinese import statistics.
The data provided below summarize the import trend of building materials, based on imports in several HTS categories. These categories only represent imports of stone products, wood products, ceramics and glass products and so must therefore be viewed as incomplete, though representative of general trends.
| 1998 | 1999 | 2000 |
| Total Market Size | 47,597 | 52,530 | 57,909 |
| Total Local Production | 49,000 | 54,000 | 58,860 |
| Total Exports | 4,521 | 4,690 | 5,911 |
| Total Imports | 3,118 | 3,220 | 4,960 |
| Total Imports from U.S. | 241 | 245 | 396 |
The above figures are calculated in $ millions and represent unofficial estimates. Production numbers are estimates based on Chinese statistics. Trade numbers are based on Chinese customs figures for the above four groups of HTS codes.
14. Power Generation (ELP)
After two years of poor growth, China's power industry is again regaining momentum on the back of large investment in plant construction and further development of the power grid. According to official statistics, China invested 18.5 billion RMB ($223 million) in the sector during the first quarter of 2000. This represents a year-on-year rise of 17.6%.
In addition to higher investment, China has benefited recently from greater overall economic activity and growth in 1999. Because of this China generated 1.16 trillion kwh of electricity in 1999, up 6% from a year earlier. While there remains an oversupply of electricity in some parts of the country, especially in the economically depressed Northwest. China can expect sustained and significant increases in both demand for power and investment in the sector. China's largest power producer, the China State Power Corporation, plans to realize 8.6 billion RMB or just more than $100 million in profits this year.
China exports nearly as much electrical machinery as it imports.
| 1998 | 1999 | 2000 |
| China's World Imports | 8,779 | 12,465 | 17,892 |
| China's Worldwide Exports | 9,945 | 10,875 | 16,170 |
In $ millions. Source: World Trade Atlas
Chinese power authorities are in the midst of a multi-year restructuring effort with the ultimate goal of a fully integrated national grid system and an independent, merchant power sales system. As outlined in the yet to be released 10th Five Year Plan (FYP), China will focus on development in the western provinces of China.
The following lists the Chinese government's priorities in the next five years:
Western development:
planned-for construction of five new hydro electric power stations with a total generating capacity of 10,000 mw;
Continued upgrading of existing power grid sub-systems and new interconnections;
Renovation or decommissioning of older, dirtier coal-fired thermal units many being replaced by more efficient natural gas burning units;
Building of a natural gas pipeline to transmit fuel from western gas fields to the eastern coastal areas of China;
Pilot projects and further investment in clean coal, renewable, and cleaner, more energy efficient generating technologies; and
China will begin building a few new nuclear power plants over the next five years. Fuel storage, transportation and handling equipment will continue to be in demand during this period.
While China recognizes the need for imported foreign technologies in this sector it also wants to nationalize them. China continues to demand full technology transfers and localization whenever possible. Provisions in the 1999 WTO agreement between China and the U.S., may give U.S. exporters some relief in these areas. Many U.S. power equipment manufacturers and related construction/engineering firms have formed joint ventures to compete better domestically in this market.
U.S. companies should concentrate on those areas of this market that allow them to take advantage of the more sophisticated technologies they have available. Equipment, services and systems such as the following will be competitive:
control, monitoring and safety equipment/systems; energy efficient products; environmental products; power generation and electric utilities management support products, services and computer software.
15. Fine and Specialty Chemicals (ICH)
The fine and specialty chemical industry is a development priority for China's chemical industry. Domestic producers of specialty chemicals lack the technology, financial resources and research staff to develop a variety of high quality and innovative chemicals with appropriate environmental standards. As a result, China relies on the imports of fine and specialty chemicals to meet the increasing market demand for a wide variety of high quality chemicals. China is looking to import very efficient multiple function fine and specialty chemicals with low heavy metal ingredients. Fine and specialty chemical additives are mainly used in industry sectors such as agriculture, textiles, health care, electronics, food and feed, medicine, household and industrial cleaning, automotive, paper, and plastics and rubber.
American products in this sector are rated as some of the best in the world. Chinese end-users of fine and specialty chemicals enjoy an open market and can choose their suppliers freely, either from domestic or international channels (except for those chemical products that are considered raw materials for the production of chemical weapons). The statistics from January to April 2000 show that industrial additives imported from Jiangsu ports of entry doubled as compared to the same period last year. If China's GDP growth rate remains at approximately 7 to 8%, the fine and specialty chemicals sector will grow substantially, as indicated below.
China's accession to the WTO will provide significant benefits to U.S. fine and specialty chemicals exporters. China will reduce average chemical tariffs by more than 50% by January 1, 2005. Specifically, the average rate of 14.74% will be reduced to a final average rate of 6.9%. Quotas will be eliminated on virtually all chemicals upon accession. The remaining quotas on polyethylene terephthalate slices or chips will be eliminated in 2002. China has also agreed that any entity will be permitted to import most products, including fine and specialty chemicals, into China after a three-year phase-in period. U.S. chemicals companies operating in China will also be able to freely distribute products in China.
| 1998 | 1999 | 2000 |
| Total Market Size | 7,870 | 8,330 | 8,660 |
| Total Local Prod | . 7,400 | 7,800 | 8,200 |
| Total Exports | 1,830 | 1,970 | 2,070 |
| Total Imports | 2,300 | 2,400 | 2,500 |
| Total Imports from U.S. | 280 | 300 | 320 |
The above figures are calculated in $ millions. Because most fine and specialty chemicals are value-added elements of products that are sold in a complex multi-national market, only rough estimates of total imports can be calculated.
16. Agricultural Chemicals (AGC)
China's agriculture-related markets have been the subject of great attention. Agrochemical exports to China are very important for U.S. industries, ranking third to fourth among U.S. exports to China in recent years. In 1999, China imported $1,182 million in diammonium phosphate (DAP) from the Untied States, accounting for 93% of the total imported. It is likely that China will continue to rely on U.S. fertilizer imports because China lacks potassium resources and its phosphate is difficult to recover. These raw materials are essential elements of most fertilizers, such as DAP. Domestic output of fertilizer meets only 80% of the market demand, forcing China to import high-concentration and compound fertilizers to meet the remaining demand. However, China still restricts imports of nitrogenous fertilizers such as urea to protect local producers.
China is taking measures to regulate the pesticide market to prevent toxic runoff and poisoning of consumers. Therefore, imports of high efficiency, low toxicity and low residual pesticides have strong market prospects, mainly as a supplement to highly toxic Chinese pesticides. However, foreign suppliers currently face discriminatory product testing requirements.
China's accession to the WTO will provide dramatic benefits to U.S. fertilizer exporters. On accession, tariffs will drop 4% to 6% from the current 11% import duty rate. Quotas will be eliminated upon accession for urea and DAP and by 2002 for other fertilizers. The quotas will be replaced by a tariff-rate quota system with in-quota tonnage limits expanded each year. Moreover, all quotas must be fully allocated, forbidding the current practice of limiting imports by only allocating a certain portion of quotas each year. Perhaps most significant, foreign firms will gain the right to import and distribute fertilizers after a five year transition period, gradually dismantling the state-controlled trading monopoly.
| 1998 | 1999 | 2000 |
| Total Market Size | 11,565 | 10,448 | 10,673 |
| Total Local Prod. | 8,779 | 8,630 | 9,145 |
| Total Exports | 86 | 670 | 830 |
| Total Imports | 3,268 | 2,488 | 2,358 |
| Total Imports from U.S. | 1,202 | 1,146 | 1,205 |
The above figures are calculated in $ millions and represent unofficial estimates.
B. Best Prospects for Agricultural Goods
1. Grains
2. Grass Seeds
3. Oilseeds
4. Poultry Meat
5. Hides and Skins
6. Snack Foods
7. Fresh Fruits
8. Beef and Pork Variety Meats
9. Dairy Ingredients
10. Seafood
11. Forest Products
Below are the descriptions and statistics for the best prospective U.S. agricultural exports to China for 1998-2000. The exchange rate used was 8.27 RMB to $1. All statistics are unofficial.
1. Grains
Wheat PS&D Code: 0410000
Corn PS&D Code: 0440000
Barley PS&D Code: 0430000
Although the volume of trade is likely to fluctuate depending on domestic production, China's demand for wheat, corn and barley is expected to grow in the next few years. The underlying demand factors in the next five years will be limited land for local production, increasing population, better incomes as well as changing consumer preferences, which will favor greater wheat and corn consumption over rice. Imports continue to be controlled by the central government and purchases are dominated by the state grain monopoly, COFCO. However, the WTO accession package being discussed with China calls for allowing greater access to China's markets by private importers. For more information go to http://www.fas.usda.gov to view the Grain and Feed Annual, report number CH0009.
| (Wheat, Corn, Rice) | MY1998/99 | MY1999/00 | MY2000/2001 |
| Total Market Size | 239 | 243 | 249 |
| Total Local Production | 245 | 244 | 226 |
| Total Exports | 4 | 11 | 4 |
| Total Imports | 3 | 4 | 6 |
| Total Imports from U.S. | 0 | 0 | 2 |
Unit: Million Metric Tons
2. Grass Seeds
China's quest to beautify its cities, curb soil erosion and growing deserts and improve its forage industry is causing the grass seed market to expand rapidly. Growth has been especially strong in the last two years, due to the floods of 1998 and concerns over environmental degradation. U.S. grass seed compose 75% of the import market, due to their superior quality and aggressive marketing efforts by U.S. seed commodity groups. Future annual growth in total imports is forecast to be 30% for the next 2 years. Major competitors of the United States are Australia and New Zealand. For more information go to http://www.fas.usda.gov to view the Planting Seeds Annual, report number CH9064.
| MY1997/98 | MY1998/99 | MY1999/00 |
| Total Market Size | N/A | N/A | N/A |
| Total Local Production | N/A | N/A | N/A |
| Total Exports | 1,299 | 2,600 | 3,200 |
| Total Imports | 3,051 | 5,000 | 7,000 |
| Total Imports from the U.S. | 2,280 | 4,000 | 6,000 |
(Unit: metric tons)
3. Oilseeds
Soybeans PS&D Code: 2222000 (beans)
Soybean Meal PS&D Code: 0813100 (meal)
Soybean Oil PS&D Code: 4232000 (oil)
Long-term prospects for soybeans and soybean products are likely to fall from current record levels, but will remain strong in future years. In 1999, China imported some 4.32 MMT of soybeans, 572 TMT of soybean meal, and 804 TMT of soybean oil. Imports of soybeans are currently on schedule to reach record levels, while imports of meal and oil have fallen, due to policies that favor imports of seeds over processed products. Under WTO, prospects for processed products will improve, as soybean oil imports will gain access to an initial tariff rate quota of 700 TMT. Demand for soybean meal has recovered in recent months as livestock production has increased. By contrast, massive imports of soybeans and rape seed early in the year has caused vegetable oil prices to slide. Continued high production of vegetable oil is expected to keep oil prices low for the near future. For more information go to http://www.fas.usda.gov to view the Oilseeds Annual, report number CH0012.
| MY1998/99 | MY1999/00 | MY2000/01 |
| Total Market Size | 18,670 | 18,320 | 18,350 |
| Total Production | 15,000 | 13,900 | 15,300 |
| Total Exports | 188 | 180 | 250 |
| Total Imports | 3,858 | 6,000 | 3,800 |
| Total Imports from U.S | 1,890 | 4,500 | 1,500 |
Unit: 1,000 metric tons
4. Poultry Meat
China is a net exporter of poultry meat, but because its export and import markets are disjointed, both exports and imports are expected to exhibit double-digit growth during the next few years. The primary exports are live birds to Hong Kong and de-boned chicken pieces to Japan. The import sector consists primarily of frozen parts such as feet, wings, wing tips, legs, and gizzards. The rapid rise of the fast food industry in China, both domestic and foreign-owned chains, bodes well for continued strong demand for imported poultry meat. Import statistics reported below are based on USDA PS&D data and take into account transshipments through Hong Kong into Southern China. For more information go to http://www.fas.usda.gov to view the Poultry Semi-Annual Report, report number CH0806.
| 1998 | 1999 | 2000 |
| Total Market Size | 11,149 | 11,810 | 12,160 |
| Total Local Production | 10,700 | 11,000 | 11,350 |
| Total Exports | 354 | 390 | 440 |
| Total Imports | 804 | 1,200 | 1,250 |
| Total Imports from U.S. | 496 | 750 | 800 |
Unit: 1,000 metric tons)
5. Hides & Skins
PS&D Code: 2111000
China is a major market for imported bovine hides and skins which are processed and used in finished leather goods for export. Over 50% of hide imports enter China via Hong Kong as re-exports. The finished leather export industry relies on high quality hides for raw material, making U.S. hides extremely competitive. During the past 3 years the U.S. market share has grown to 24%. Demand for U.S. hides will continue to grow as consumers of China's finished leather products demand better quality. Demand for imported semi-finished leather and wet blues is forecast to increase more quickly than for raw hides. South Korea and Taiwan presently are the leading suppliers of semi-finished leather and wet blues. However, South Korea's raw hide imports are believed to originate in the U.S. Recent slowing demand abroad for Chinese finished leather products and falling hide prices could threaten U.S. hide exports to China in the short run. Rising Chinese income levels will create a future market for high quality finished leather goods, bringing increased demand for U.S. hides. For more information go to http://www.fas.usda.gov to view the Hides and Skins Market Brief, report number CH8055.
| 1998 | 1999 | 2000 |
| Total Market Size | 1,794 | 1,698 | 1,800 |
| Total Local Production | 2/ 357 | 363 | 370 |
| Total Exports | 63 65 | 70 |
| Total Import | 1/ 1,500 | 1,400 | 1,500 |
| Total Imports from U.S. | 1/ 600 | 600 | 700 |
Unit: 1,000 Metric Tons
1/ Imports are estimated and include re-exports through Hong Kong.
2/ Production is estimated.
6. Snack Foods
Reliable statistics are not yet available on China's consumption, production, or trade of snack foods, but U.S. trade data clearly reflects the increasing demand for this high-value product. In the 1993-1997 period, U.S. direct exports of snack foods to China increased at an annual rate of 42% to a record high of $12 million in 1997. The regional economic crisis and restructuring of the state sector slowed down China's economy in 1998, and U.S. direct exports of snack foods for that period fell over 25% to $8.6 million.
However, improving living standards, combined with consumers' interest in convenience and quality, continue to generate demand for imported snack foods. A mild economic recovery and stabilizing regional markets pushed U.S. exports back up as much as 15% in 1999. When considering the broader category of snack foods that includes nuts and chocolate (which are not included below, but are experiencing steady market growth), the following data are conservative. Hong Kong remains an important conduit for these products, and it is certain that the below figures underestimate the actual sales of U.S. snack foods in China.
| 1997 | 1998 | 1999 |
| Total Market Size | N/A | N/A | N/A |
| Total Local Production | N/A | N/A | N/A |
| Total Exports | N/A | N/A | N/A |
| Total Imports | N/A | N/A | N/A |
| Total Imports from U.S. | 12,000 | 8,600 | 10,000 |
Unit: U.S.$1,000
7. Fresh Fruits
Although China's fruit production is huge, important export opportunities still exist thanks to the country's poor post harvest storage and handling practices and facilities. Imported U.S. varieties that have done well to date include apples, oranges, plums, and table grapes. At present, Washington state apples, Washington state cherries, California table grapes and, most recently, citrus from four states are the only U.S. fruits with full access to China. Although U.S. pears and many types of stone fruit currently do not have access due to phytosanitary restrictions, ongoing negotiations between USDA and China's Ministry of Agriculture may result in access in the near future. A few Chinese importers have licenses to import U.S. fruits (other than apples, cherries, grapes and citrus) for hotels and supermarkets that cater to overseas visitors.
A large amount of China's fresh fruit imports enter the country through Guangdong province, which borders Hong Kong, and then is distributed to most of China's major cities. Much of this fruit is not recorded in China's official customs statistics, but appears in Hong Kong transshipment data. The value of these fresh fruit transshipments exceeded $170 million in 1998. For more information go to http://www.fas.usda.gov to view the Citrus Annual (report number CH9653), the Fresh Deciduous Fruit Annual (report number CH9637), and the Stone Fruit Situation (report number CH9602).
| 1997 | 1998 | 1999 |
| Total Market Size | N/A | N/A | N/A |
| Total Local Production | 50,893 | 54,529 | 57,000 |
| Total Exports | 602 | 564 | 550 |
| Total Imports | 638 | 646 | 655 |
| Total Imports from U.S. | 8 | 13 | 15 |
Unit: 1,000 Metric Tons
8. Beef & Pork Variety Meats
Similar to poultry parts, there is a tremendous demand in China for beef and pork cuts of all types. Since many livestock parts are not eaten by American consumers, America has a large supply of beef stomach and pork tongue, ears, hearts, stomach, kidneys, liver, intestines, feet, and tails at reasonable prices. Beef stomach (omasum) can be legally imported and is in high demand. Due to the signing of the U.S. China-Agricultural Agreement beef is now permitted entry into China. Pork imports are still restricted entry into China by the State Administration for Entry-Exit Inspection and Quarantine (SAIQ), except for consumption in major hotels, restaurants and the food processing industry. However, consumption of imported meats is on the rise in China, most of which enters via Hong Kong through various ports in Guangdong Province and then is shipped north in insulated trucks or rail cars.
China's total imports of beef and pork in 1999, including muscle meat and offal, exceeded 315 thousand tons, more than 50% of which was re-exported from Hong Kong. Imports of these products increased by over 40% in 1999. For more information go to http://www.fas.usda.gov to view the Livestock Annual, report number CH0008.
9. Dairy Ingredients
PS&D Code: 0224200
While Australia, New Zealand, and the EU presently are China's primary dairy suppliers, the United States will become more competitive in the future as Federal dairy support prices disappear by 2002. Whey powder is the U.S. leading dairy export commodity to China. Presently, no whey powder is produced in China. Strong demand for whey as an ingredient in piglet feed and baby formula will remain strong. There also is potential for dry milk powder exports, as consumers demand increasing quantities of domestically produced ice cream and yogurt. For more information go to http://www.fas.usda.gov to view the Dairy Annual Report, report number CH9056.
Powder Milk
(Non-fat & Whole fat) | 1998 | 1999 | 2000 |
| Total Market Size | 461 | 481 | 500 |
| Total Local Production | 411 | 431 | 450 |
| Total Exports | 8 | 8 | 8 |
| Total Imports 58 | 58 | 60 |
| Total Imports from the U.S. | 7 | 8 | 9 |
(Unit: 1,000 metric tons)
10. Seafood
China has been one of the largest producers of seafood products in the world for several years, making the country also one of the world's biggest seafood exporters. However, China's ocean fishing fleet catches and inshore fishing resources are facing difficulties meeting demand. China also imports a large amount of seafood from other countries. Aside from the United States, Russia, Argentina, Japan, and South Korea have been major seafood exporters to China. U.S. exports of seafood to China include salmon, pollack, squid, flat fish, sole, king crab, and yellow croaker. For higher value products such as crustaceans and molluscs, Australia, Canada, and the countries of Southeast Asia are major U.S. competitors. For more information go to http://www.fas.usda.gov to view the Live Seafood Market Brief, report number CH8637.
| 1997 | 1998 | 1999 |
| Total Market Size | N/A | N/A | N/A |
| Total Local Production | N/A | N/A | N/A |
| Total Exports | 746 | 823 | 890 |
| Total Imports 492 | 683 | 750 |
| Total Imports from U.S. | 85 | 65 | 68 |
11. Forest Products
Despite the current economic slowdown, forest products imports have continued to grow, and the prospects for continued growth are excellent. Increased import demand is being driven by growing consumption and declining domestic supplies. The government's housing reform campaign has helped to stimulate consumption by increasing the demand for wood products for interior decoration and furniture. Demand is greatest for hardwood products, as Chinese consumers are unfamiliar with softwood. There has also been growth in the construction of wood-frame housing, though this has been restricted to the very high end of the market.
The decline in domestic supply is largely the result of China's current ban on logging in state forests. The ban was instituted as a result of floods in 1998, which were blamed on the effects of over-logging. The ban has already brought about modest increases in domestic timber prices. The government responded by reducing tariffs on a wide range of wood products in early 1999. U.S. exporters to this market face strong competition from European hardwoods and from tropical hardwoods from Southeast Asia.
| Roundwood | 1998 | 1999 | 2000 |
| Total Market Size | 58,224 | 57,396 | 54,832 |
| Total Production | 55,560 | 52,217 | 49,320 |
| Total Exports | 16 | 11 | 8 |
| Total Imports | 2,680 | 5,190 | 5,520 |
Unit: 1,000 metric tons
| Temperate Hardwood Lumber | 1998 | 1999 | 2000 |
| Total Market Size | 7,057 | 6,488 | 5,971 |
| Total Production | 6,225 | 5,478 | 4,821 |
| Total Exports | 209 | 190 | 150 |
| Total Imports | 1,401 | 1,200 | 1,300 |
Unit: 1,000 metric tons
Note: Statistics are derived from the FAS 1998 Forest Products Annual Report, and do not reflect the impact of the logging ban. Updated statistics will be available in the 1999 Annual. To view the 1999 Forest Products Annual (report number CH9042) after July 15th go to http://www.fas.usda.gov. Roundwood and temperate hardwood lumber statistics do not reflect trade in finished furniture, veneer, plywood, etc.
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