Discovering Byton

The Chinese brand from Nanjing was created in 2018. The company is hold by Tencent Holdings. People from all around the world are working in the company: The CEO, C.Breitfeld was previously working on the BMW i8. D.Twohig was the chief engineer of the Alpine 110. Most of the staff were formerly working on ambitious projects of other car brands. The production is in Nanjing, R&D in Santa Clara and Design in Munich. The company structure highlight that even if the company is Chinese, there is an international environment inside the company. The purpose is to produce the best Tesla killer.

M-Byte, the smart Chinese electric cars

The company’s main product is the M-Byte electric SUV. This model will be launched in 2021 but is available for pre-order for 56,000 euros. Over 65,000 cars were already pre-ordered and around 25,000 just in Europe. It features a 50 inches screen and an informative voice helper Alexa developed with Amazon. The purpose is to create a smart device on wheels: connected, possibility of driving alone.

Description of the M-Byte

Starting with the specs of this vehicle: the 4.87 meter long electric SUV is available in two versions. The entry-level model is a version with a single engine of 272 hp and a 72 kWh battery. It offers an autonomy range of 360 km in the WLTP cycle. The second, more powerful version, with 408 hp and a 95 kWh battery, has an autonomous range of 435 to 460 km depending on the transmission mode. There are few brand stores around the world. The Chinese brand focus on online selling which reduce massively costs. They understood that new generations like millennials are used to smartphones for any use. Even buying a car online is not a problem anymore. This could be an issue with older generations, but it became common.

The state is helping new industries with purposes

China: an evolving production

Now China is more focus over quality. Matthieu Rochette Schneider, CEO Asia of 100degrés, speaks about a transition between ‘made in China’ and ‘created in China’. Brands like Byton symbolize how the Chinese economy changed these past decades. In the past the world factory because many foreign companies went there to relocate, it is now a center of creation. Huawei is another good example. Before the company was producing cheap smartphones, now it is competing with apple and is a tech leader on the 5G. Across decades, China improved its production and is no longer a cheap relocating place.

The importance of the Chinese state

B.Jacob, the vice president of Byton told that the Chinese government helped the company. It was possible to build a factory in two years because the government is backing Chinese electric cars. The country is still impacted with the guanxi “关系”, a system where relations between economic actors are tied.

Exiting the fossil fuel dependency

The country tries to reduce its fuel consumption. In 2017, China was the first oil importer. Energy dependence generates a difficult situation where the country is tied with others. It might be dangerous because oil is now a powerful diplomatic weapon. Electric transition could be a solution to become independent. Increasing the proportion of electric vehicles reduce the dependence, this could be an asset to manage an energy independence. Moreover, China is the first producer of rare earth materials. Around 70 percent of the global production is from the country far beyond the US and Australia. Trying to avoid energy dependence and using its own resources, electric power seems to be a solution for the country.

A market disputed: The Chinese electric car market

Since 2013, The Chinese government tries to regulate atmospheric pollution. New energy are encouraged, both with subventions and penalties. Those who purchase electric vehicles are rewarded with license plate privileges. Between 2013 and 2018, Chinese people bought 1.25 million electric cars. The government provided around 4.5 billion euros to promote electric vehicles. Some cities now have full electric public transports like Shenzen with more than 16,000 electric busses.

The electric vehicles competition

Many new energy vehicle brands compete in China’s automotive market. Tesla is the world leader, but not the only producer. Now Tesla is worth 77 billion US dollars and has already produced 1 million vehicles. Their main product is the model 3. The success story of Tesla started the electric hype, however other brands have carried out the trend. In fact, Byton is not the only Chinese brand to tackle this market. In 2018, BYD sold 247,811 electric cars, more than Tesla the same year. The Chinese electric cars benefit from the Chinese cars market growth.

Are electric cars really the future?

Electric vehicles do have some drawbacks. The creation of batteries injures the environment. You cannot recharge it just anywhere.. Also, public transportation might be a more proficient solution. It seems that electric cars might be relevant only on a city scale to reduce atmospheric pollution there. Still we are only at the beginning of this technology and it might improve with time.

Byton wants to become a leading electric car brand. The Chinese brand’s destiny is tied with the Chinese authorities who want energy independence. As many Chinese car brands, Byton is lacking a powerful brand image. This is compulsory to win Western markets. Even if there are some pre-order, it is difficult yet to know if the brand will be able to become the electric leader. Still, it is another example highlighting of the Chinese industry is gaining in quality.

Author: Enzio Cacciotto

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China’s cosmetics market is the largest in Asia

In 2013, China overtook Japan as the world’s second largest cosmetics market, and in 2017 the market size of Cosmetics in China accounted for 11.5% of the global market, second only to the United States’ 18. 5%. In the era of people paying more and more attention to their own image and face value, cosmetics are rapidly growing in demand. According to the China Food and Drug Administration (CFDA) statistics, more than 5,319 enterprises are qualified to produce cosmetics in China, which has relatively strict cosmetics regulations.

With an increasing demand for healthy products, China has now become a new outlet for organic cosmetic brands to develop themselves and expand globally afterward. Hence, organic cosmetics in China are also becoming more and more popular.

Organic cosmetics: A fast-growing global market

The use of natural and organic products has become a global trend. Grand View Research, a U.S. market research firm, predicts that the organic skin care market will reach 110 billion yuan globally and 20.6 billion yuan in the Asia Pacific by 2020. From a global market point of view, the United States, Europe and Asia-Pacific region have more room for development. In the United States, the market value of organic personal care products is currently $2.95 billion and is expected to grow steadily at around 9.8% over the next few years; In Europe, organic personal care accounts for 30% of the market, with a compound annual growth rate of between 9.6% and 10%; the market value of the Asia-Pacific region is $2.01 billion, with a compound annual growth rate of 9.3%.

In 2012, many leading retailers began investing in organic cosmetics, and British supermarkets began using their own trademarks to sell organic cosmetics. However, most of the retail investment agents were in Germany, where even Parity Supermarket had launched certified natural cosmetics. Large cosmetics companies have been focusing on the scope of the global natural cosmetics industry mergers, acquisitions and investments.

Organic cosmetics in China: Driven by young consumer

Driven by the concept of domestic consumers, natural ingredients have become the top priority of consumer concern in China. In recent years, the discussion of moisturizing ingredients has changed from the previous “laboratory-developed ingredients” to various types of “natural extracts”. Consumers talk the most about plants, extracts and other factors in terms of the social platform’s discussion of moisturizing ingredients. It is worth noting that current users’ concern about the natural composition of moisturizing products has become a trend. 

At present, consumers purchasing organic cosmetics in China usually choose foreign organic brands, such as France’s L’Occitane, America’s Origins and Germany’s Jurlique. However, there are few well-known organic cosmetics brands in China. On the one hand, because organic cosmetics originated in foreign countries that have developed a mature sales system, technology and raw materials supply are more developed than domestic. Thus, the product is more trusted by consumers. On the other hand, China has not yet had organic certification of cosmetics, so consumers have difficulty distinguishing authenticity, which also affects the development of domestic organic cosmetics brands.

Chinese certification for organic cosmetics

High quality organic cosmetics have complex formulas and processes, short shelf lives, and easy deterioration. In order to increase preservation, anticorrosive ingredients and chemical compositions are often added into cosmetics. Therefore, it is difficult to break through the bottleneck of preserving pure organic cosmetics. This is a challenge for Chinese manufacturers in the short-term. As the production and use of organic cosmetics have stringent technical requirements, ordinary cosmetics will likely continue to be the main product consumed for a long time. However, when the techniques of producing and saving organic cosmetics mature, the market will dramatically change.

Lack of a single organic certification agency

In China, certification for organic cosmetics was canceled by the state certification and accreditation administration on July 1, 2012. There are now no regulatory agencies or standards to do organic cosmetics certification. The brand itself often finds organic raw materials to make products, but there is no third-party agency screening nor any strict market regulation management in China.

Therefore, Chinese consumers are also more in favor of organic brands with the European Union organic certification, German natural organic certification or New Zealand Natural Organic Association.

Since 2017, several of these certification bodies have been integrated into new certification body called Natural. Among the current organic certification bodies, Cosmo and NaTrue are recognized as the strongest. It is these organizations and institutions that have maintained the orderly development of organic cosmetics in Europe.

Most popular organic or natural cosmetics products in China

Franic法兰琳卡: Franic has been looking for a closer approach to natural skincare, so it is working hard to study the world’s organic skincare trends and move closer to the international concept of advanced skincare. Nearly half of Franic’s natural skincare products are developed and produced in accordance to the EU organic formula standard.

Saselomo 三草两木: Saselomo is a natural skincare brand. It gets amazing energy from nature and develops sustainable, healthy and safe skin care products. Its organic ingredients have been certified through the ECOCERT. It has its own international standard production plant and international process management to ensure the quality of its products.

Chando自然堂：From the selection of raw materials to market sales, all need to go through at least 60 different safety and efficacy verifications to ensure that the product provides safe, trustworthy, functional and high-quality products.

Pechoin百雀羚：The company is committed to creating natural and gentle quality skin care products for consumers. Their company ethics are the perfect interpretation of “China Legend, the beauty of the East.” Their main productions are skin care supplies, shampoo supplies, personal cleaning supplies, dew water and beauty cosmetics.

Organic cosmetics in China: a fad or long-term trend?

Many Chinese preferences for organic or natural ingredients is not only rooted in a desire to be eco-friendly, but also for personal health. Chinese consumers tend to be very cautious of using polluted ingredients. Since the COVID-19 outbreak, our research on beauty consumption shows an even higher awareness of natural ingredients.

Author: Celeste

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[Data Source: Statista, size of the facemask market in China]

2021 estimations after COVID-19 show a slowdown of the trend, but the memory of the pandemic will still account for a significant part of the demand.

Before the outbreak, the face mask market in China was much more driven by pollution concerns than disease. Pollution alerts often led to a surge in demand on the Chinese e-commerce marketplaces. Resulting from COVID-19, an unprecedented surge in national demand for face masks pushed thousands of new manufacturers to start producing face masks, with the support of local authorities. However, the rush for N95 masks with higher filtering capabilities has largely benefited the American brand 3M, which dominates the N95 face mask market in China.

China met global face mask demand with a production boom

Since the re-qualification of the outbreak as a global pandemic, China experienced a mask-making boom. In 2020, More than 38,000 new companies registered to make or trade face masks. China was already the main market for protective masks production in the world, making half of the global output in 2019. In February 2019, the country had already risen its capacity from 20 million to 110 million. Concerns about overcapacity in the offer on the Chinese market have quickly disappeared, with China’s face masks being in urgent demand from other countries.

In April 2020, foreign governments’ ‘wild feeding frenzy’ for Chinese protective face masks brought chaos to the landscape of manufacturers. A medical supplier during the pandemic told the South China Morning Post: “mask machines are like cash printers.” To meet global demand, many factories that were making completely different products like car parts, electronic parts, or plastic toys, therefore turned to mask production. With governments fighting for ramping up their stocks, quality controls at purchase were often completely avoided in favor of shipping speed.

New regulations to prevent face mask scams

The influx of new actors to the market has led to a dilution of the quality and a surge in scams, forcing the Chinese government to change the rules. Mid-April’s new regulations from China’s customs agency require companies manufacturing PPE (Protective Personal Equipment) for export to go through a government-led process. Mask exporters also need to prove that their products meet the relevant regulatory standards of the destination country.

This move comes after a global backlash in which foreign countries were supplied shoddy products, undermining China’s position as ‘the global savior.’

As long as the pandemic doesn’t end, the Chinese face mask market will stay warmly flooded with transactions. However, foreign countries are now ramping up their own productions to be less dependent on Chinese exportations.

Thus, if the pandemic is an instant boon for the Chinese face mask market, the gold rush will soon end, and many actors may be left aside.

National issues supporting the Face Mask Market in China

The face mask market in China is largely driven by external events like epidemics and pollution. Most recently, the Coronavirus outbreak has caused face masks to sell out all over China. Originating in Wuhan late December, the 2019 new Corona Virus (2019-nCoV), has infected over 28,000 people and killed about 570  in Chinese mainland as of February 7^th 2020. – The rapid spiral in the number of identified n-CoV cases forced the Chinese government to seal cities and public transport. The Spring Festival holidays had been extended by a week, hoping to curb the spread of the epidemic. Two months before the destructive outbreak, China’s National Health Commission had already called to effectively enhance prevention measures in anticipation of the upcoming flu season, looking for a more standardized process for diagnosis and treatment.

But the 2019-nCoV is by far neither the first nor the last to appear on Chinese soil. China has always been considered by the World Health Organization (WHO) a hot spot for new influenza viruses; there is indeed no other country on earth where so many people have close contact with wild animals. Thus, the n-CoV reminds of the lethal 2002-3 severe acute respiratory syndrome (SARS), but also less widely known avian influenza A(H7N9) virus, which killed 212 people in China according to a 2015 WHO report.

In the meantime, according to the Global Health Observatory, total health expenditure per capita in 2014 in the country reached 731 USD, which is much lower than the 2014 world average of 1041 USD. This report from the OECD shows that China counted 1.8 physicians per 1000 people in 2015, which is slightly more than the World average of 1.5, but almost twice less than the OECD countries.

Pollution drives the functional mask market in China

Flu prevention is not the only health problem that China is facing. Air pollution is another one, which has become one of the most intensely discussed livelihood issues that the Chinese government focused on the 12th National People’s Congress (NPC), held in Beijing on March 5, 2016. Chinese Premier Li Keqiang declared a “war on pollution” at the Communist-controlled NPC parliament in 2014.  Three years later, average particulate levels in Chinese cities still do not meet the World Health Organisation (WHO)’s standards, which considers anything over 10 PM2.5 as health hazard (maximum annual average PM 2.5 exposure). According to this infographic, in 2016, Beijing had  a yearly average of 7.3 times above the WHO’s recommended safe levels.

N95 masks in China: A shield in a war against the Coronavirus

In January 2020, Chinese President Xi Jinping declared “a people’s war against the [n-CoV] epidemic” over a governmental meeting, stressing that prevention and public awareness remain the most effective measures to fight a pandemic. Since the 2002-3 SARS, people rely on wearing surgical masks. Especially high-filtering specialized N95 masks, during illness as one of the main preventive barriers against propagation. Claimed as an effective way to protect oneself from the virus, face masks have been urgently brought to the fore as a daily necessity and a fast-moving consumer good in China, resulting in a massive gap between market demand and supply.  On January 3, 2020, just over a week after the new coronavirus outbreak, China “urgently needs” protective medical equipment while medical masks shortages were reported across the country.

 Face masks, also called ‘kouzhao’ (In Chinese口罩) usually cover the nose and mouth and include cotton masks with cute designs, surgical masks, and imported high-end filters. In 2014, officials in Shanghai considered distributing free protective masks to residents after the financial hub of China “suffered one of the worst spells of air pollution on record,” reported The Telegraph. At this time, PM2.5, fine ambient particles less than 2.5 micrometers in diameter causing cardiovascular diseases and lung cancers, rocketed to levels that were more than 20 times those deemed safe by the WHO.

Red alert in Northern China

In December 2016, northern China (including Beijing, Tianjin, and around 70 other northern Chinese cities) had been covered for weeks in thick toxic smog, composed of high concentrations of PM2.5. It is one of the worst episodes of air pollution the country has seen, affecting 460 million people.

The “red alert” was declared in 24 cities, prompting the closing of schools and airports, restricting traffic and asking citizens to stay indoors. In response, online shoppers splurged on filtration masks, and anti-pollution equipment , with e-commerce firms and brands reporting record demand, as explained by Reuters. In December 2016, Internet retailer JD.com Inc sold to domestic consumers about 15 million US-branded filtration masks through its online marketplaces. 

Face mask price inflation

The 2016 measures to counter air pollution strangely resemble the drastic measures of early 2020 to stem the spread of the new coronavirus, forcing dozens of Chinese cities to quarantine. As a result, 80 million masks were sold on Taobao over the two days of January 20 and 21. The BBC also reports that the price of a 20-mask box jumped to 1,100 yuan ($158) on Jan. 21, up from 178 yuan in November. Between December 30 and January 24, 3M, the most popular face mask brand in China, added $1.4 billion in market value. Honeywell, the American conglomerate that also sells face masks in China, added $500 million in market value, in the same frame time.

Overall, due to significant health crises, the protective face mask market in China, still dominated by Western brands that control more than half of the Chinese market, is heating up. Many budget manufacturers and low-cost producers from Japan and China are now trying to get a slice of it.

Rising demand for face masks in China

The demand volume of protective masks in China has grown continuously since 2012. State media estimate the protective face mask market in China was worth nearly 4 billion yuan ($600 million) in 2015. Along with the improvement of the living standard of people in urban areas and the rise of the middle-class, people’s awareness of pollution, germs and contaminants protection is increasing all the time, especially for young children, and will maintain rapid growth.

Protective face mask production in China

China’s protective face mask market enterprises are mainly distributed in the eastern region, and Bohai Rim, Yangtze River Delta Region, and Pearl River Delta Region are the major production areas. Shandong province serves as the center of the masks industry in China with another production hub, Dadian, dubbed the “mask village” for producing the cheapest pieces.

There are more than 300 mask processing and supporting enterprises in Dadian village, Jiaozhou City of Shandong with an annual production capacity of nearly 1 billion pieces. Realizing about CNY 1.1 billion ($160 million) of output value, it accounts for more than 80% of market shares nationwide (data based in 2017).

Currently, common protective masks widely available in every convenient store are priced at CNY less than 1 or 2 ($0.15 to 0.40) to CNY 30 or 40 ($4.5 to 5.8), and they are made from cotton yarn, activated carbon, and other materials. Along with the continuous increase of Chinese residents’ incomes and the improvement of people’s living standard, people have a stronger awareness about the environment and health. As a result, consumers are willing to pay more to protect themselves from health crises’ effects. They look for more comfortable and effective masks, such as Vogmask or Cambridge masks, which generally range in price from CNY 120 to 245 CNY ($19 to 37, based on 2019 Tmall/Taobao prices and currency exchange rates).  To meet growing demand in China, new market entrants like Airinum focus on the high-end market, with stylish design and high-quality replaceable filters.

Collectivism and Chinese consumer psychology 

“In China, people just pretend or assume that it is useful. It’s a mass behavior,” indicates Wong Chit Ming, a researcher at Hong Kong University’s school of public health. “You may feel a little better…but there’s no real evidence this might help.” This is collective consumer psychology among the Chinese who are entirely concerned about the threat of air pollution and germs during flu season. For him, Chinese people have the impression that this could resolve the problem of air quality and they should, therefore, do something to protect themselves from the harmful air, which will comfort them emotionally regardless the practical effect.

Different style and functions for the Face Mask Market in China

China Textile Commercial Association officially released ‘the community standards of PM2.5 protective masks’. The standards were implemented on March 1, 2016. Before this date, China had no quality standards for face masks for personal use, and the majority masks available claiming to reduce particulate matter by 99% on the market were not protecting against PM2.5.

According to the FDA, “Face masks and N95 respirators protect the wearer from liquid and airborne particles contaminating the face. They are one part of an infection-control strategy.” While face masks like medical and surgical masks are meant to block large-particle droplets, splashes, sprays or splatter that may contain germs from reaching your mouth, they are more loose fitting than N95 masks which are meant to achieve very close facial fit. The ‘N95’ designation means that the mask blocks at least 95 percent of very small (0.3 micron) test particles. Properly fitted, N95 respirators’ filtering capabilities exceed those of face masks, making N95 masks the most popular choice in times of pollution and influenza season. Currently, the N95 mask market in China is dominated by the giant 3M, as it is the only brand to be N95 approved by the Center for Disease Control and Prevention (CDC).

[Source: South China Morning Post ‘3M N95 Masks in China’]

Choosing the most effective mask

At present, the variety of types of anti-dust and anti-contamination masks sold in online shops and outlets have contributed to the disorder of this market. Those most popular kinds of masks are always those masks which have a relatively simple wearing process. Still, the vast majority of Chinese residents use cheap cotton masks that offer little protection. Also, expensive specialized N95 masks aren’t made to fit Chinese faces well, according to a study from Wuhan researchers. Even those benefiting from China’s Kou Zhao boom admit that their masks can only do that much.

Except for the most common cotton masks, active carbon mask which can be recycled and praised for  its adsorption force becomes another hot choice in China market. As some researchers analyze, China’s functional mask market has not been arousing general consumption groups’ attention due to its late start. But now it has garnered significant attention.

Division of the Chinese Mask market

Simple market research shows that on Taobao/Tmall, the top-selling mask brands are replicas of each other. Top brands sold in Dec 2018 to Jan 2019 are listed in the graphic below:

Lack of diverse options in China’s mask market

These brands and their products are the same in almost all aspects including materials, designs, promotional strategies, pictures used online and textual description. It is very likely that these masks are produced by the same producer. However, there is no trace showing the actual manufacturer of the products, and thus unable to identify whether the domestic mask product is highly concentrated or not.

Based on Xinhua.net, the overall face mask market in China is mostly controlled by the international giants 3M, which occupies almost 90% of all the market share, followed by Honeywell and Ludun 绿盾 with less than 5% respectively. Other brands such as Uvex and Hakugen have a non-significant market segment of less than 1% respectively.

To be noted that, among all these brands, only Ludun 绿盾 is produced by Chinese domestic company Sinotextiles Corporation Limited, other brands are all international based.

Another market analysis renders different views on the masks industry in China. According to a market report, four major domestic mask producers own 7 major brands. The largest domestic mask manufacturer is Shanghai Dragon Corporation 上海龙头股份 (market share 6.52% with 2 brands) followed by Shanghai MNP Inc 上海美科 (market share 7.14% with 3 brands), Teda Tianjin 天津泰达 (market share 5.90% with 1 brand) and Dongguan Rongxin 东莞容鑫防静电技术 (market share 1.00% with 1 brand) in a descending order.

The future of the Face Mask Market in China

There is an increasing demand for both functional and comfortable masks, so much improvement has been achieved in protective measures, what’s more, these functional masks are equipped with high technological contents. Thus, the additional value increases correspondingly. For example, masks for controlling bacteria and protecting virus should carefully suit with people’s facial form. Obviously, such a malignant environment we are living in is difficult to be improved thoroughly in a short time. Therefore, self-protection measure appears to surge high unprecedentedly, bringing vigor to the protective face mask industry in China.

New market studies in late 2018 found that ‘smart’ masks are now more welcomed than traditional protective face masks. Now major mask buyers in China not only consider the function of filtering but want to buy smarter equipped masks. With some AI microchips implanted into masks, those new products can both monitor the filtering function and other rates affecting human body performances including heart rates, air pressure, humidity and other air-related live data. Some other products even developed a replaceable filter with AI function, and these products are more like sports equipment than simply anti-pollution masks. Their filters can be replaced to imitate different air pressure levels and add on training difficulties when people try to exercise under a thin-air condition and to improve cardio abilities. Most buyers of this new type of AI-based masks are female, and 53% of the buyers are less than 30.

Many investors have seen this opportunity; it is estimated that the production value of China’s functional mask market will grow up to CNY 10 billion in the next five years.

Author: Maxime Bennehard

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The for organic production, including atmosphere quality, organic irrigation water, unpolluted soil and natural processing. Organic food in China has to satisfy the following requirements:

“Complying with specific principles of agricultural production, production did not use raw materials or products generated by genetic engineering, did not use chemical syntheses such as pesticides, fertilizers, growth regulators or feed additives. It also needs to follow natural rules and adopt a series of techniques to maintain sustainable agricultural production.”

Organic food production models in China: the system production is the main force

In China, most organic foods are cultivated by organized systems, not like other countries where organic foods are supplied by individuals. There are three mains organic food production models in China: the first one is that big company leases land from farmer and pays them. The second model is that under the permission of local governments, big companies sign an organic food production contract with farmers. The third one is the organic producer association. Farmers set up an association by themselves to conduct large-scale organic food production.

The categories of organic food in China

Due to vast cultivation areas and various climates, diverse organic food can be grown in China. The main organic products exported are processed vegetables, soybeans, honey, grains, green tea, herbal medicines and beans, which are mostly raw and semi-processed.

The development of the organic food industry in China

[Source: International Trade center. The development of the organic food industry in China]

The concept of organic food was introduced in China after the reform and opening-up policy. By 2018, China’s organic agriculture acreage ranked third in the world, accounting for 4.5% of the total acreage of global organic agriculture and 50% in Asia. From 2002 to 2013, many laws were introduced to regulate the orderly market environment of organic agriculture. Thus after 2013, organic agriculture in China entered a stage of rapid development.

The evolution of the organic food market in China.

Looking at the evolution of the market, we can definitely say that organic food in China has huge potential in international and domestic markets. Just in 2018, domestic sales of organic products in China were about ¥63.15 billion, up 4.01% from ¥60.67 billion in 2017. Besides, e-commerce largely stimulated sales of organic food in China. At present, the market size of organic food in China is still very low, which is far from meeting the needs of domestic and foreign consumers.

Organic packaged foods and beverages lead organic food consumption

Unlike other countries which mainly consume organic vegetables and fruit, organic milk dominates China’s organic market because of its nutrition and perceived benefits to the immune system. Ranking as the 4^th largest market in the world by value, China’s total market size for organic packaged food and beverages in 2017 was $2,839.2 million. As for China’s top three organic milk companies, Yili, Mengniu and Shengmu, they have perfect production, processing and transportation systems. Moreover, marketing and KOL strategy are are crucial to their success.

Consumer analyses of organic food in China

Customer preferences of organic food

According to a study conducted by International Trade Center of 204 Chinese organic consumers in Beijing and Shanghai, the top five reasons of choosing organic foods were:

1) Enforcement of quality

2) Overall quality

3) Certification relating quality

4) Food safety

5) Information about nutritional value

Issues that Chinese consumers were less concerned with were:

• Promotion and advertising of organic food
• Appearance
• Whether the organic food was produced in China
• The social status of people purchasing organic food
• The idea of face saving (mianzi) when purchasing organic food.

While consumers traditionally prefer to buy Chinese food, western lifestyles and eating habits are increasingly becoming the norm, especially among younger generations who have travelled overseas to study or work.

[Source: International Trade Center. The profile of different organic food consumers in China and their proportion in consuming] 

Is organic food a necessity for Chinese consumers?

Most Chinese consumers are price sensitive and look for value when buying organic food. Are organic products safer than other products？Are foreign imports really worth paying 2-3 times the cost of domestic items？These are some questions Chinese consumers ask themselves when they buy organic food. For most Chinese consumers, they don’t think that organic food’s high price matches its nutritional value. And many consumers also consider organic food as a marketing term without real higher nutritional value. From a sustainability point of view, the organic food industry is not as friendly towards the environment as people imagined. The production of organic food also exhausts a large amount of carbon dioxide and occupies much more lands than traditional agriculture. It is obvious that organic food has more natural nutrients and secure guarantees, however most Chinese consumers consider it as a luxury.

Organic food trade in China, B2B

The industrial chain of organic food in China, B2B

[Source: Leadleo research institute. The vertical structure of the organic food industry in China and its component companies.]

The upstream enterprises of the organic industry in China are mainly agricultural suppliers, farmers and organic assessment agencies. The midstream is comprised of organic agricultural enterprises. The downstream participants are transporters and distributors.

China is becoming one of the largest organic consumers in the world. With such potential, it’s not surprising that China has become a goldmine for international organic food suppliers. However, selling its products to Chinese consumers requires some adjustments and a specific strategy for cross-border e-commerce in China.

Retail e-commerce is an incredible impetus for China’s organic food industry

China is by far the largest e-retail market in the world. Thus, online retail and O2O models are the most efficient sales channels for organic food in China. In 2018, the amount of orders of Chinese online retailer Pinduoduo for agricultural products surpassed 65.3 billion RMB, with a 233% increase from 19.6 billion RMB in 2017. Hence, such a performance makes “Pinduoduo” the biggest Chinese online platform of agricultural products.

As the largest consumer market for organic packaged foods and beverages and the fastest growing organic food market in Asia, China’s organic market offers many opportunities for foreign B2B investors. However, it’s necessary to know what the are trends for B2B marketing in China and how to build a B2B sales network across China.

Imports and exports of organic food in China

By 2018, food imports in China exceeded 424 billion RMB (US$60 billion). In addition, China is expected to be the top importer of foreign food, of which edible vegetable oils, cereal and milk products account for roughly half of all food imports. On the other hand, China’s organic food is mainly exported to Japan, America, Southeast Asia, The EU and South Korea, comprising 80% of China’s total exports. At present, China’s organic food exports only occupies a very small share of the international market, accounting for less than 1% of the global market share.

The impact of COVID-19 on the organic food market in China?

[Source: Zhihu. The evolution and forecast of China’s natural healthy food market.]

After the depression, the organic food market in China will quickly resume.

The impact of Covid-19 is like a bombing on China’s organic industry. Due to the recent situation, many of China’s food-trading firms have seen international orders fall by 75% because of foreign barriers to trade. Meanwhile, the country’s catering industry has been shut down, thus the demand for organic food has plummeted. Zhou Hong, president of one of China’s largest crop growers, estimated that the outbreak could reduce the company’s exports for 2020 by more than 20%. Nonetheless, after the outbreak, physical health has become the core of Chinese consumers’ priorities. As Chinese consumers’ incomes continue to rise and more are concerned with a healthy diet, the market size of natural health food is expected to approach 200 billion RMB in 2022. In light of this wave in health consciousness, some green food companies seized the opportunity. “Grain Mill” harvested 918 million RMB as the turnover and 105 million RMB for net profit of the 2th quarter in 2019, which turned it into the industry leader.

Covid-19’s impact on customer’s behavior in China

Due to many restrictions proposed by the Chinese government to minimize the impact of Covid-19, people have had to stay at home and cook by themselves. Thus, frozen and convenient foods became their first choice. According to research released by Nelson about how Asian consumers will eat post Covid-19, 86% of Mainlanders said they would eat at home more often than before the outbreak. In addition, 80% will pay more attention to a healthy diet and 89% claimed that they prefer to buy fresh food online now. On the other hand, health products such as vitamins, health teas and probiotics are also popular among Chinese consumers. As a result, the epidemic has changed many Chinese people’s consumption behaviors; and health-related products will be favored during and after the special period.

The Covid-19, a plight or booster for the organic milk industry in China?

Although Chinese consumers have huge demand for organic milk, China’s milk industry will inevitably be impacted by Covid-19 on production, transportation and sales. Focusing on China’s biggest dairy company, “Yili” encountered a 10.7% contraction on its 1^st quarter’s turnover compared with 2019. However, despite the liquid milk revenue of “Yili” plummeting by 19%, its market share rose by 1.1%, arriving at 39.3%. Organic milk contains various nutrients and can help improve people’s immune systems, which will help in producing a purchasing upsurge. Therefore, the sales of organic milk and milk powders by “Junlebao” rocketed by more than 50% during the outbreak. Meanwhile, It is interesting to know that the sales of milk powder by foreign brands make up 60%-65% of total national sales in China. And as for most dairy companies, they are very optimistic about the organic milk market in China after Covid-19.

Future of the Chinese organic food industry

China’s organic food market is developing rapidly, and the potential demand for organic food among Chinese consumers is enormous. As for the choice of organic food, imported organic food has quality advantage. Although Covid-19 has depressed China’s organic food industry, the emergence of a healthy diet concept and increasing demand for organic food will lead to a rapid recovery. Just as Jack Ma said: the next richest person in China will be in the health industry.

If you have any question or would like to discuss your interests in organic food market in China, do not hesitate to reach out to our project managers at dx@daxueconsulting.com to get all answers to your questions.

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Sustainable buildings in China are a part of a greater development strategy

Throughout the last three decades, China has experienced unprecedented and hasty urbanization. The country developed approximately 2 billion square meters of new buildings each year. Many of the buildings have been criticized for not being energy efficient due to little insulation and insufficient heating/cooling systems. As the largest contributor of CO2 emissions worldwide, the Chinese government is making large efforts to reduce pollution and become greener. The committee of construction energy saving declared the implementation of sustainable buildings in China in now treated as a country developing strategy.

Green building development in China can save resources, reduce pollution, and create a relatively healthy living environment. According to the Ministry of Housing and Urban-Rural Development, China’s green building evaluation standards divide green buildings into three levels: one star, two stars, and three stars. The evaluation of green buildings mainly focuses on the elements of “four sections and one environmental protection”, namely energy saving, land saving, water saving, material saving and environmental protection. 

The Ministry of Finance has issued relevant documents and other policies, urging both the government and other departments to strengthen coordination to accelerate the development of eco architecture in China. For example, national economic and social development planning outline for 2011–2015 formally proposed that the construction industry should promote green buildings and eco architecture. Local governments of first-tier cities also developed economic incentives to increase the growth rate of green buildings in China.

China’s national policy supports green buildings development

The government is planning that at least half of new buildings will follow the green standards by 2020. Following through on these commitments would grow the country’s green building sector from 5 to 28 percent by 2030, representing a $12.9 trillion investment opportunity. Besides, this will enable to enhance society production of 500 billion RMB and would create at the same time 5 million additional jobs. 13th Five Year Plan also specifies pilot programs for constructing and renovating energy efficient primary and secondary schools, community hospitals and public buildings. As the national Five Year Plan is cascaded to provincial and municipal jurisdictions, nearly 20 cities have set even more ambitious targets. For example, Changde, Zhenjiang, Zibo, Wuxi, and Suzhou, Shanghai, Beijing, Shenzhen, and Chongqing require all new commercial buildings to be green buildings. In the pursuit of more sustainable buildings, more than 90% of China’s commercial building owners plan to have at least one net or near-zero energy building in the next ten years.

By the end of 2016, more than 20,000 green buildings were built. According to data released by the China Real Estate Association, as of the end of December 2017, a total of 10.927 green building indication projects were evaluated nationwide, an increase of more than 3,000 over the previous year. 

[Data source: qianzhan, ‘Construction projects of green buildings in China 2015-2019’]

Loans for green buildings in China are rising steadily

Government and banks promote green financial mechanisms such as green bonds, green credit, and green funds to develop eco architecture in China. Around 118.34 billion yuan is required to complete the 2 billion square meters green buildings target. The energy-saving upgrading of existing residential buildings is estimated to cost 350 billion yuan and the reconstruction of public buildings requires 60 billion yuan. The total demand for financing of green building in China will exceed 600 billion yuan.

Report released in December 2017 by the former China Banking Regulatory Commission (CBRC) showed that 21 major Chinese banks had issued green credits totaling RMB 8.22 trillion among 12 green categories in the first half of 2017. For green buildings was issued a total of RMB 730 billion in green credits from 1H 2013 to 1H 2017.

In terms of green bonds, there are two types of them: labeled (issued by diversified companies) and unlabeled (pure-play issuers). The issuance of green construction bonds in China began in 2017, with a small total number of issuances. In that year, only five were issued with a total size of 4.51 billion yuan. In 2018, the number increased to 12 green construction bonds with a total amount of 8.72 billion; in the first half of 2019, bonds for green buildings development in China totaling 2.2 billion yuan. Over the past two years, China has issued 15.43 billion yuan of bonds invested in green construction.

[Data source: tanpaifang, ‘Bonds for green buildings in China 2017-2019’]

SOARING DEMAND FOR GREEN BUILDINGS IN CHINA

Due to fast economic development, the urbanization rate in China will increase from 50% in 2012 to 70% in 2030, indicating a significant demand for new buildings in urban areas. Every year the total area of new buildings is up to 2 billion square meters, consuming 40% of the world’s cement and steel. Besides, buildings in China have a relatively short life expectancy of about 30 years, while in European countries it is around 80 years, and 44 years in the USA. Consequently, it is critical to initiate green building efforts so as to alleviate the potential impacts from the building sector.

Sustainable buildings in China have different degrees of improvement in indoor air quality, thermal environment, light environment, and acoustic environment. Higher rents, energy and water efficiency, better air quality, sustainability, lower operation cost, a high-quality work environment－all these factors have facilitated overall comfort and driven demand for green buildings in China.

Drivers of the green building market in China

The latest report shows that the growth of green buildings market in China is largely driven by customer demand, environmental regulations, and health-minded communities. The market achieved a five-fold increase in share from 5% to 28% by 2018. New eco homes, hospitals, and public schools are seen as the three most important areas of green building growth. Increasing consumer demand has turned the green buildings market in China into an industry with an output value of 15 trillion yuan in 2017. 

[Data source: Smart Market report, ‘Triggers driving green buildings activity in China’, 2018]

Due to soaring demand, green buildings companies increase their influence in China’s construction market. Recently, Times Media released TOP20 of China’s green housing companies in 2019. The total green building areas of Vanke, Country Garden, and China Evergrande reached 35.02 million square meters, 34.2 million square meters, and 31.31 million square meters, respectively, ranking among the top three. The green building area of ​​the three leading real estate companies totaled 105.3 million square meters.

New building standards in major cities contribute to the growing demand

 Chinese standards require a reduction of the total land used for building construction. Moreover, because of energy shortages and dependence on fossil fuels in China, standards have rigid requirements for energy saving and energy structure optimization for building sectors. Additionally, they require an increase in total green area (trees or grass), namely, total greening rate should be higher than 30% of the total project floor area. In 2019, more than 2,400 projects with an area of more than 133 million square meters were participating in LEED (Local Economic and Employment Development). According to the organization of LEED (Local Economic and Employment Development), green buildings can save 40% of water, 70% of deserting material and reduce carbon emission by around 35%.  In 2019 LEED-certified space in Beijing, Shanghai, Suzhou and Shenzhen totaled 43 million square meters.

[Data source: LEED in progress, ‘LEED certification in Chinese cities (Sqm of certifications (million))’, 2019]

The implementation of green building standards is becoming more and more stringent in various places, and major cities such as Beijing, Shanghai, Guangzhou, and Shenzhen have proposed that land acquisition must meet the two-star domestic green building. It contributes to a demand in the green buildings market in China.

High capital value of sustainable buildings in China

In the past three years, the average capital value of green buildings is higher than non-green ones. Strong demand, good tenant allocation, and higher rents also have a positive impact on the capital value of green buildings. For example, office buildings with green certification usually have higher rents than the market rents of traditional office buildings. From the perspective of energy conservation and environmental protection, green buildings have an advantage in attracting high-quality tenants. At the same time, high-quality tenants and the green premium of rents have a positive impact on the capital value of the property and the return on investment.

Building owners point out that green buildings, whether newly built or remodeled, result in a 7% increase in asset value over traditional buildings. For example, from 2012 to 2018, the stocks of green office buildings in Shanghai increased by 9.1 times. Moreover, most of future construction projects plan to apply for green building certification and enter green buildings market in China. In the past three years, the average capital value of green office buildings in Shanghai has been higher than that of non-green office buildings. In the third quarter of 2018, the average capital value of non-green office buildings in the city was 69,680 yuan per square meter, while the capital value of green-certified office buildings reached 76,411 yuan per square meter, with a premium rate of 9.7%.

China is a global leader in green buildings

Eco architecture in China is based on the constant stimulation of government policy, the constant innovation of scientific research, continuous improvement in the standard system, and continuous technological innovation. Green buildings are moving seeing new dynamics. Today, 80% of domestic green projects are located in the top 10 Chinese provinces showing the potential growth expected by less developed cities of China. Green building growth will also be accompanied by the development of larger amount of green commercial buildings since today only 30% of total green buildings are commercial. At the end of 2016, China had selected more than 4,500 green building assessment identification projects, accounting for more than 500 million square meters of green buildings. According to 2017 China Green Building Report, the green buildings development in China has been accepted by more and more property developers and local governments.

This has already made China the world’s second-largest market for LEED-certified projects, trailing only the United States.  Major developers including Soho China, Excellence Group, Sino Ocean Group and Ping An actively engage in green buildings market in China.

Best green buildings practices: Changning, Wuxi, Suzhou

Changning

Shanghai’s Changning District put in place an energy monitoring platform that tracks 160 of the district’s 165 public buildings. Thanks to the project, 32 buildings have been retrofitted to achieve an average 20 percent energy savings. To encourage the remaining 133 public buildings to renovate, the district is considering using a third-party ranking system to rate buildings on their energy performance. The district also provided $3.34 million in subsidies to help building managers make their buildings more efficient. This lowered the payback period for the private sector, which in turn encouraged them to invest an additional $20.33 million.

Wuxi

City High-Tech Industrial Development Zone is the engine of the Wuxi economy. With 560,000 residents, the zone contributes 17 percent of Wuxi’s economic activity. To drive the construction of energy-efficient buildings, Wuxi issued an innovative investment guidance policy in February 2016: incentives for buildings that meet criteria for green buildings in China: LEED and China’s national three-star rating system.

Suzhou

As China continues to urbanize, entire new cities are being built from scratch. Suzhou Taihu New City in Jiangsu province is one example. Currently in the planning and design stages, Suzhou Taihu New City will house 200,000 residents and focus on high-end service industries such as education and training, research and development, tourism and finance. All of Suzhou Taihu New City’s buildings designed to receive at least a two-star rating for green buildings in China. The city also will boast a green building demonstration area, constructing several projects such as zero-energy schools and monitoring their energy performance.

Liuzhou: The world’s first forest city

[Source: Stefano Boeri Architetti, ‘Liuzhou forest city. Masterplan’]

In 2020, China plans to begin the construction of the world’s first Forest City in Liuzhou, Guangxi Province, China. The Liuzhou forest city is planned to house more than 40,000 trees and 1 million plants of more than 100 species, for its 30,000 residents which will absorb almost 10,000 tons of carbon dioxide and 57 tons of pollutants, and produce approximately 900 tons of life-giving oxygen annually.

The forest city will also be self-sufficient and will help to decrease the average air temperature, improve local air quality, create noise barriers, generate habitats, and improve local biodiversity in the region. The whole city will run on renewable energy especially solar and geothermal, according to its planners.

The Liuzhou authorities want to build about 70 buildings cascading with foliage which will have homes, hospitals, hotels, schools and offices. It is the country’s first attempt to control notorious pollution.  The Liuzhou forest city is a pilot in a series of mini sustainable cities that could become a template for future green buildings development in China.

Challenges in the green building market in China

Over the last few years, the Chinese have been developing a real interest in “green buildings” but they are meeting some obstacles and challenges. Sustainable buildings in China are finding it more difficult to attract clients due to misunderstandings of the green building concept. In 2014, the newest version of green buildings standards was published by the government to clarify the meaning of green building. The Chinese tend to believe green buildings are only high-end buildings with better facilities. Some consider green buildings as a long-term investment with immediate rewards. They are not aware of the more natural and more comfortable living environment of green buildings. This is why in the coming years green building developers will need to accompany their campaign with strong marketing but those are still demand for higher governmental subsidies. In 2016 China’s green building investment gap was nearly 2 trillion yuan.

Lack of environmental awareness hinders the development of green buildings

Despite the using of LEED certification system, the green building concept does not always make it to the Chinese market. Under the new environmental requirements people are debating on the costs and rewards of green buildings. Lack of understanding of green buildings and misaligned incentives are the prime reasons why the adoption of green buildings slowed down in China.

The environmental awareness of different stakeholders has a significant impact on the development of green buildings in China. Builders often base their construction decisions on short-term costs, such as material and labor cost, instead on energy efficiency or green building techniques which offer long term savings. The significant energy saving is tied to an increase in costs, the global leader in real estate service CBRE estimated additional costs for green buildings below 4% however the LEED says those vary between 0.4% and 12.5%. Experts claim the 2% additional cost is enough to reach standards. Constructors are relieved by the CBRE latest report stating that in big cities of China, green buildings are sold at a price 1.5 to 25.7% compared to other buildings. Some developers in China may not see immediate cost savings and often overlook the green features—such as better insulation and sealed windows—that could help the government meet its energy targets. This is especially true in the multi-family residential buildings that most people in urban China live in.

The popularity of green buildings is growing, but the percentage in the construction market is still small

At the 5th China Green Smart Real Estate Forum (2019) many experts said that green buildings market in China has great potential, and its value can reach US $17.5 trillion. Green buildings are undoubtedly an important approach for the Chinese building industry in terms of environmental responsibilities and market benefits, but green buildings market in China still has a small scale and eco architecture in China is not so popular. Still, sustainable buildings make up a small percentage in China’s construction market that is more interested in maximizing profits and lowering building costs, compromising sustainable design and energy efficiency considerations.

However, green buildings market in China has a great potential. More and more construction companies turn to a green development. According to professor at the University of Sheffield Kangjian, “The real green building is building have a balance of nature, human and expenditure. Is something that can benefit people right now.”

[Data source: qianzhan, ‘Proportion of green buildings projects in China’s construction firms (forecast for 2021)’]

Daxue Consulting can offer a wide range of services to create your competitive marketing strategy. To know more about the green buildings market in China, do not hesitate to contact our dedicated project managers by email at dx@daxueconsulting.com.

Author: Valeriia Mikhailova

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Green products market in China driven by NGOs and the Government

The awareness of green consumption partly arises from the blooming of 3,500 environmental NGOs in China. For example, the NGO Friends of Nature is playing a major role and is precisely orientating consumers in choosing a green product, creating “blacklists” and developing concrete awareness actions. The other main force pushing the fast development of green products is the government. A first large action was undertaken in 2007, when the Communist Party Congress called for a change of all actors of Chinese companies to behave in a more environment-friendly way.

A year later, an environment protection ministry was created and has been producing measures to regulate unacceptable behaviors. Recently China defined clear targets enabling to overcome the challenge of maintaining at the same time such a remarkable rapid economy expansion and more eco-friendly industries. Matching policies promoting green products in China are being undertaken. It included subsidies for energy saving products and advantageous tax rates for low pollution vehicles.

Green products financing as national development strategy

According to China Chain Store & Franchise Association, government is a key stakeholder in promoting consumption of green products in China. Chinese government has strongly committed to promoting the transition to a green economy. In the past 15 years, China has included environmental protection within the national development strategy, promoting an ‘ecological civilization”.

Financing of green products market in China is one of the instruments for environmental changes. During the “13th Five-Year Plan” period (2016-2020) government improved the system of ecological projects financing, including support of green products. Green credits and green bonds are used to help the enterprises which produce eco-friendly products in China. Data show that in 2016, China’s green bond issuance accounted for 40% of the world’s total.  In 2018, China’s green bond issuance exceeded 30 billion U.S.  increased by 62% from the previous year. At the same time, from 2015 to 2018, China’s 21 major financial institutions issued more than $114 billion of green loans. In 2019 the People’s Bank of China announced the program of support of green enterprises by providing green debt financing instruments. Such government subsidies help to enhance market competitiveness of green products.

[Data source: Xinhua Finance ‘Green bonds issued in China 2016-2019’]

The role of environmental NGOs in China is growing

With the country’s increasing emphasis on environmental protection, various environmental NGOs have rapidly developed in China. The Chinese leadership is aware that the government cannot solve the serious environmental problems alone. The most important function of environmental NGOs is to increase environmental awareness among the population. Strengthening consumers awareness enhances their willingness to consume green products in China.

Recently political space in China has opened up for NGO to help government with environmental policies. Over the past decade, about 100 environmental non-governmental organizations have cropped up, not including the thousands of government-organized NGOs. Additionally, about 200 student environmental associations are active on college campuses.

[Data source: China Sustainable Consumption Research Program, ‘Most influential stakeholders in promoting green products consumption in China’, 2016]

Large preference for green products among consumers

Surveys over the market show the Chinese have learned to protect the environment by daily attention. The habit of saving water, food, and electricity is increasingly practiced in households. Easy and effective actions are undertaken with routine. However, this comes from the fact that the Chinese are purchasing green products in order to protect their own health and safety since scandals concerning the food and medical industry frequently occur. In 2017 survey showed that the environmental sustainability characteristic of a product was only ranked after personal health and safety. A perfect example to this statement is the French premium water, Evian that has been extremely successful those last years by branding themselves with health and purity regardless of the expenses and pollution of transportation.

However, from 2015 to 2017 the awareness of green labels increased from 78% to 89%. Additionally, the awareness of green products in China rose from 58% to 83%. In 2017 71% of respondents said they had been spending more on green products in the past year. According to the data released by the China Chain Store and Franchise Association, in recent years, the concept of green consumption has become increasingly trendy in the daily life of Chinese residents.

[Data source: China Sustainable Consumption Research Program, ‘Consumers agree that consumption has impact on the environment’, 2016]

Green products consumption is increasing, but still far behind the world average

Growing environmental concerns pushed consumers’ willingness to buy eco-friendly products in China. The appearance of online shopping platforms in recent years has seemingly helped to boost the consumption of sustainable products. Compared with the offline market, the number of merchants participating in the online market is bigger, which leads to a great variety of products. The online green products market in China is highly differentiated and consumers can easily switch among various products. For example, the biggest shopping platform in China, Alibaba, claimed that the number of consumers who do eco-friendly shopping has exceeded 380 million in the past years.

Besides, green products have been frequently searched on the Alibaba website. Searches for keywords such as formaldehyde-free, phosphorus-free, fluorine-free, and pollution-free all rose by more than 30%. According to JD online shopping platform, the overall sales of green products in 2019 increased by 18% from 2018. Such categories as food, beverage and homecare products grew faster, with growth rates of 195% and 90% respectively.

Green products in China’s FMCG markets

The food, beverages and apparel industries attract big amount of consumers in green products market in China. For example, consumers have gradually abandoned low-cost chemical fiber clothing from the perspective of environmental protection. They are more likely to choose cotton, linen, and silk materials, which are eco-friendly. At the same time, organic retail sales have increased from $4.712 million US in 2015 to $8.087 million US in 2018. Eco-friendly food has gradually become popular in the past two years, and consumers begun to prefer organic rice noodles and oils.

However, despite the fact that consumption of green products in China has increased much in recent years, the per capita consumption is still far behind the world average level. The reason is that green consumption concept started to take shape in China rather late and it requires intensified publicity and institutional promotion.

Growing demand for green products in China

The demand of consumers for various categories of green products in China has risen significantly, especially for food, beverages and homecare goods. 71% of consumers have increased spending on green products in 2016. In households with an income above 20,000RMB, that proportion increases to 76%. According to “China Sustainable Consumption Research Report” in 2017 about half of consumers were willing to pay 5-10% more for eco-friendly products in China, while in 2019, the number of such customers increased to 80%.

[Data source: China Sustainable Consumption Research Program, ‘Chinese consumers’ willingness to pay more for green products’, 2019]

Chinese millennials choose green products

Compared to their parents, millennials in China are more aware of social and environmental issues and care more about the impact of their actions on society. A survey showed that in 2017, 86% of millennials were interested in sustainable investment.  Chinese millennials, especially in urban areas, are highly conscious of brands, quality, and value. They expect, like all young people around the world, to buy something that embodies their lifestyle choice. They expect the brands that they buy from to have an ethical stance both socially and environmentally. Eco-friendly shopping reflects their positive values: caring for the community, the planets, the animals, etc.  JD.com’s research over 266 million customers in China showed that those aged 26-35 accounted more than half (51.8%) of the total volume of green purchases made on JD’s platform in 2017, and accounted for 48.8% of all users buying green products in China.

Consumers in first-tier cities are more likely to shop eco-friendly

In general, consumers in first-tier cities and second-tier cities have different perceptions of eco-friendly products in China. For Chinese people living in urban areas, safety and health were key priorities in choosing a product. Only interviewees in some first-tier cities actively mentioned that the production process of products should also pay attention to environmental protection. In addition to the understanding of the product’s safety and health, consumers in first-tier cities can be more connected with water conservation, recyclability, and environmental benefits. Studies show that as middle-income people predominate in first-tier cities, they are more likely to pay attention to the environment and choose eco-friendly shopping.

Companies go green to attract customers

The amount of people in China who choose the product because the manufacturer is well-known for fulfilling Corporate Social Responsibility commitments grew significantly. In 2017, consumers purchased only 21.53% of products for that reason, while in 2018, it accounted for 43.2%. In 2019, the proportion has reached 52.35%. As more and more people choose green products in China, enterprises start adopting eco-friendly strategies to increase brand loyalty. At present, China’s green manufacturing system mainly involves green factories, products, industrial parks and supply chains. In November 2018, the third batch of green manufacturing lists was released, featuring 391 green factories, 480 design products, 34 parks and 21 prominent supply-chain management enterprises. With the massive rise in fintech in China, companies such as Pintec or Ant Financial started providing microloans for small companies to “go green”.

[Data source: China Sustainable Consumption Research Program, ‘Customers choose companies committed to sustainable production’, 2019]

Emerging green strategies in Chinese companies

Some industries actively contribute to the development of green products market in China. For example, the fashion industry, which is currently the most polluting industry in the world, contributes to the development of green products. For companies in this industry, “sustainable development” is a powerful branding tool. That was the reason for record number of green manufacturers at the textile trade show in Shanghai in 2017. Green manufacturing is no longer the domain of specialist brands. For example, textiles giant Esquel, the world’s largest shirt maker, has put been putting sustainability at the center of its business. With sales of US$1.3 billion (8.5 billion yuan) in 2018, Esquel manufactures over 100 million garments annually for retailers including Marks & Spencer, Ralph Lauren, and Tommy Hilfiger, and has been focusing on building a more sustainable business for both staff and the environment.

Green products in China have high potential in the food industry. More than 11,000 enterprises have obtained more than 17,000 organic product certification certificates. Also, the number of registered organic marks has exceeded 1.7 billion. In the online food delivery industry, the unique example of eco-friendly strategy is Yikou company (full name, Yi Kou Liang Shi). This company uses only ceramic tableware for food delivery. After consumers finish their meals, Yikou collects cutlery and tableware to wash for reuse. The company’s innovative business model closes the loop on plastic in food delivery.

E-commerce giant Alibaba: example of successful eco-friendly strategy

Alibaba platform actively provides eco-friendly products in China, advocates green concepts, and encourages green actions. Gigantic scale of 11.11 shopping festival in China has huge impact on the environment. This caused by the packing materials used in the shipping of items. Cainiao, Alibaba’s logistics network, delivered more than 1 billion packages during 11.11 in 2018. Alibaba’s efficient logistics and accessible recycling programs are critical to reducing waste. Cainiao has introduced smart technology that improves packaging efficiency by 15%. In 2018, over 150 million eco-friendly packages were shipped without using any plastic tape.

In 2019 Alibaba established 40,000 stations along with additional 35,000 stations by its express delivery partners for recycling of packing materials. These stations act as collection and recycling centers for cardboard boxes and other packing materials returned by shoppers.

[Source: Alizila, ‘Shoppers bring their boxes and bags to a Cainiao recycling station’]

Additionally, the company plans to incentivize shoppers to return their packing materials to recycling stations by adding additional points in their Ant Forest app. This app is a green initiative by Alipay which allocates points to its users when they perform low-carbon activities in their daily lives. It includes cutting down the use of paper and plastic, paying their utility bills online, and using public transportation or bicycles instead of driving cars. Over 500 million consumers have activated this mini-app to track their low-carbon footprint through daily actions and have used their collective credits to plant more than 120 million trees in China.

[Source: Alizila, ‘Users click on an icon on the Alipay app to access “Ant Forest,” a game that rewards users who engage in activities with a low carbon footprint’].

Besides, in 2018, Alibaba provided hundreds of millions of environmentally friendly packaging for food delivery. Ele.me, the subsidiary of Alibaba, launched a no-cutlery option in their app for online food delivery. In 2019 they already accumulated 45 million orders from users who voluntarily chose not to use plastic cutlery.

Trend of “Buying Green” still looking for appropriate supply

Green products market in China is not yet overly competitive, and is limited to niche consumers. The market potential for organics and certified products can be expanded through increasing knowledge and trust. Sustainable standards and labelling are one of the effective measures, but they currently suffer from a lack of consumer awareness and recognition.

At the same time, there is currently a lack of supply of green products in China. In 2015 a gap of 44% was estimated since the demand for those goods is increasing very fast. In 2019 the development of green food cultivation and production technology in China was still relatively lagging behind, resulting in a slow growth of supply of organic food. At the same time demand continues to be much higher, what makes the gap between supply and demand in the market expand year by year. One of the reasons for that is lack of funds for green industry. In 2018, China’s total demand for green financial funds was 2.1 trillion yuan, but the total supply was 1.3 trillion yuan, and the gap between supply and demand was 0.8 trillion yuan.

China’s green products industry needs more investment

According to Xu Shufan, deputy head of the science, technology and standards department of the Environmental Protection Ministry China’s environmental protection industry can be reached fast, “but the industry still needs more investment from the market, rather than simply waiting for governmental investment”.

The research from 2018 showed that food and drinks were the most popular category among green products in China, followed by household cleaning products. Clothing and accessories were joint third in the list, along with personal care products. However, for the moment, many sectors are still waiting to awaken and set off with the population awareness concerning pollution and the global challenge of global warming.

Daxue Consulting can provide you support in entering the growing market of green products in China. We conduct all the market research and consulting services you may need, such as potential analysis, cost analysis, implementation feasibility etc. To know more about the Chinese green products market, do not hesitate to contact our dedicated project managers by email at dx@daxueconsulting.com.

Author: Valeriia Mikhailova

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This article Green products in China: Growing out of ‘Niche’ but needs more investment is the first one to appear on Daxue Consulting - Market Research China.

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• 51:00 How to deal with contradicting ideas when reading different books
• 52:35 What does Kimberly read to stay up-to-date
• 54:56 What would be the third company Kimberly would like to manage if she has extra time

 A culture of nutrition coaching in China: how much do the Chinese people really need this service and lifestyle?

One relevant episode

We believe, that China, with 20% of world population and as the second world economy, is impacting every single business, small to big. That is why it is a new paradigm. How does China impact your business is the ultimate question we will answer through those podcasts.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article China Paradigm 76: Starting a healthy lifestyle business in China is the first one to appear on Daxue Consulting - Market Research China.

But with the growing pressure placed upon companies to create packages that attract consumers and differentiates them from  competitors, some brands may feel lost when faced with the challenge of packaging, especially in Asia. Discover the keys to creating the best packaging design in China when localizing your brand and respecting the environment.

Packaging design in China, a business’s primary selling tool

The power of packaging in China: boost your sales

We have all heard about the ‘Moments of Truth’ theorized by Jan Carlzon in 1985, defining the stages when customers interact with products during the purchasing process The critical thing to remember is that every time a consumer comes into contact with a brand it is an opportunity to pursuade.

And this is here that we understand the importance of packaging design in China. It is a key element of the first moment of truth when the consumer looks at your product (in-store or online). When you consider that there are about 20,000 products that are before the eyes of a typical consumer during his 30-minute shopping in a grocery store, then it is obvious that packaging is a crucial element of your strategy.

Product packaging in China is the most tangible representation of a brand for customers. Indeed, packaging design has less than 3 seconds to grab the attention of a consumer. Those 3 seconds are extremely important because more than 70% of purchasing decisions are made at the shelf (in-store or online).

Additionally, the 2018 HKTDC Research survey unveiled that, compared to 2013, the importance attached to packaging design (for food products) has increased significantly in China. On the other hand, the attention paid to raw materials used and the price has declined.

Why it is necessary to adapt your packaging design in China

One would think that because Chinese consumers love foreign products,there is no need to adapt your packaging to the market. Why adopt a more Chinese identity when consumers love the look of European or American products?

On the one hand, it is true that Chinese consumers see foreign products as higher quality. In fashion, sportswear, cosmetics, jewelry, and baby care products for examples, the Chinese more often trust Western brands than local ones.

However, when it comes to the design-related topic, China is still regarded as a unique market, which is even different from other Asian countries. Thus, colors, shapes, materials, and designs are culturally specific:

In addition, it should be noted that even though young urban consumers are increasingly worldly and better at English, most Chinese do not speak proficient English (only 10 million people speak fluent English) and therefore an import product needs a Chinese name, a Chinese brand signature and all communication media translated into Chinese. An essential first step when thinking about your packaging in China.

Thus, getting the right unboxing experience can have a serious impact on your sales in China, that is why you need to understand the packaging preferences of Chinese consumers in 2019.

How to adapt your product packaging in China to the preferences of Chinese consumers

Colorful packaging design in China, yes, but beware of Chinese meanings!

Colors increase brand recognition by 80% and influence 65% to 85% of product purchasing. In China, it first helps people to identify the target of the product. For food packaging in China, it can be a good indicator of the ingredients of the product (e.g., sugar, healthy ingredients, fruits…). Also, because of the Chinese market’s food and beverage counterfeit problem, packaging color consistency helps the consumer know that the product is real.

Choosing the right color palette for your packaging in China is, therefore, a big challenge. Here is a short guide on what you need to know about colors in China:

In traditional Chinese culture, red is a highly symbolic color, reminiscent of luck and prosperity (which is why it is everywhere during Chinese festivities such as Chinese New Year). Gold is seen as the royal color.

Blue is a fairly neutral color, often reminiscent of masculinity.

Green is often seen as a negative color because it is associated with infidelity and anger, even if we see more and more vegan or healthy brands opting for green packaging.

Finally, as far as black and white are concerned, Chinese standards are quite different. White is seen as the color of purity, simplicity but is also the color of the funeral. Brands must, therefore, be vigilant. As for black, it is a common and neutral color used in everyday life. Note that in the food and beverage shelves, there is almost no black packaging.

According to Labbrand, Chinese consumers generally find appealing bright and flashy colors for food and beverage items and tend to prefer white and pastel colors for cosmetics and household products.

Moreover, the most essential step is to apply the right color for the right product. It is not enough to have red and gold packaging to attract Chinese consumers.

Logo and brand names: finding the right fit

Beyond the colors, your packaging design in China must include your brand name and logo so that it is easily recognizable. Thus, the adaptation of your name must be done in Chinese. This will help you convey your message more efficiently and activate word of mouth (challenging to recommend a brand that you can’t even say or write).

As you can see above, some brands have decided to convey a stronger message in Chinese using characters. This is the case of Heineken which has chosen, as a Chinese brand name, 喜力(xǐ lì). 喜(xǐ) means ‘‘like’’ and 力(lì) means ‘‘power’’. In Chinese, Lay’s is sold as 乐事 (lè shì) which means happy things. Colgate has also chosen a Chinese name to emphasize on the quality,  高露洁 (gāo lù jié)  meaning ‘‘high reveal clean’’.

This will also help you avoid negative connotations of your name in Chinese. For example, the Bing search engine has not been very successful in China, particularly because of its similarity to the Chinese pronunciation of “sick” (bìng 病).

Packaging material: what are the 2019 trends in the packaging industry in China?

According to the latest report named Latest Trends and Key Issues in the Chinese Retail Packaging Market, China sees a growing trend in the use of flexible, glass, rigid plastic, rigid metal, and paper & board packaging materials.

Among these trends, the increasing demand for lighter and cheaper packaging makes rigid plastic the most used and preferred pack type for FMCG products. In 2018, rigid plastic and flexible packaging were among the major share gainers with share growth of 3% and 1% respectively.

However, the packaging industry in China is in a state of transition. Indeed, the Chinese are increasingly turning to a green lifestyle and are trying to buy more environmentally friendly packaging. For example, some brands have started to use recyclable materials for their products, which has an impact on sales despite a higher production price.

Finally, food packaging in China sees great innovations. Some materials are chosen for how they benefit the products, such as antimicrobial properties and mechanical strength.

Creating packaging design in China, steps, and tips

One of the most difficult things to do when you want to localize your brand in Asia and work on new packaging design in China is to find the right partners. Daxue Consulting provides you with the best advice to work with the right packaging manufacturers in China, to make green packaging in China your first choice and ensure the best results for your product. 

Dealing with packaging manufacturers in China: two leading solutions

• Custom designed product packaging method (OEM)

This method consists of giving your packaging manufacturer in China a very specific request.

This requires that you have previously designed your packaging. If you have a design department, then this method is definitely for you. In China, suppliers are used to handling these requests. However, if you do not have a specific department for design in your company, you will probably need to call upon a professional to choose the right material, thickness, dimensions, Pantone colors, etc.

The disadvantages of this method are the price, the execution time (in China, count between two and four months), and the quality. Indeed, when manufacturing a product with special requests, quality problems are frequent.

• Using a factory designed product packaging method (ODM)

This second method consists in choosing a packaging from a selection proposed by your packaging manufacturer in China. An ODM factory will offer you packaging according to the functions of your product and your expectations.

Most suppliers in China have five to twenty different standard packaging models for their customer’s selection. You will not be able to customize the dimensions, materials or design on every product but don’t worry, you can still choose the standard or Pantone colors, prints, and sizes of captions, pictures, logo, etc.

The main benefit of ODM is that you will save a lot of time (in China, count around one month). Also, it is much cheaper than OEM.

However, it may be unpleasant to allow the supplier to take credit for the design of the products, but if you choose the right packaging manufacturer in China by requesting an audit report for example, then there is nothing to worry about.

Top 3 best packaging manufacturers in China: make green packaging in China your first choice!

• GPA Global (plastic packaging)

Based in Shenzen, GPA Global is a custom packaging manufacturer in China, focusing on the packaging for retail and display. The company is highly attractive because of its development of green packaging in China.Rather than using biodegradable and recycled plastics, they use natural materials like  sugarcane waste, molded pulp, wood free paper, and water-based glues.

They have also developed their own material called Greenblister, which is a mix of recycled (and recyclable) paperboard and plastic.

‘‘As a company built on sustainable values and methods, we promise not only a fantastic service but an eco-friendly end product.’’

Some of their clients are Louboutin, Johnnie Walker, JBL, Bose, etc.

• Yuto (paper packaging)

YUTO Packaging Technology Co, also based in Shenzen, is a leading provider of high-end brand packaging solutions in China. Specializing in consumer electronics, health, tobacco, cosmetics, and food, this packaging manufacturer in China provides carton and paper packaging respecting the environment.

YUTO is indeed advocating green printing and the low-carbon recycling economy:

‘‘YUTO Tech takes the “green, environmental protection, low carbon” printing, and packaging as the future direction of enterprise development.’’

In recent years, YUTO Tech has won several rewards such as the “Top 100 Chinese printing and packaging enterprises in 2016 and 2017”, “China Excellent Packaging Brand,” “National Printing Demonstration Enterprises”,…

• Asia Pulp and Paper Group (pulp and paper packaging)

APP, founded by a Chinese Indonesian, sells different types of packaging including bleached hardwood paper pulp, a full range of paper, tissue, packaging, stationery products from commodity-grade base paper, tissue and industrial paper to value-added writing and printing paper, coated paper and boards.

It is one of the world’s leading paper manufacturers.

The company has also set aims to become more environmentally-friendly through its Sustainability Roadmap Vision 2020 to promote green packaging in China. This roadmap involves requires their main raw material, wood fiber, to come from sustainable sources. To do that, they have implemented better practices such as Chain of Custody systems, High Conservation Value Forest (HCVF) assessments and protection, and Sustainable Forest Management certification.

In April 2014, they introduced the Forest protection and restoration commitment to support the forest conservation and restoration of rainforest in Indonesia.

‘‘APP is committed to protecting biological diversity, particularly with regards to native plant species, Sumatran tigers, elephants, orangutans, birds, and other animals.’’

Packaging design in China: How Daxue can help you

As a competitive market research agency in China, Daxue Consulting can help you creating your packaging for the Chinese market. Our team is dedicated to giving you the best understanding of Chinese consumers and to assist you in each step of your packaging design process.

First, Daxue Consulting performa customized social media listening plan to analyze comments on Chinese social media such as Xiaohongshu, Weibo, Wechat as well as shopping platforms in China like Taobao, Tmall, JD.com, etc. This social listening phase will help you identify the best consumer insights from your current or potential buyers.

Then, this first raw data needs to be confirmed, and Daxue Consulting has provenexpertise in online surveys and focuse groups in China. Our research team can conduct a questionnaire and use the data collected to determine purchasing habits as well as storage practices towards your competitors. This is at this point that focus groups in China can be particularly interesting. It will allow you to see the strengths and weaknesses of the packaging currently available in the country, in terms of aesthetics and practicality. For an even more reliable and realistic result, we recommend combining focus groups in China with shop along to spotlight spontaneous reactions by observing the participants packaging journey.

As the last step, Daxue’s team can conduct mystery e-shopping to test the ease of the shopping experience on your packaging design, from delivery to the intended usage to see how the packaging condition is evolving.

The national issue of over packaging in China

An ecological disaster that cannot be ignored anymore

One thing that may shock you when you arrive in China is the tons and tons of unnecessary packaging for certain products. This is what we can call ‘‘Over Packaging’’. It describes a product that is wrapped in several layers of plastic or paper, which are unnecessary or unwanted by the consumer. A common case in China is a small item wrapped in plastic, surrounded by an air cushion, placed in a small box and then placed in a bigger box for delivery.

This is not surprising considering that China has surpassed the United States and become the world’s leading market in terms of packaging. In 2022, China is expected to widen to 276 billion USD, making North America about three-quarters (approximately 78%) the size of China’s market by value.

However, despite the omnipresence of the trend of green packaging and zero waste in the West, China is a little behind on this subject, even if initiatives are taken. Over packaging in China is thus a major issue.

The environmental organization Greenpeace recently announced that less than 10% of packaging material in China gets recycled. The packaging industry in China is, therefore, a real scourge for the environment.

And there are several reasons for this. 

First of all, the development of e-commerce. With the boom of E-commerce in China, the amount of packaging used for the transport of goods has dramatically increased, causing a devastating effect on the environment. Last year, Chinese people received nearly 1.9 billion packages within 10 days of November 11. It means about 1.4 for every person in China!

In 2018, the Chinese received more and more parcels. In February 2019, consumers received more than 3 times as many packages as in February 2018.

Then, food delivery apps in China create tons of waste every day due to plastic containers, bags, and utensils that come with each order. Food delivery apps in China have an estimated 355 million users, meaning that a quarter of all Chinese people are ordering food from their phones. For example, there are more than 1.8 million food delivery orders placed every day in Beijing alone.

Finally, the Chinese food industry also contributes negatively to the environment, with the increase of packaging in fruits and other fresh produces. Here are common examples:

New green Chinese standards and initiatives against over packaging in China

At the end of 2018, the Chinese government introduced new ecological standards to promote the use of green packaging in China and recyclable materials. These new standards are in line with China’s 13th five-year plan where the government agreed to improve environmental management and protection in several sectors such as emission controls, clean energy, etc.

This new positioning against over packaging in China is supported by the initiatives of e-commerce giants. Recently, Alibaba has pledged to make logistics greener, opening green warehouses. These new warehouses package parcels with renewable materials. They also try to implement a recycling program and have developed biodegradable plastic bags and reusable paper boxes that use glue instead of wrapping tape.

Alibaba’s rival, JD.com, is also working against over packaging in China. They have set up a program where consumers can return delivery boxes free of charge for reuse, up to 10 times.

On the delivery apps side, the battle has also begun. The famous Ele.me app has created an environmental laboratory in Shanghai called RELAB. The latest initiative of this lab was the operation ‘‘No Chopsticks’’, where consumers could choose to say no to chopsticks sent with their order. It has saved 43 million pairs of chopsticks, as of November 2018.

New young Chinese start-ups are also fighting against over packaging in China. This is the case of XHG (Xiao Huang Gou), which offers money on Wechat to consumers who sort their waste according to the weight of garbage recycled through their smart bins.

Some tips for adapting your packaging while avoiding over packaging in China

• Adopt Chinese codes

As presented in this article, it is necessary to understand the preferences of Chinese consumers in terms of packaging. You can search the related products on Taobao and look for the different kinds of packaging used by competitors to understand better how does packaging look like in your category. You also need to find the delicate balance between your Chinese and Western name on the packaging.

• Choose the right material

Choose a material that matches the values of your brand and product. Today it is easy to opt for green packaging in China. We can take the example of the tea brand SQZ, which has chosen a material that is both practical and environmentally friendly in its production process in China in 2019.

The brand has chosen to package with a low impact on the environment because it is very light and contains 35%  chalk.

• Offer a “shareable” experience

One proof that the Chinese attach great importance to packaging is that they like to share their best finds on social networks. An excellent way to encourage this is to offer limited editions for Chinese festivities. This is what the foreign brands SK-II and Glam Glow have done during the 2019 Chinese New Year by offering beautiful packaging celebrating Chinese culture:

Need help creating your packaging in China? Contact us now to discuss your project. Our experienced and international team is dedicated to giving you the best advice and insights on your consumers in China and their packaging preferences in 2019.

Author: Steffi Noël

Make the new economic China Paradigm positive leverage for your business

This article Packaging design in China: how to attract Chinese consumers while packaging sustainably | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

The role of the agricultural sector in ensuring the sustainability of the Earth’s natural resources has become an increasingly pertinent topic in light of recent demands for the improvement of sustainable practices and environmental awareness across global markets. Emerging markets,  in particular, play a crucial role in the global effort to combat deforestation and promote sustainable trade of agricultural commodities. China, as a major emerging market importer and rapidly growing consumer class, could lead this global effort by reducing its environmental footprint of commodity sourcing and buying more commodities from sustainable sources.

Urgent need for a change in commodity sourcing patterns in the emerging markets – Large environmental footprint, food security, etc.

Significant deforestation will occur if the middle-class commodity consumption continues at its current rate of growth with little regard for sustainable sourcing. Thus, there exists a critical need for a mindset change in these emerging markets for more sustainable commodity sourcing. AlphaBeta’s analysis indicates that current Chinese and Indian import demand for soy, palm oil, and beef combined with Brazil and Indonesia’s domestic consumption, contributed to approximately 855,000 hectares of deforestation in 2015. This makes up 11% of the estimated 7.6 million hectares of forest area lost annually according to the Food and Agriculture Organization. In addition, AlphaBeta also estimates that deforestation could heighten to 16% by 2025 – this is equivalent to a deforested area the size of Jamaica.

China can be a major player in addressing tropical deforestation challenges

Continuing down the BAU (“Business as usual”) approach could lead to significant deforestation by emerging markets. If BAU were to be reversed, China could potentially reduce its environmental footprint on commodity sourcing by 55%. Soy, palm oil, beef, and wood products are four commodities driving deforestation. China’s and India’s imports, combined with Brazil’s and Indonesia’s domestic consumption of deforestation-related commodities, could rise by 43% to 264 million metric tons (equivalent to 37% of global production) in the decade through 2025. China and India are the major emerging market importers, while Brazil and Indonesia are the major emerging market producer-consumers. Together, these markets account for around 40% of global demand for some of these commodities, and this share will continue to increase by 2025. China and India’s importance in global supply chains is even more apparent solely in imported demand. By 2025, the share of global raw soybean imports that end up in China and India is expected to increase from 62% to 67%.

Emerging markets are showing signs of interest in sustainably sourced products, but barriers remain

Chinese producers and consumers have shown interest in sustainably sourced, green products. JD’s 2018 report on Trends in Green Consumption Development, revealed that consumers are increasingly turning towards sustainable goods as the total volume of green purchases made increased by 70% after active introductions of more green products on their platform, attributing to a total 15% rise in sales. Online mentions of sustainable sourcing between 2016 – 2015 reached 44,700 in China, though it is still much higher in the US, reaching 113,000 mentions. Official translation of China’s Five-Year Plan of 2016-2020 shows three times as many terms related to sustainability as the previous Five-Year Plan, demonstrating interest from the Chinese policymakers on environmental issues. The Emerging Markets Consumer and Deforestation Report cited a survey revealing that 34% of Brazilian consumers, 44% of Chinese consumers and 50% of Indian consumers surveyed “actively look for information on product sustainability.” Yet, an overall awareness for environmental sustainability and the role of sustainably sourced products still remains low.

Food-safety issues are the leading concern for Chinese consumers

Additionally, food-safety issues are still the leading concern for Chinese consumers. Other barriers preventing change towards sustainable sourcing in China include additional costs of sustainability standards, the higher retail price of products, lack of clear standards, and challenges in supply chain transparency to ensure compliance with sustainability standards in place. Generally, there exist economically viable and sustainable technologies for more sustainable practices, but barriers to their adoption have yet to be overcome.

Challenges facing global supply chains in the Chinese market

The issue of food security through sustainable supply chains is both a national and global issue for China. The government is reducing the amount of land use for agriculture in China, thus, meeting domestic demands for agricultural commodities affects the international supply chain. Presently, China’s huge demand for soy and palm oil are largely met with imports – around 90%. AlphaBeta shows that increase could develop even further, reaching up to 94% for some commodities in 2025.  Sustainability transitions also create risk for firms, as new standards and changes would create disruptions into operational, regulatory, and reputational risks to companies. If stricter industry standards were to be implemented, and firms that agree to follow guidelines and develop more sustainable practices are not able to follow through with these demands, there could be serious risks to these firms. Additionally, Chinese government interest can also be faced with risks, as declaring a national interest with a failure to commit would also pose threats to its national image and undermine their efforts.

Summarized by the World Economic Forum’s Tropical Forest Alliance 2020, barriers can generally be broken down into two categories: incentive barriers and implementation barriers. Incentive barriers refer to those that discourage actors from pursuing a deforestation-free commodity supply, and implementation barriers are those that may prevent the implementation of deforestation-free sourcing even when actors do have an incentive.

Sustainable sourcing of soy in China is a top priority

China is the world’s largest consumer and importer of soy, making China the largest driver of soy-related deforestation. The Carbon Disclosure Project (CDP) report reveals that “in 2015, Chinese soy imports represented about 65% of the global soy trade, with imports supplying 85% of soy consumption in China.” These rates are still experiencing annual growth. Brazil leads the soy trade relationship in China, with over 50% of soy imports to China coming from Brazil alone. Under the Paris Agreement, China has taken a strong stance in decreasing domestic greenhouse gas emissions. However, additional costs for farmers to produce sustainable soy will be $3-$4 metric ton. Profit margins in China are slim, as processing costs have to be at least $20 to be profitable; thus proving to show an incentive barrier. 

“China, the world’s largest producer of goods, causes international concern because of the high emissions embodied in its exports.” – The Carbon Disclosure Report, October 2017

This brings up the conversation of indirect commissions, where China is most relevant given the high emissions created by its exports. Yet it tends to be a sensitive topic given the numerous high-emitting industrial operations that are producing Chinese exports for consumption in other countries. Additionally, non-domestic greenhouse emissions associated with Chinese imports are not addressed in Chinese trade commitments, and there is a general lack of progress on the issue of addressing emissions in third countries in the international community. However, international precedent for deforestation has been studied by the European Commission. The Chinese government departments responsible for timber and wood products have analyzed the EU Timber Regulations[ , and considerations on wood and timber can possibly be used as a basis for potential soy regulations in China.  

Business risks to sustainable sourcing of Soy in China

Similar to the challenges facing global supply chains, Chinese companies are faced with business uncertainties when it comes to sustainable sources of soy, acting as big barrier in the sustainability push. Presently, these companies face implementation barriers, such as the lack the guidance at a national level, as well the transparency to ensure buyers are purchasing from sustainably produced soy. In 2017, the CDP interviewed 28 international companies operating in China already having individual policies to address high-risk commodities in 2017 about the risks associated with deforestation and sustainability concerns. The results reveal:

• 82% have risk assessment procedures in their direct operations;
• 57% have systems in place to trace, monitor or track the origin of raw materials;
• 11% have corporate targets to avoid deforestation impacts of their supply chains.

Chinese livestock industry shows significant support for sustainable beef

In 2018, the China Animal Agricultural Association and Solidaridad jointly launched the China Roundtable for Sustainable Livestock. Their cooperation has led to the China Animal Agricultural Association joining the Global Roundtable for Sustainable Beef as the first Chinese member. This signals the Chinese commitment to sustainable beef and a realization of their importance in the role of the global effort. On March 27, 2019, 700 participants across the Chinese beef, lamb, and dairy sectors joined together at the Second Ruminant Conference and 2019 Sustainability Summit. Aims for the second China Roundtable for Sustainable Livestock included setting goals and defining priorities for the roundtable initiative.    

Qiangde Liu, secretary general of the beef department at China Animal Agriculture Association, was the leader and moderator for the roundtable meeting. He emphasized that while the industry is focusing on improving domestic production efficiency, China’s beef imports have increased because efforts have not been able to keep up with China’s growing demands for beef consumption. Similarly, for beef, Brazil is also China’s largest importer of beef. Liu has witnessed first-hand the deforestation in China caused by cattle ranching and soy production. He states:

“China, together with the world, has to address issues of greenhouse gas emissions, animal welfare, and environmental protection.”

Sustainable agricultural commodities in China: The ideal emerging market consumer segment to drive sustainability

The Chinese consumer class has undergone rapid expansion, making this large middle class a vital driver for sustainable product demand. McKinsey Global Institute analysis shows that Consumer spending as a share of the country’s GDP is expected to rise from around 36% since 2008 to 49% by 2030. Chinese trade has also grown 83-fold in the past 40 years. This is a clear indication of the major role that China can play in driving global sustainable sourcing efforts.

Demonstrated market demand for sustainably sourced products in China, but a disconnect in sourcing regulation

As mentioned, the 13^th Five-year Plan and consumer reports from JD demonstrate considerable Chinese consumers interest for green products. However, awareness or interest does not necessarily translate to reality, for is it not easy for sustainable sourcing to be implemented for these products to be available. For example, although 70% of Chinese consumers are willing to pay a 10% premium for sustainably produced products, the rise in production costs is undesirable and unfeasible.   This is a market that is in urgent need for development. Although many issues lie in barriers to supply chains and sustainable sourcing, companies should be aware that the Chinese market for sustainable products is becoming urgently relevant. There needs to be more international development and industry standards regarding sustainable sourcing of deforestation driving products in China. Foreign companies should be aware of the global demand for environmentally friendly products and practices, and emerging market such as China is the best opportunity to address issues relating to sustainable agriculture and sustainable sourcing.

Author: Julia Qi

Make the new economic China Paradigm positive leverage for your business

Do not hesitate to reach out to our project managers at dx@daxueconsulting.com to get all answers to your questions

This article Moving towards sustainable agricultural commodities in China: PRC can lead the way for emerging markets | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

In China, the demand for landscaping and gardening activities has increased considerably in recent years. Aesthetics and environmentalism are the primary driving desire for this change in consumer preferences. As the economy is moving towards environmentally-friendly industries, the concept of gardening is also changing among Chinese consumers.

Market researches show that the CAGR for the global gardening tools market in 2017 was 1.6%. Persistence Market Research estimated the global sales of gardening tools in 2017 was 280 million units. This figure is expected to surpass 300 million by the end of the year 2025. Now, Asia-Pacific cultures incorporate gardening activities into their lifestyles as it becomes recognized as a leisure activity. In China, people are gradually accepting the idea of horticulture as a therapy for daily life getaways. Small gardening tasks are not only a hobby but a ‘medicine’ to reduce stress.

The increasing popularity of ‘Do It Yourself’ (DIY) in gardening also brings a fresh approach to Chinese middle-class consumers. Rising disposable income affects leisure choices, and small gardening and horticultural activities are being widely recognized as a relaxing and worth-trying way to maintain the peace of life.

The gardening tools manufacturing industry in China, however, is not developed to scale. So far, the main competitors in this market are all small-to-medium sized enterprises with fewer specialties and a broad range of products. Thought highly competitive, the market specification is not precise and there exist no major market players in the domestic production.

In short, the Chinese gardening tools market is growing, and the business potential is unrealized. An international brand can actively compete in this field as the market is not mature, while promotional strategies are the keys to successful expansion.

The gardening tool market composition – Overview

The gardening tools market in China is now experiencing a strong growth trend. In 2017, the estimated market size of gardening tools had reached 7.42 billion RMB with a CAGR at 24.71%

The increasing market size comes along a more specialized division of different market segment in China. There are mainly three segmented markets of the gardening tools market in China which are tools for public gardens, for family gardens and for maintaining forests. According to Daxue’s research, the leading consumer groups for gardening tools in China consist of three large groups: local government (public) gardening service providers (business) and families.

The gardening tool market composition – Consumption analysis

Consumption patterns are seasonally adjusted

Consumption in the gardening tools market in China is showing a strong annual-seasonal pattern. According to the 2018 sales data from January to November on Tmall/Taobao, the largest online retail platform in China, the consumption pattern of gardening tools sales in China is seasonally adjusted with the peak sale happened in May and the lowest in January.

Also, in November there is a slight upward twist on sales volume, which may largely due to the Double 11 Shopping Carnival with huge discounts on every type of goods including gardening tools.

Keywords search intensity based on Baidu Index regarding specific gardening products such as ‘lawnmower,’ ‘bush cutter,’ ‘watering can,’ and ‘chainsaw’ also shows a clear seasonal pattern.

[Source: Daxue Consulting]

The search frequency of the keyword ‘bush cutter’ has stably fluctuated around a certain value. But its lowest also happened during the Spring Festival season.

[Source: Daxue Consulting]

Consumer preferences revealed by Social Media

Consumers of gardening tools in China utilize different social media platforms to ask, gather, evaluate and make decisions on different gardening tool products.

Zhihu.com is the most prominent Chinese online Q&A platforms with social media features. People ask questions about gardening tools on Zhihu.com to gather useful information:

Social Media as a way of sharing product experience

Weibo and Wechat are two major social media platforms in China. Many people have posted on gardening tools/machine.

According to the social media research done by Daxue, positive feedbacks on these products are mainly focusing on the following aspects:

• Easy to use/carry, saving the labor;
• Good quality;
• Long service life;
• Environmentally friendly.

[Source: Daxue Consulting]

[Source: Daxue Consulting]

• Engine noise and exhaust gas;
• Cannot do continuous work;
• Easy to be damaged;
• Cannot achieve expected outcomes.

On Weibo and Wechat, brands introductions and requests for product authentication are the main contents among the posts about gardening tools and machines in China.

E-Commerce platform buyers concerns quality as a priority

Major e-commerce platforms such as Taobao/Tmall and JD.com all have functions for online customers to leave a review after purchase, whether positive or negative. Most discussions about gardening tools are focusing on products’ quality and prices. Consumers can post pictures of the real goods they receive in the review for others’ reference. Also, some sellers online offer a small amount of cash or gift card reward for those positive and detailed buyer’s reviews.

[Source: The picture has been from a buyer’s home and shared on JD as a review of a lawnmower from Tuochuan (拓川). The buyer gave positive reviews for its good quality]

[Source: The pictures have been taken from a buyer’s home and a garden, and shared on Taobao as reviews of a big pruner from JOUNFULL (京聚福)]

Positive Reviews:

[Source: Daxue Consulting]

[Source: Daxue Consulting]

The gardening tool market composition – Products analysis

Gardening Shears

Gardening shears are one of the essential gardening tools in China. Data from online retailing platform Tmall/Taobao shows that domestic brands have potentially a higher monthly sale than their international counterparts. Domestic brands Deepbang (深邦) and Worth (沃施) ranked 1^st and 2^nd in November monthly sale in 2018. International brands Gardena (嘉丁拿) and ARS (爱丽丝) only reached 40%-50% of the sales of domestic brands at the same time. The top seller prices of the products are relatively low, and it is the main reason for their outstanding sales.

[Source: Daxue Consuling]

[Source: Daxue Consuling]

Shovels

Local brands Qinglin (青林) is undeniably the leader in sales for this product in November 2018 with more than 10,000 items sold. Zhuoshi (卓石), another domestic brand also sold more than 5,800 items. These two brands contributed significant sales volume in November 2018 for Shovels than their international counterparts. For global brands, Gardena (嘉丁拿)’s sale reaches a bit over than 10% of that of Qinglin (青林), making international brands’ sales insignificant compared with domestic brands.

[Source: Daxue Consuling]

[Source: Daxue Consuling]

Lawnmower

Sales of a domestic branded lawnmowers are higher than international brands. Local top seller Jianxing (剑兴) has extremely low prices compared with the international top seller and have sold more than 1,000 items in November 2018. However, INDEL (英德尔), the global top seller does not trail behind too much compared with the second top domestic seller Shengchao (圣超). The difference in their sales is less than 100 items. Fujiwara (藤原), another international brand, did not perform well with only 314 items sold at the same time. Overall, domestic brands all play better than international brands at a lower price.

[Source: Daxue Consuling]

Handsaw

Most handsaw brands have built their official stores on the leading e-commerce platforms such as Tmall/Taobao and JD.com in China. International brands usually have higher prices. As a result, their sales are much lower than those of domestic brands. In November 2018, local leading brand Juli Jin’gang (锯力金刚) sold more than 2,200 items, and this is more than four times the sale of which the top international brand ARS sold at the same time.

[Source: Daxue Consuling]

The gardening tool market composition – Manufacturer analysis

Worth (沃施)

Worth is one of the major gardening tools providers in China. It has built an official website for showing brand stories, product catalog, and news/events updates. Worth has three major product series: power tools, petrol tools, and hand tools. Among these series, hand tools are primarily sold online on different e-commerce platforms including Taobao/Tmall, JD.com, and others. Worth consider its products have long product life, making those tools handy with high qualities. The significant sales points including long product life, easiness of use, efficiency, low maintenance costs, and environmentally friendly designs.

Worth has a digital presence on major e-commerce platforms with no existence on newly inducted e-commerce operators such as Kaola and Pinduoduo. This means Worth is still operating in a conventional online retailing pattern as Kaola and Pinduoduo are based on an entirely different rationale for e-commerce.

Customer view this brand as high quality guaranteed. Aftermarket services and excellent craftsmanship are also praised among all customer review posts online. The only drawback pointed out is that its products are selling at relatively higher prices among the entire product category.

Worth has its Weibo account with 69,564 followers and 11 posts till November 2018. But it has no Wechat presence at all. Its entire social media profile is not active.

Gardena (嘉丁拿)

Gardena is a favorite gardening tool brand based in Germany. Its official Chinese website contains different product types (series), updates on company news, service information and customer support. In China, Gardena primarily sells four kinds of products: watering tools, lawn care, grass shears, soil and ground, and smart system solutions for gardening. To further promote its products, Gardena describes its products as having good quality with long product life, effective and efficient while very handy and easy to use.

Gardena has a digital presence on both Taobao/Tmall and JD.com, which offers a convenient way of e-commerce in China. In new e-commerce platforms such as Kaola and Pinduoduo, Gardena has no active presence. Its conventional e-commerce presence is as strong as Worth (沃施), which make these two brands the major gardening tools providers in the Chinese market.

Customers consider this brand as a representative for high quality and great designs. Easy to use and useful application is also being praised on significant e-commerce platforms. Similar to Worth, Gardena’s product is relatively pricey. In addition, online customers think their products, through effective and user-friendly, are having insufficient sizes.

Gardena maintains both presences on Weibo and Wechat with 9,580 and 319 followers respectively. However, they did not show active status and remained inactive during Daxue’s research period.

STIHL (斯蒂尔)

The official website of STHIL China contains three subsites for its trading company in Taicang, Jiangsu, its manufacturing factory in Qingdao, Shandong, and its official German website in Germany. The primary body of these websites is related to the company news and events updates as well as the product series. These websites also provide detailed knowledge of equipment caring and handbooks for different types of power tools. STIHL mainly sell power tools in China including chainsaws, hedge trimmers, and brush cutters.

STIHL has a digital presence on both Tmall/Taobao and JD.com. Compared with Gardena and Worth, STHIL’s sale is not significant. This is mainly due to the nature of its products being power tools which incorporate more technologies than the other two brands. One surprising fact about STHIL is that this brand has a presence on Pinduoduo, and have a relatively high sales volume per day when Daxue was conducting the research.

Customer view STIHL as a brand with good quality and user productivity. STIHL’s chainsaw is especially being regarded as an enduring tool with great value. Some negative feedbacks indicate the product is on a mediocre level of quality with bad aftermarket services. These are only the minority. Most of the feedbacks praise STIHL for its high quality and long product life. Some suggest the product is ‘worth to buy.’

STIHL has an active presence on both Wechat and Weibo with 47,418 and 8,385 followers respectively. It has maintained an active status on Weibo for it has posted 21 posts during November 2018.

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The gardening tool market composition – Promotion

Advertising is prominent

Advertising is considered an essential promotional tool for all types of products in China including gardening tools. Greenworks (格力博) released an online advertising video to promote its new arrivals for public green spaces. This brand is focusing on medium and large size gardening machines.

The video highlighted the fact that all products are electrically powered gardening machines. This means they are all environmentally friendly. And these products meet the need for environmental protection restrictions in the Chinese market.

[ Souce: https://v.youku.com/v_show/id_XMzYyMTMxMjE0MA==.html?spm=a2h0k.11417342.soresults.dtitle ]

The video’s main scenes are divided into several gardening machines of Greenworks: pole saw, blower, string trimmer, top handle saw, hedge trimmer and lawn mower.

The video implied the excellent effects and quality of those gardening machines; it also highlighted those machines are all new energy (electricity) products.

Brand Naming

Choosing an appropriate Chinese name for your brand not only conveys the ideologies and doctrines embedded in your brand but is also a way for people to keep your brand in mind. Several gardening tool brands have made good examples. These names connect with the concept of gardening and create the image of gardeners and plant growth.

Worth – ‘沃施’ The Chinese name consisted of the two Chinese characters: ‘沃’, meaning ‘to irrigate’, and ‘施’ meaning ‘to spread manure.’ Together the Chinese name implies the brand is related to growing plants, such as gardening tools and farming tools.

Gardena – ‘嘉丁拿’ The Chinese name consisted of three Chinese characters. ‘嘉’ means ‘good or wonderful,’ ‘丁’ implies the concept of a gardener, and ‘拿’ means ‘hold.’ This Chinese name implies that the products are of high quality and are the best matches for gardeners.

STIHL – ‘斯蒂尔’ The Chinese name based on the pronunciation of its original name. The Chinese name accommodates the pronunciation and uses Chinese characters.

The gardening tool market composition – Distribution channels

Online retailing coverage in China

JD.com has far more presence of brands in gardening tools. This phenomenon may due to the higher security deposit Tmall/Taobao require for registering and opening up an official store on its platform. The online promotional activities mainly happen during double 12 shopping festival (following the success of double 11 shopping carnival created by Taobao, double 12 shopping festival was also created several years ago to stimulate the consumption potential of online retailing further).

[Source: Daxue Consulting]

Offline retailing coverage: case in Shanghai

Major offline retailing points for gardening tools are specialized stores and wholesale markets. The number of those offline retailing points are limited, and most of them are located outside the residential areas and business districts. The possible location for those stores is in the surrounding suburbs of a city.

Searching keywords ‘gardening tools’ renders 16 results of stores on Baidu Map and 14 results of stores on Dianping.com. Among those, 16 are specialized gardening tool store, and only 5 of them are wholesale markets.

[Source: Daxue Consulting]

Shovels, hoes, garden shears, and handsaws are widespread gardening tools in China. On Taobao/Tmall, the sales of shovels (for gardening) were far more than hoes (for gardening) in November 2018. The sales of garden shears were also more than handsaws during the same period.

[Source: Daxue Consulting]

Gardening tools market trends and promotional solutions

The Chinese market for gardening tools is changing and growing. Daxue identified the three key market trends that will shape the future of the Chinese gardening tools market.

1. Environment protection

Many gardening machines are petrol products, which causes air pollution. Thus, many brands have started to use electricity as new energy of gardening machines for environment protection.

2. Chinese independent brands

By learning from international gardening tools brands, many domestic manufacturers have now created independent brands and developed better technologies to enter the high-end market (both the Chinese market and the global market).

3. Appearance is becoming important

Since the living conditions of Chinese consumers has been improved rapidly, many people have started to pick their gardening tools with a nice appearance (quality, effects, and price are still important). Therefore, some brands began to offer gardening tools with better designs.

To further support the promotional purposes, brands who want to enter the competitive Chinese market should fully utilize the promotional channels including specific websites, specialized magazines and social media key opinion leaders (KOLs).

Additionally, there are now specialized websites as promotional channels waiting to be fully exploited.

1. Chinagardentools.net (中国园林工具交易平台) at Chinagardentools.net
2. Gardentools.cc (园艺工具网) at gardentools.cc
3. CSC86.com (华南商城) at csc86.com

Specialized magazines as a purposeful promotional channel:

1. Xiandai Yuanyi (现代园艺)

Xiandai Yuanyi (现代园艺) is a well-known professional magazine about gardening in China. The magazine offers technologies, plant knowledge, and sales information. The gardening tool is a part of the magazine’s content.

KOLs are important in Chinese social media life. For international brands, KOLs are a huge part of modern Chinese product promotions activities. Users of gardening tools are influenced by KOL’s shared opinions and introductions. KOLs, who post information about gardening tools, mainly consist of gardening/machine KOLs, photographers, goods designers, and brand founders.

[Source: A Weibo account of a photography KOL, writer and editor of a Chinese magazine 《IFIORI》. Her account has 422,035 followers. One of her posts about gardening tools received 100 likes and 55 comments]

[Source: This is Internet news and info KOL; the KOL mainly posts info about daily use goods and hot internet topics. The KOL has 65,876 followers. Gardening tools are part of his posts]

The Chinese gardening tool market takeaways

The Chinese gardening tool market is growing rapidly with huge unrealized potential. Gardening and horticultural activities are now popular among middle-class Chinese. With a rising disposable income, people are now willing to spend more on high-quality gardening tools with outstanding design and craftsmanship. E-commerce platforms are a major battleground for the market competition of local and global brands, and brand promotion in China is essential to gain extra market share.

As the gardening tool market in China is still amateur but highly competitive, international entrants are advised to carefully design their marketing strategies and promotional methods before the entrance. Social media existence is essential, as Chinese consumers heavily rely on online product reviews and feedbacks to help with their purchasing decisions. Also, brand naming and advertising are crucial for people to remember your brand.

China is now turning into an environmentally friendly economy with eco-friendly industries booming. Gardening tools sold and used in China are also coping with this trend. To successfully launch a business in the gardening tool market in China, it is important to keep the products and brands up to the current trends. Again, social media is a great platform for both gathering consumer feedbacks and promoting your own products for brand recognition.

Author: Jiameng Hu

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