When localizing a brand name, companies need to pay attention to many factors, including phonetics, semantics, characters, tones, and local dialects. Daxue consulting has a proven four-step method for choosing a brand name in Chinese, which you can learn about here.

Different approaches to Chinese brand names in the pharmaceutical industry

There are several ways to choose Chinese brand names for foreign pharmaceutical brands. Just as when translating foreign names, companies can translate the name either according to its semantic meaning, or according to its phonetic sound. In some cases, it is possible to combine both methods into one translation.  

This case study includes the analysis of 10 companies in China’s pharmaceutical industry. Namely: GlaxoSmithKline Plc, Sanofi, Merck & Co Inc, F Hoffmann-La Roche Ltd, Johnson & Johnson, Bayer AG, AbbVie Inc, AbbVie Inc, Pfizer Inc and Eli Lilly and Co. It includes the analysis of how they choose a Chinese brand name, as well as the names of their products in the Chinese market.

Phonetic translations

Phonetic translation is the easiest way for translation and the most common localization method. A common slip up is when companies simply transliterate their name without thinking about the meaning and sound of the characters. As a result, the character choices, while having a good sound, may have unfit meanings or tones that do not roll of the tongue easily. However, when giving Chinese brand names in the pharmaceutical industry, companies often use this method, combined with choosing the right characters, as it is a very specific market.

GlaxoSmithKline Plc

Source: GSK, GSK website page in Chinese

Original name of this English company is GlaxoSmithKline Plc. In Chinese the brand has the name “葛兰素史克” (“Gelansushike”) / GSK.

Its antiviral medicine Viread in Chinese has the name: “韦瑞德” (“Weiruide”), which sounds similar to the original name.

Such as in this case, the original foreign name has sounds that do not exist in Mandarin, such as the V sound. However, “V” sounds in brand or product names are often transcribed to “W” in Mandarin.

Sanofi

Source: Sanofi, Sanofi website page in Chinese

The French company Sanofi in Chinese has a name “赛诺菲” (“Sainuofei”).

Its antiepileptic medicine Depakine in Chinese is “德巴金” (“Debajin”). “De” might give an impression of “Germany”. However, the French flag is on the packaging, conveying a message that the product made in France.  

Source: Taobao, Depakine in the Chinese market

Merck & Co Inc

Source: Merck, Merck website page in Chinese

The Chinese name of the American company Merck & Co Inc is “默克” (“Moke”). Their popular product Vigantol does not have a Chinese name. Some overseas flagship stores sell this product and it receives hot discussion on social media. 

Source: Taobao, Vigantol in the Chinese market

F Hoffmann-La Roche Ltd

Source: La Roche, La Roche website page in Chinese

A company La Roche from Switzerland has its Chinese name “罗氏” (“Luo Shi”). Some of their products also have names based on phonetic approach. For example, the product Rocaltrol which contains vitamin D metabolites, in Chinese has a name “罗盖全” (“Youjiale”). It uses same character “Luo” as ”Luo” in the company name. Another La Roche product Madopar in Chinese is named “美多芭” (“Meiduoba”).

Johnson & Johnson

American company Johnson & Johnson does not use phonetic approach for its brand naming in China. However, it applies this approach to some of its products. For example, Band-aid in Chinese sounds like  “邦迪” (“Bangdi”). Another product which original name is Motrin has “美林” （ “Meilin”) as a Chinese name.

Source: Taobao, Band Aid and Motrin in the Chinese market

Bayer AG

Source: Bayer AG, Bayer website page in Chinese

German pharmaceutical company Bayer in Chinese sounds like “拜耳” (“Bai Er”). Besides, some of Bayer China’s products also named based on the phonetic approach. For example, Bayaspirin has its Chinese name “拜阿司匹灵” (“Baiasipiling”). It uses same character “Bai” as ”Bai” in the company name. Its product Canesten also has a Chinese name  “凯妮汀”（ “Kainiting”), which sounds similar to the original.

AbbVie Inc

Source: AbbVie, AbbVie website page in Chinese

American company AbbVie in Chinese has a name   “艾伯维” (“Aibowei”). However, most of its products name represent “phonetic + evocative” approach.

Novartis

Novartis which based in Switzerland does not use phonetic approach to its brand name in China. However, its products Diovan has Chinese name “代文”(“Dai Wen”), which sounds close to original.  Same for Trileptal with the Chinese name: “曲莱” (“Qu Lai”).

Source: Baozhilin, Diovan and Trileptal in the Chinese market

Phonetic approach for prescription drugs

All drugs mentioned previously are  over-the-counter drugs, meaning they are aimed at ordinary consumers and their names are casual-sounding, to be clearer for customers. However, for comparison, we also looked at prescription drugs, where the marketing is not just directed to consumers, but also medical professionals. What is interesting thing is that some companies adapt their names of prescription drugs for the Chinese market in not-professional-sounding, rather casual-sounding way.

AbbVie Inc

AbbVie’s medicine Zemplar, which helps to treat secondary hyperparathyroidism in people with chronic kidney failure, has a Chinese name “胜普乐” (“Shengpule”). “Sheng” means “victory”, “Pu” means “common” and “Le” means “happiness”. As we can see, it has no connection with the effect which this drug has or with ingredients it contains.

Another drug Humira, which used to treat arthritis, Crohn’s disease and psoriasis, in the Chinese market has a name “修美乐” (“Xiumeile”). It sounds close to original and has positive meaning: “Mei” and “Le” mean “happy” and “beautiful”.

Source: Taobao, Humira in the Chinese market

Sevofrane’s name in Chinese is “喜保福宁” (“Xibaofuning”) “Xi”, “Bao”, “Fu”, “Ning” are all positive words standing for happiness, safe and good health. It is a volatile liquid anesthetic, used during serious operations. The name sounds surprisingly casual and light-hearted considering the seriousness of the product.

Eli Lilly and Co

This company produces Olumiant, which helps to reduce pain and stiffness in Chinese sounds like “艾乐明” (“Aileming”).  “Le” means “happy” and “Ming” means “bright”. The name conveys a positive message.

Pfizer Inc

Calcium channel blocker Norvasc in Chinese sounds like “络活喜” (“Luohuoxi”). “Luo” means “Merridian”, “Huo” means “alive” and “Xi” means “happiness”. “Luohuoxi” conveys a positive message and might be reliable in curing heart diseases and unblock blood vessels. It also has casual-sound name, although being a serious drug, which requires prescription.  

Source: Taobao, Norvasc in the Chinese market

Phonetic and evocative names

In case of “phonetic + evocative” method, translation covers not only the name itself, but also the signal that the product or service carries. Adaptation taking into account the meaning and sound is the most difficult and successful option, when the creators manage to preserve the pronunciation. Besides, they put the original meaning into the translation and avoid negative perception of images.

Sanofi

Sanofi also uses this approach. For example, its product Aprovel has a Chinese name “安博维” (“Anbowei”), where “an” means “safe”. 

Source: Taobao, Aprovel in the Chinese market

Merck & Co Inc

Merch also has some product names which combine phonetics and meaning. For instance, Glucophage has a Chinese name: “格华止” (“Gehuazhi”). “Zhi” means “stop”. Since the main function of the medicine is to deal with diabetes, “Zhi” means that the product can stop the disease and keep balance of body.

Another product Euthyrox has its Chinese name “优甲乐” (“Youjiale”). “You” and “Le” means great and happy. “Jia” is the same character with “Jia” in “Jiazhuangxian” (thyroid). It conveys a message that the product can do good to thyroid diseases.

Source: Taobao, Glucophage and Euthyrox in the Chinese market

F Hoffmann-La Roche Ltd

The product of this company Xeloda in Chinese sounds like “希罗达” (“Xiluoda”). It uses same character “Luo” as ”Luo” in the company name. “Xi” represents “hope”.

Source: Taobao, Xeloda in the Chinese market

Johnson & Johnson

Source: Johnson&Johnson, Johnson&Johnson website page in Chinese

Johnson & Johnson uses “phonetic + evocative” approach for its brand name in China. In Chinese it is “强生” (“Qiang Sheng”). “Qiang” means “strong” and “sheng” means “life”. “Qiangsheng” conveys a message of “make life stronger”. 

Same approach is for some products. For example, Acuvue’s Chinese name is “安视优” (“Anshiyou”).

“Anshiyou” stands for  “having stable and better eyesight”.

Bayer AG

Bayer uses this approach for Redoxon product. Chinese name is “力度伸” (“Lidushen”). “Lidu” means “strength and power”. “Shen” means “strengthen”. The name conveys a message that people can gain more power after eating the vitamin tablets.

Source: Taobao, Redoxon in the Chinese market

Novartis

Source: Novartis, Novartis website page in Chinese

The Chinese brand name of Novartis is “诺华” (“Nuo Hua”). “Nuo” means “promise” and “Hua” means “China”. Nuo Hua would like to make a promise to China, keep providing innovative products and contribute to the improvement of health and living quality of Chinese people.

Its product Lucentis’s Chinese name is “诺适得” (“Nuoshide”). “Nuoshide” adopt phonetic and evocative strategy by using the same character “Nuo” as the company name “Nuo Hua”.  “Shi” and “De” represent for “comportable”. 

Pfizer Inc

Pfizer has some products named according to “phonetic + evocative” approach. For instance, Diflucan’s Chinese name is “大扶康” (“Dafukang”). “Da” means “big”, “Fu” means “help” and “Kang” represents “a good health”. Another product Lipitor – “立普妥” (“Liputuo”) in Chinese. “Li” and “Tuo” stands for “a high speed”. “Liputuo” means that the problem can be solved in a short time.

Eli Lilly and Co

Source: Eli Lilly, Eli Lilly in the Chinese market

American brand Eli Lilly and Co is another example of combining semantics and meaning. Its Chinese name is  “礼来” (“Li Lai”).  “Li” means “courtesy and politeness” in Chinese and it is an important virtue in Chinese society.  “Lai” means “come”. “Li Lai” conveys a message that the company is gentle and is willing to do good to the Chinese society. This brand is also very special, because of its visual identity. Typography and name totally stand out from the competition in the Chinese market.  Their name is something that you would expect seeing in the hospitality industry for instance (“courtesy/politeness is coming”). Same for their typography, hand-written, as it relates to tailor-made/crafted/personalized products.

Source: JD, Ceclor in the Chinese market

Its products Ceclor’s Chinese name is “希刻劳”(“Xikelao”). “Xi” means “hope”. Zyprexa’s Chinese name is “再普乐” (“Zaipule”). “Zai” means “again” and “Le” means “happiness”. The name conveys a positive message. 

Phonetic and descriptive names

This approach to the Chinese brand names in the pharmaceutical industry means that the name gives a hint of the effect of the product. At the same time, there is a certain parallel in the phonetics of the word with the original name.

GlaxoSmithKline Plc

This company uses this approach to the Requip, which helps to treat Parkinson disease. The Chinese name is “力备” (“Li Bei”). “Li Bei” means to have the power, which can reflect the function to release Parkinson symptoms.

Source: Taobao, Requip in the Chinese market

AbbVie Inc

Its product Calcijex has a Chinese name: “溉纯” (“Gai Chun”). “Chun” stands for “pure”. Since the product is a liquid used for injection, it gives people a sense of pureness.

Descriptive

This approach to the Chinese brand names in the pharmaceutical industry adapts the brand name so that Chinese consumers understand what effect the product has. It doesn’t have to sound similar to the original name.

GlaxoSmithKline Plc

The example of this approach is company’s product Avamys. In Chinese it is “鼻眼适”(“Biyanshi”). “Biyanshi” means make both nose and eyes comfortable, which can represent the core function of the product.

Source: Taobao, Avamys in the Chinese market

Key Takeaways of pharmaceutical brand naming in Chinese

• Most of the Chinese brand names in the pharmaceutical industry apply phonetic approach. It could be explained by the fact that it is simpler and does not require spending time finding the characters that convey the essence of the product.
• Some companies in the pharmaceutical industry in China use “phonetic + evocative” approach. It helps Chinese customers to better understand what effect product has. However, it is harder to come up with the brand name which sounds similar in Chinese language and has a clear meaning.
• The descriptive approach helps Chinese customers to better understand the product, but it has little correlation with the original brand name.

Vitamin and health supplements market report by daxue consulting from Daxue Consulting

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This article Chinese brand naming case studies in the pharmaceutical industry is the first one to appear on Daxue Consulting - Market Research China.

Matthieu David: Hello everyone, today we are going to go through our new vitamin and health supplements sector in China report, which was published in July 2020.

Here to talk about it with me is Allison.

Allison Malmsten: Hi, I am Allison, the marketing manager at Daxue Consulting.

Matthieu David: Thanks for being here. So today we go through this topic which is the Vitamin and Health supplements sector in China, which has been a topic for years, it has been impacted by cross border eCommerce, it has been – actually I don’t know if I could say dominated but influenced a lot by brands from overseas and we are going to see which countries are more valued by Chinese consumers, but if we compare China to the west, what would be your conclusion, Allison, after reading the report?

Allison Malmsten: So, I think one thing that really sticks out is there’s different motivations to take health care supplements in China. In China the number one concern is skin health and the appearance of the skin, so a lot of the supplements will market themselves towards skincare and you might even see for example a specific supplement that’s in China marketed as a skincare product, but then it helps with skincare and then in the west, it might be marketed as it helps with the immune system or something else.

Matthieu David: Very interesting. So it has been in some ways rebranded for the Chinese consumers and I think in the report we mentioned that there was some – also fake statements – do you feel that the fact that the same vitamins would be branded for skin instead of immune system in other countries, would be considered a fake statement or is it just different properties which are – communicated on – what’s your reaction when you read reports?

Allison Malmsten: Yeah that’s very interesting. Its hard to say whether it’s really fake, I mean we would really have to dig into the research done by the companies that created the products and did their own testing further on health departments and their local governments’ approval, but yeah I do think that – for example, some products in China might be marketed as skin lightening, especially like – on another note, some moisturizers might be marketed as skin lightening, whereas in the west moisturizers are known to keep your skin more tanned because it causes you to not shed skin. So, yeah, I think in order to really know the answer to that, you would have to follow a group of consumers for a while to see how it really – how the vitamins really manifest in the body. To a certain extent there’s obviously going to be an amount of the mental factor or the placebo effect like if you believe a certain vitamin is going to make your skin look healthier or it’s going to improve your immune system, you might look in the mirror and say – wow, my skin is glowing today when in reality you don’t really know if its improved that much.

Matthieu David: And in the topics you wanted to mention too when we compare China to the west, is about the level of consumption and the room for growth which seems to be still steep in China?

Allison Malmsten: Yeah, so currently China’s vitamin market has about a 10% YoY growth rate, now this is about the same growth rate as the US in the 70’s, but in the US in the 70’s a lot of these products were still developing and a lot of them would have very negative side effects, and so obviously this would hinder the market growth. But, right now a lot of these products they have already been perfected over a couple of decades now, and so there’s a lot of room for them to really be successful and grow very quickly. However, that being said, China’s market size is still quite a bit smaller, if I look at the number – sorry I have to look at the number really quick but China’s market size –

Matthieu David: The numbers you came up with when we talked about it is that – it was a per capita standing and China was still standing on 18$ USD where the US is –

Allison Malmsten: Yeah, the annual consumption is only 18$ USD per person, whereas in the US it’s like around $400 or was it 140?

Matthieu David: Its 148 – the number you came with, so that’s a very, very common way of looking at where you could still grow in China, what segment could still grow is to look at the per capita consumption and to say that China within the coming 10 -20 years will catch up the level of Korea or the US. So, it would be a ten-fold or maybe 8-fold growth if you look at the numbers. That may not happen but that gives a little bit an idea of the gap which could be caught up. At least certainly the case let’s say for – half the population is certainly believable, maybe not the entire population, so its still a fold of maybe 4-5 times.

Allison Malmsten: Yeah and then for japan and Korea the per capita expenditure on health supplements is 100$ so that’s still five times more than China.

Matthieu David: Yeah so that’s certainly why as well a lot of brands are looking at China because they see there’s an appetite for it, there is a culture of eating supplements or superfood, to become a little bit of – that’s the topic I’d like to discuss, a bit of a superhuman, I feel there is a bit in China, a culture of being super-efficient and superman or superwoman and in order to reach this level, either to exercise or to eat a lot of supplements. So, in terms of culture, it seems to fit and in terms of spending it seems not to have reached the maximum.

Allison Malmsten: Yeah definitely I think Chinese especially millennials and Gen-Z are really looking to become the best that they can be and they’re willing to make purchases to do so. Some factors for a healthy lifestyle perceived amongst Chinese people are for example a balanced diet which in a survey by Mintel, 50% of Chinese believed that its important and they do have a healthy diet, but then 49%believed that it is important, but they don’t believe that their diet is healthy enough. And so, this is just an example of about 50% of people are out there and they think they want to do better, they want to close that gap between their ideal self and their current self.

Matthieu David: And that’s something interesting in the report as well. We didn’t want to dig in too much when we were talking about the report today but when you look at the search on Baidu and what’s trending, one of the trends during and after COVID-19 was to try to understand what is junk food and what is a healthy food, because actually people have a hard time to distinguish what is junk food and what is healthy food. We think about fast food when we think about junk food, but it’s not necessarily healthy when its not fast food. Are very oily dishes healthy? Certainly not. And so, there is a request – quest I would say, by Chinese consumers to understand what healthy and not healthy is during COVID-19 and after COVID-19. So, that brings up a topic about COVID-19, how COVID-19 has impacted the industry overall, the self, the perceptions, and I think it’s also impacted prices.

Allison Malmsten: Yeah definitely. So, Covid-19 did stimulate the sales of the vitamins and health supplements sector in China, for sure one topic is immunity and based on the results from Baidu’s searches, you can see that the search for how to improve immunity has skyrocketed around the time that Wuhan was closed down. And then that results in people trying to optimize their health and so vitamins – they had some big online deals, so during February – March, and April, some top brands like By-Health and Swisse were already up in sales by around 40-60% from the year before, and, of course, a lot of this is because people were in general shopping online more and so because this is measuring online sales, that can explain some of these numbers, but there was a lot of price dropping from February-March-April to try and encourage these consumers to shop online and buy their products.

Matthieu David: Yeah, to that we need to remember that the shops closed, the online sales may have cannibalized the offline sales, so all in all the market may not have grown as much as 40-60% during and after Covid-19.

What kind of vitamins Chinese eat most? You mentioned that some vitamins are marketed towards skin more than in the west, but are there some vitamins that Chinese prefer, or health supplements?

Allison Malmsten: So the most popular vitamin is vitamin E and in the US for comparison, Vitamin E falls in like the 8^th or 9^th spot for Vitamins and Vitamin E is marketed as something for skin, something to help elderly, and then after vitamin E comes Vitamin C – which is a bit more popular in the US at least, because it’s known for immunity – preventing colds – so yeah – and then after that is vitamin A which is of course known to help eye sight.

Matthieu David: We mentioned at the beginning that health supplements and vitamins – again I’m not sure to use the right word by dominated, but are largely influenced by overseas players, foreign players. How the different countries perceived by Chinese people. We know that Australia and New Zealand usually have a good image in terms of nature, in terms of food – is it a case in vitamins and health supplements and what other countries stand out?

Allison Malmsten: So Australia definitely stands out, 22% of the vitamin imports in China are from Australia, they’re know for vitamin C – calcium, collagen, grapeseed and dietary fibre and I think the idea that Australia is kind of green, healthy, natural is definitely true in this case – there is one Australian brand that their offline store is kind of like an Australian theme and its decorated kind of like a forest or a jungle and its all green and leaves and I think that’s definitely consistent with their marketing message of being – hey, we’re Australian so we’re natural and yeah I think that’s very effective in the vitamin industry.

Second is the US – they account for 20% of the imports and they’re known for big brands like GNC and so some of those marketing strategies they use like KOL’s and they’re known because they have a big strong brand name and so some people when they’re looking for trustworthy brand names, they might go for some of these foreign brands.

Matthieu David: So you already touched the point about marketing strategies for herb supplements by mentioning some KOL – you mentioned three strategies or tactics that you wanted to go into – one is to use multiple channels to reach consumers – you already mentioned shops – offline shops, and the second one is the market to the right consumers and in the report, we see that the most – the segment expressing the highest interest into vitamins and health supplements, doesn’t mean the segment which is buying the most actually. But the one which is expressing most interest is about 20-29 years old and then you have the 30-39, but this is really the core segment, which looks always a bit younger than the one you would expect – 20 – 29 and so to market to the right consumers would be your second recommendation, to be very careful on this, and secondly its to leverage social media and gain insight from them. Can you elaborate a bit more about those three directions you suggest to form brands in the health supplements and vitamins to explore?

Allison Malmsten: Yeah so first point – using multiple channels to reach consumers, in China omni channel is very important. New retail which is the combination of online and offline – so like we talked about earlier a lot of these products are sold on platforms like Alibaba’s Taobao and Tmall, but at the same time a lot of the brand awareness comes from seeing the stores and going into the stores. One of the strategies that brands use is pop up stores, which is where they kind of have a little exhibit pop up in the street or in the mall and these little pop up stores, they really encourage people to take pictures and share on social media which for them after the cost of the pop up store, the following social media sharing is all free for them.

GNC has had pop up stores, Blackmores and yeah – so that’s how they reach consumers, they do branding offline and you can of course purchase offline too, that increases their brand awareness and then the stores are very interactive and then they might hop online for that final purchase.

Next point – marketing to the right consumers. So, based on our analysis from Baidu, who is searching about vitamins?

Well, it appears that 20-29-year old’s are the main people searching for these products. In contrast when we did an analysis on searching for healthy food, the target age – the age group of the people searching for healthy food was the 30-year olds. So, it does show that the 20-29-year old’s, they are definitely curios to learn more about these products and maybe compare them online, so a lot of the brands do cater their marketing tactics to reach these groups. One strategy is KOL marketing, another example which I thought was pretty clever was that one brand that had a sleep supplement, it’s called [Chinese 16:37] it’s a Chinese brand, they actually target people who stay up late at night, which is likely to be college students and they have these videos that play late at night, talking about marketing their products and they also have comics released late at night, kind of to target those people. Similar to Zhai people like we talked about last time, its targeting that group of people. So that’s kind of some interesting ways – there’s another By-Health, collaborated with transformers, which was really popular when the 20 -29-year old’s – when they were kids. So, it’s a little bit of a nostalgia marketing right there – so that’s –

Matthieu David: It’s interesting to see them targeting a specific context in which you may think of health supplements or vitamins, I really like those niches where you find your sweet spot and Chinese seems to have found that and By-Health, working with, collaborating with Transformers.

I have been always, since I’m in China – surprised how transformers have been popular in China and competing with Disney. I don’t know if its part of Disney, I don’t think so right –

Allison Malmsten: I don’t know, I was never a fan of it.

Matthieu David: But it seems to be more familiar to Chinese than the very well-known Disney cartoon or movies that we would have been familiar with in Europe or in the US – Transformers have really made a mark in China.

AAllison Malmsten: Right. And what’s also interesting is that whilst Star Wars kind of took over the world and everybody ahs seen all of the Star Wars movies; Star Wars is actually not famous in China at all.

Matthieu David: Interesting too, yeah. Very interesting, we need to challenge what we believe as well known and as taken for granted in China, always reconsider it.

And the last one you were mentioning is leveraging social media to reach consumers and gain insights.

Allison Malmsten: Yeah, so when it comes to reaching consumers, one interesting thing is Chinese people – especially on WeChat, they love to use emojis and those little dancing cartoons, they love to use those and so Blackmores has actually released their own emoji for one and then also something that’s very interesting is – if these brands can do some social media listening to see what Chinese consumers are saying about their brands, there’s a lot of learning.

1 – some three key things that we picked out, that was very interesting to us is some of the three biggest complaints about vitamins was 1] that the pill tasted bad. 2] that the pill was too large and 3] that the effects were not obvious enough.

For the first two points –

Matthieu David: Sorry to interrupt but I like to stop on pill tasted bad – maybe that’s something you wanted to say but the fact that the pill tasted bad, I’m wondering if its not good. Because you don’t expect something healthy to taste good. You don’t expect a medicine to taste good. Actually, if it tastes bad, it may link more to something more scientific and chemical or – chemical in a positive way, made by science – something made on purpose, not to please you but to do good for your body.

Allison Malmsten:  Yeah what I thought was really interesting is that – these vitamins are obviously – like they’re not made to be eaten or really chewed on. So that’s why – what’s interesting in China they say literally eat medicine, but in the West, we say take medicine – I don’t know how it is in French but in English, we don’t think of it as eating, and so I think what was very interesting is they would say that the medicine or that the vitamin it doesn’t taste good and I think – well, from my perspective, from the western perspective, obviously – its not candy. I mean, they can add a little bit of sugar to the recipe to maybe make it taste better, but the purpose is not for taste. Although some vitamin C ones might taste citric, but there are some pills like fish oil pills, for example, they’re not going to taste good. So, I just thought that’s very interesting that they comment that it tastes bad and they complain about that.

I actually went and looked at amazon reviews in the West and I saw that nobody was commenting about the taste, cause you just think that’s irrelevant, but that’s a good point to say – maybe the product was not stored properly, maybe it was not kept in a cool enough condition or maybe it was past the expiration or something. Yeah, and then the second point was –

Matthieu David: It’s interesting how semantics could influence also the comments from consumers because of the expiration to eat medicine, in French we say the same as in the US – to take medicine, instead of taking – which certainly would imply different thinking in French relationship with food and with medicine and to associate food and medicine because you eat medicine – it’s a very interesting point.

And the last thing you wanted to mention is about healthy lifestyle, right?

Allison Malmsten: Yeah so, we were curious to look at how do Chinese define a healthy lifestyle – obviously that can be perceived as differently across cultures. What we found was very interesting among Chinese people, nutritious food is definitely the most important factor in their – the first choice they make to improve health condition. After that is trying to make better life choices like sleeping more or maybe even using Chinese traditional medicine and then health supplements comes next – but what I thought was interesting is sports and fitness came last and I don’t know if this is my own personal bias but I think in the US when we think – oh we want to make healthy life choices – we think first we go to the gym and the very last thing is changing our eating habits. We always want to outwork a bad diet, we always want to try and work it off at the gym, but in China, it looks like it’s the opposite. It seems that nutritious food comes first and fitness comes last. Health supplements are in the middle, but like you mentioned – with the language, especially with the word for taking health supplements being to eat – I wouldn’t be surprised if that’s more closely related to the perception of nutritious food.

Matthieu David: Interesting. Also in China, my experience is that there is this tendency to think about a miracle solution like when you get – you don’t feel good or you have a cold, you would drink hot water and then you have this one solution fits all – I feel with vitamins and with health supplements, you have this relationship also like miracle solution to whatever problem you have, except that you may have one specific vitamin health supplement to solve your specific problem instead of one solution fitting all.

Another thing I liked in the report and found very inspiring, interesting and something certainly to look at more deeply in the future, is about how to market vitamins and health supplements and it seems that the packaging is very important. It seems also that when you want to connect with the Gen-Z, you may think also about Buddhist healthcare. You may also think about some ingredients like honey, goji berry, tea with health ingredients, fermented food, wheat proteins, things that resonate with the Gen-Z and lastly health is not only – we talked about eating medicine, but actually there are a lot of other products to make it possible for health supplements and vitamins to cobrand their product, which are devices, which are affiliated appliances that somethings certainly a bit new in the mind of consumers to have like air purifiers, to have water purifiers, to have different tools, devices plugged with electricity, IoT, using the internet for health – one being all the Xiaomi devices to track your health, like your pulse and so on.

So, there are a lot of opportunities to communicate about your health I feel in China – it’s a very, very aware market about health. Do you feel the same?

Allison Malmsten: Yeah, in fact, you mentioned about the Chinese magical solution – I think that’s very interesting because I think eastern medicine is kind of – it’s about bringing the body back into balance and I believe that all health problems are caused from the body being out of balance and so doing something like drinking hot water to somebody who believes in that is – drinking hot water, it will solve digestive issues, it will solve skin issues, it will solve any kind of stomach ache if you ate something bad, of course, if you have the flu or anything, you absolutely are supposed to drink hot water. So I think that there’s a lot of belief that no matter what problem your body is having, its having it because its out of balance and then there is this key thing that can bring your body back into balance whether it means cooling you down or warming you up, based on the yin-yang, whereas western medicine is targeting like – okay so you have a stomach problem and we have to identify what the problem is and based on what the problem is there will be a specific remedy for that or medicine for that and it might not be – we won’t relate it to another problem that you’re having in the body.

So I think even though there’s a lot of Chinese people today who don’t necessarily believe in Chinese medicine, you will still find that when talking about food or when talking about a lot of these different life things that these beliefs will kind of sneak their way into the conversation and into the thought and yeah – if that makes any sense – whether they believe in Chinese medicine or not, they’ve grown up with the culture and they’ve grown up with family members telling them what to eat when you’re feeling a certain way or what ingredients help with what type of illness and I think its hard to separate that for the rest of their life. So I think that using these very traditional ingredients like goji berries or fermented food or even using them and then marketing them in the products, again ginger is a really good one and ginseng – that could be really beneficial for marketing in China, versus like if you use ginger in your marketing in the West, people might be like – okay! What is that supposed to do?

MatthMatthieu David: Very true. Thanks for taking the time Allison to talk about the report, and if you want to know more about the report you can find the report on SlideShare, they are all stored on SlideShare and on our website. Thanks for listening everyone.

Find the full Vitamin and Health Supplements Market Report 

This article Market Tidbits transcript #3: A quick glance at the vitamin and health supplements sector in China is the first one to appear on Daxue Consulting - Market Research China.

Bayer AG is a global enterprise with core competencies in the life science fields of health care and agriculture. Bayer, headquartered in Leverkusen, Germany, is one of the most famous companies among the world’s top 500 enterprises. In 2019, the total number of Bayer’s employees was 103,824 and the annual sales were 43.5 billion euros. Bayer’s products cover high polymer material, medical and health products, chemical industry products, and agricultural products. Bayer puts a lot of emphasis on its research and development. Its capital expenditures amounted to 2.9 billion euros, R&D expenses to 5.3 billion euros in 2019.

Bayer’s current state in China

Bayer entered the Chinese market in 1982. Bayer has operated its business in Hong Kong, Taiwan, and mainland China. Currently, China has become one of the largest markets for Bayer globally and an important driver for the growth of Bayer’s business. In 2019, Bayer’s sales in Greater China reached 3.724 billion euros. As of December 2019, Bayer has more than 9,000 employees in Greater China.

Bayer is deeply rooted in the Chinese market

Source: Quanjing, China’s pharmaceutical industry

The Chinese market is a crucial driver of Bayer’s growth. Bayer complies with the policy and regulations of China, exploring its business in line with specific rules in China. Two examples that Bayer China firmly supports China’s regulations are as follows.

Bayer cuts price largely to win contracts with the Chinese government

In 2018, China’s government launched the centralized procurement program, in order to lower drug prices. A lot of drug companies are invited to place bids after the number of different kinds of drugs that will be needed in the public hospitals are determined by China’s health care security authorities. Under this centralized procurement program, the drug company which offers the lowest price will become the supplier of a certain drug. The Chinese government aims to reshuffle China’s pharmaceutical industry through the price war, and both foreign and domestic players have to come up with survival strategies to secure the market.

According to Chinese media, in January 2020, 77 pharmaceutical companies won contracts with the government by cutting drugs’ prices by 53% on average. Among them, Bayer made a big offer in the bidding. For example, it cut the price of its off-patent acarbose for diabetes (which affects a large part of the Chinese population) by almost 90%, and the new price is 78.5% lower than the price ceiling set by the Chinese government in December 2019.

By adopting an ultra-low-price strategy in the price war, Bayer hopes to expand its market share of some drugs like acarbose. In this way, it can secure its Chinese market and earn more profits in the future. For Bayer, the Chinese market is so important that it worth taking the large price cut to support the price war launched by the government.

Bayer fired an employee for breaking home quarantine rule during COVID-19

Bayer fired an Australian Chinese employee for breaking the coronavirus quarantine rule in China. In March 2020, a video of the woman gbreaking the home quarantine policy to go on a run went viral on the Chinese social network and drew widespread criticism from the public.

Bayer’s response reflects that it firmly follows laws and regulations in China, and supports the coronavirus rules of the Chinese government. This decision has been widely applauded by Chinese netizens and the company is considered as responsible and compliant. Hence, Bayer China has built a positive image through this crisis. 

Boosting innovation and advance digitalization

In 2016, China announced the Healthy China 2030 Blueprint. Currently, China is speeding up the initiative and improving patients’ access to medicines by increasing their affordability. “With the mission of helping China achieve health goals, Bayer China will make unremitting efforts to bring innovations faster to Chinese patients and provide more complete medical services.” Jiang Wei, executive vice president and managing director of Bayer China, said.

Bayer strengthened R&D and innovation

Under the Healthy China 2030 plan, China has promulgated policies from various aspects to increase support for the development of innovative drugs. Many pharmaceutical companies, including Bayer, are seizing opportunities and making full use of policy support to accelerate the approval of various new drugs in China.

Since 2017, Bayer has brought 14 innovative drugs to China. As an important part of the “China Innovation Strategy”, Bayer is continuously accelerating the introduction of more innovative products into China through the China R&D Center. The China R&D center, established by Bayer Health Consumer in Qidong, Jiangsu, is also actively carrying out category innovation, and enhancing the technical support and protection level of existing listed products.

At the same time, Bayer establishes long-term strategic cooperation with China’s top scientific research institutes including Tsinghua University and Peking University and strives to apply more cooperation results to the in clinical practice. Also, Bayer China is exploring cooperation opportunities with Chinese pharmaceutical companies and biological start-ups, leveraging the complementary advantages of both parties to fully develop innovative results. For example, Bayer and CStone Pharmaceuticals collaborate to evaluate D-L1 monoclonal antibody CS1001in combination with regorafenib as a treatment for multiple cancers.

Bayer China embraces digital transformation

Source: creamandpartners.com, Bayer cooperates with VeChain

Bayer has seen great potential to foster digitalization in China’s pharmaceutical industry, and has sped up its digitalization.

In 2017, Bayer teaeds up with Alibaba Health (AliHealth) to provide Chinese patients with healthcare services ‘at their fingertips’. At the same time, Bayer China can follow health trends of Chinese people and better satisfy their self-care demands by leveraging the big data advantages of the Alibaba platform.

Bayer re-started the ‘Bayer G4A China’ program in 2019, a global digital health startup partnership program to select Chinese startups that have digital potential. In 2019, Bayer China forms a co-operation agreement with Yaoshibang, a domestic online B2B pharma platform, to offer a new digitized medicine and health services solution in China. During this collaboration, the parties will exploit their advantages in the fields of medicine, health, and the internet.

In 2020, Bayer announced its partnership with VeChain, a pioneering public blockchain startup, to co-establish CSecure, a blockchain-based traceability platform for drugs. This new blockchain-powered solution will allow Bayer to track clinical drugs across the supply chain digitally.

Bayer considers digitalization as its vital strategy in China’s pharmaceutical industry. Digital transformation will enable Bayer to provide patients with new drugs and personalized treatment faster, improve the efficiency of healthcare service, and ultimately better serve patients. 

Bayer’s China Vision & Mission

Source: Bayer China’s Weibo, Bayer’s logo

With its strong marketing strategies, crisis management, and cooperation with the government, Bayer China devotes itself to provide better products and services for Chinese in the areas of health and nutrition. Bayer is a key player in helping China achieve the Healthy China 2030 plan, which makes the future outlook for the pharmaceutical brand’s development in China very promising.

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This article Bayer in China: How the Pharma giant gained the strong approval of Chinese consumers is the first one to appear on Daxue Consulting - Market Research China.

The development of vitamins and health supplement market in China

The market size of healthcare products in China is growing

Large market size of healthcare products represents the high potential in China.

According to iimedia, the market size of healthcare products in China, maintained around a 10% YOY growth rate between 2013 and 2019. This  which is similar to the US growth rate in 1970’s. China’s healthcare market size reached ¥222.7 billion in 2019, which makes China the second largest market for healthcare products, just after the U.S.A.

Data source: iimedia, Market Size of Healthcare Products in China

The market segment of healthcare product was occupied most by dietary supplement with more than half of the market in 2019.

Data source: chyxx (中国产业信息院), Market Segment of Healthcare Products in China

The health supplements industry in China developed along with the improvement of Chinese people’s living standards and health awareness

Most Chinese considered a healthy lifestyle to include physical and mental health. A healthy lifestyle should be without physical illness and with positive mental health, good social life etc.

Many Chinese see health supplements as a part of a healthy life. Hence, health supplements, such as vitamins and fish oil, are an important choice for health-conscious Chinese consumers. In a survey conducted by iimedia, 48.6% of the participants choose health supplements as their first choice to improve their health condition.

Price distribution of health supplements ranges from RMB 50 to over RMB 300. Most consumers buy health supplements for under 150 RMB on Taobao and Tmall. Customers’ price preference means high-end products are popular among a small group.

Data source: Taosj (淘数据), Price Distribution of Health Supplements in Chinaby Sales Volume

China’s demand for vitamins is continuously growing

Vitamin market in China is expanding, as vitamin products are becoming widely used in China. An increase in market size can be expected under COVID-19 impact.

Data source: iimedia, ‘Size of Vitamin Market in China

Vitamin E is the most popular vitamin in China, followed by vitamin C

Vitamin E is the most popular vitamin in China, making up 36% of the market. Followed by vitamin C, which takes 30%. The popularity of vitamin E is is partly due to the fact that Chinese believe it can prevent cancer. Chinese’ vitamins preference is different from other countries, such as USA, where vitamin D is very popular.

Data source: chyxx (中国产业信息院), Market Share of Vitamin Market in China by Vitamin Types

Skin care is the #1 concern among Chinese vitamin consumers

Vitamins which target skin health have large market potential in China. From information by DXY (丁香医生), 40% of the survey participants regard skin problems as a bothering health problem.    

Data source: DXY (丁香医生), Top Health Problems Chinese Concern

Skin problems, as the biggest health problem plaguing Chinese people, have led to an increased demand for vitamins, as some vitamins are beneficial to skin health. Vitamin A, C and E can help skin maintain a youthful state, prevent pigmentation, freckles and wrinkles. Thus, they are popular in vitamin market in China. For example, Gold Partner (黄金搭档) sold over 90,000 monthly vitamin C chewing tablets, which is #1 vitamins product for skin problems on Tmall. Considering the apparent concern for skin health, it is also no surprise that China’s skincare market is booming.

Millennials are the target market

Chinese millennials are the target group in vitamin and health supplement market in China, as post-90s gradually become the main force of vitamin consumption. According to Baidu Index, age of people who searched “vitamin” on Baidu distributed mostly in aged 20-29 years old.

Data source: Baidu Index, Age Distribution of people Searching ’Vitamin’

In one survey about post-90s’ health products consumption, top three health-related health-related products purchased are health supplements and vitamins (38%), nutrients dense fruits (27%) and traditional Chinese medicine (25%).

Source: Analysys (易观), Top Health-related Products Purchased by Chinese post-90s

Consumer Analysis in vitamins and health supplements market in China

Core drivers of purchasing vitamin and health supplements

Function, product quality, brand and price are four main drivers of purchasing, according to an analysis, which aims to research what factors effect most when Chinese consider buying vitamin and health supplement.

Data source: iimedia, Main Drivers of Buying Vitamins and Health Supplements

Most customers’ positive perceptions are related to functions. On Weibo or Zhihu, Chinese consumers mentions the function of relieving fatigue and skin whitening ect., when talking about vitamins health supplement.

Data Source: Sample of Weibo & Zhihu Posts, netizens opinions in the Vitamin and Health Supplement Market in China

Core obstacles of purchasing vitamins and health supplements

There is a large gap between China and developed countries in per capita consumption of health supplements. In 2019, per capita expenditure spent on health supplement was only $18 on vitamins and health supplements, while in America, that was $148, eight times higher than in China. However, the market is now growing fast as COVID-19 stimulated the consumption in China.   

Data source: chyxx (中国产业信息院), Expenditure on Health Supplements by Country

Factors, such as Price, product effect and reputation, will stop potential customers from purchasing vitamins and health supplement. Most complaints of health supplements result from effect. Consumers gave negative comments when the high price does not match the value. In addition, the reputation of health supplement in China is damaged by media. Most Chinese customers are bombarded with negative information of health supplement, which to some extent embedded a negative image of vitamins and health supplements in Chinese.    

Data Source: Sample of Weibo & Zhihu Posts, Obstacles for Entering Vitamin and Health Supplement Market in China

Other obstacles, such as the size of tablets and taste, also potentially stop people from purchasing vitamin and health supplements. Although Centrum (善存)’s multivitamin products have high popularity online, Chinese customers complain the design of bottle and the size of tablets on RED (小红书).   

Source: Sample of Weibo & Xiaohongshu Posts,, Comment about Centrum (善存)

Market Competition in China’s vitamin and health supplement market

Vitamins and health supplements from Australia and U.S.A are the most popular in China.

2018’s customs data by CBNDATA, shows that Australia and U.S.A are top two import countries of the vitamin and health supplement market in China. Australia and U.S.A account for 22.3% and 20.4% of VDS imports to China respectively. Their brands quickly seized China’s health supplements market share by cross-border and social e-commerce.

Source: CBNDATA , Customs data, Top 5 Imported Countries in Vitamin and Health Supplement Market in China

Besides Chinese brands, Australian brands, such as products from Swisse and Cenovis, are the most popular on China’s online market. By-Health (汤臣倍健) ranked #1 in May 2020, followed by Swisse (#2) and Centrum (#7).

 Data Source: Taosj (淘数据), ‘Top health supplements brands on Taobao & Tmall

Most vitamin and health supplement brands leverage online and offline campaign to build brand image and promote

How brands build youthful image through cooperating with celebrities?

Many health supplements brands aim to build a youthful brand image by using young KOLs and actors as spokespersons. For example, By-health rebuilt its brand image by endorsing young celebrities, Xukun Cai (蔡徐坤) to attract young consumers and associate with younger personalities. In order to shape the young image, By-health cooperated with Transformers and released cross-over products on Tmall.

Source: Tmall, Youthful Image of By-health

Cenovis is trying to raise brand awareness and attract more young consumers through endorsing Chengyu Hua (华晨宇) who is a singer with high-traffic in mainland China.

Source: Cenovis’s endorsement with Chengyu Hua

Centrum changed brand’s perceptions into young, funny and approachable by cooperating with Joker Xue (薛之谦, a famous Chinese singer and actor). Centrum worked with Joker Xue to film videos ads on Tencent.

Source: Tencent, Centrum filmed videos ads on Tencent

Offline marketing activities to reach Chinese vitamin and health supplement consumers

Many brands use offline marketing activities, such as sport events and pop-up stores, to interact with consumers in vitamin market in China.

By-Health built a museum which can use AI and hologram technology to educate about nutrition science and provide health examinations. These activities help visitors understand health situation and sell By-Health’s products.

Source, By-Health, By-Health’s Science and Technology Museum

Swisse built a immersive urban oasis pop-stores in malls during 618 promotion, where Chinese customer can see its healthy and natural brand image vividly. In addition, Swisse cooperated with The Color Run (Color run: Five-kilometer paint race), the sport event attract most young generation in China.

Source: Swisse, Australia-themed pop-up shops (Left) & Swisse X The color run (Right)

In order to expand target population, Centrum launched a carnival to interact closely with children and sponsored a child-parent TV program.  

Source: centrum, Centrum carnival & TV Program

Covid-19 stimulation: How Covid-19 stimulated the sales of vitamins and health supplements

Chinese consumers are more interested in vitamin and health supplements as COVID-19 increased their health awareness

The health supplements industry in China developed along with the improvement of Chinese people’s living standards and health awareness. Chinese netizens showed more interest in improving their immunity during the coronavirus outbreak in January 2020. Demand for vitamins and health supplements that can enhance their immunity became strong during COVID-19.

Source: Baidu Index, Search Trend of ‘Strengthen the Immune System’

Chinese people showed strong demand for  vitamins and health supplements that can enhance their immunity. Accordingly, health supplements that could improve immunity got more sales.

More Chinese consumers have showed purchase intention for vitamin and health supplements since the epidemic increased their health awareness.

Data Source: BCG (Boston Consulting Group), ‘What Chinese will Buy Most in The Post-COVID-19’

Brands seize the opportunity to increase sales revenue during the most serious period of COVID-19

The biggest price drop of health supplements was in February, as many brands decreased online price to have more consumers during the most serious period of COVID-19. However, many consumers were focused more on personal protection and disinfection products.

Data source: CHUANCAI securities, SOOCHOW securities, Changes in Price of health supplements in China during COVID-19

Then, the sales revenue of health supplements greatly increased from March along with people’s health awareness further improved.

Data Source: Taosj (淘数据), E-commerce Sales of Vitamins and Health Supplements

For example, the health related products of BY-HEALTH (汤臣倍健) and Swisse had significantly increased their online sales.

Data source: Taosj (淘数据), Sales of By-Health & Swisse during COVID-19

What can we learn about the vitamin and health supplement market in China

• Physical and mental health are both important for Chinese people

Many Chinese people are eager to have both physical and mental health. Therefore, in addition to promoting physical health, how to help consumers relieve mental pressure is also an important sales point for all health-related brands in the Chinese market.

• People under 30 are the key customers for many brands

Many health supplements brands aim to build a youthful brand image to reach out more young consumers in China. They frequently used young KOLs and actors as spokespersons. At the same time, Baidu index analysis shows young Chinese consumers have the most interest in vitamins and health supplements.

• Skin health is a top concern of Chinese vitamin consumers

More and more Chinese people are bothered by skin imperfections. Because of Chinese beauty standards, skin whitening is an important driver for Chinese women to take vitamins. Therefore, some health supplements launched products targeting skin problems and received positive feedback.   

• COVID-19 stimulated consumption in the vitamin market in China

The COVID-19 outbreak brought great attention to physical health, Chinese people showed strong demands on vitamins and health supplements to enhance immunity.

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Full transcript below:

Hello everyone, welcome to China paradigm, the show powered by Daxue Consulting where we interview seasoned entrepreneurs and experienced managers in China about their business and experience in the country.

Matthieu David: Hello everyone I’m Matthieu David the founder of Daxue Consulting and its podcast China Paradigm and today I am with Gordon Dumoulin. You are the founder of three companies and one of them being food, one being education with your wife. You have been in China for more than 10 years now, more specifically in Beijing. The first company we are going to talk about is in the food business, it’s called Dumoco – if I pronounce correctly – and it’s focusing on ingredients, very rare ingredients with specific effects on health, memory, basically health – how it can affect your health and I have a lot of questions about it. This is not a small market in China when we talk about health and ingredients to eat, we always think ingredients for traditional Chinese medicine and we talk about a Chinese herbology market which is about 150 billion to 200 billion USD of which 15%-20% is exported. It is growing. In some way, there is a paradox. The sales volume is growing but the number of TCM doctors and TCM health buddies are actually decreasing when we look at the numbers. It has been decreasing until 2010 and now, since then, it’s increasing again but still not at the level it was in the 1990s. So, it’s a very interesting segment because we have interviewed a couple of people before who were in health supplements and I believe you are very close to this market (learn more about the health supplement market in China).

The second business you are contributing to – because I understand that it was initiated by your wife – is education, Easton Bridge Education. So, it is based in Beijing, providing education centers in China such as English teaching and also art, science, and so on in Beijing to – I would say those upper middle class, middle class Chinese who are living in Beijing. I will have a lot of questions about this market too later on. Thank you, Gordon, for being with us. Would you mind telling me, if you want to add anything about the introduction of your two businesses and tell us more about what you do?

Gordon Dumoulin: Yes. Thanks for inviting me. It’s a nice opportunity to talk more about China, about doing business in China, and also about understanding China more. As you introduced very well, first I’m from Holland, the beautiful city of Maastricht in the South of the Netherlands and I’m living since 2009 in Beijing. Indeed, I’ve been doing the business with Chinese natural ingredients market called Dumoco. I set up the business myself in 2009 – operational 2010 and actually that came from a more Chinese natural ingredients market course or race. I have always been in the food business when I was living in Europe and when I moved to China some people and some business relations were asking me about some specific ingredients for traditional Chinese medicine and when you start a new business you need to take all the business what you can get to start up. So, I dived into some specific Chinese natural ingredients market and then I expanded to a wider range of natural ingredients. Basically, it’s indeed like you mentioned, related to ingredients for traditional Chinese medicine, functional herbs in which they come in many ways. We can use them for herbal teas, we can extract them, we can make powders and many of those are indeed coming into supplements. So, what we do here at Dumoco, we have different ways. First of all, we have our own export of different natural ingredients to Europe, to the States, Australia and to some other countries. Secondly, we do consultancy for the Chinese herbology market, Chinese companies, Chinese herb farms, cultivations, and also processing companies to consult them in quality control, which is usually expected in Europe and the type of quality control which is expected. So, we also do consultancy works in different provinces in China. The most important in this way is – as you mentioned, it’s a very interesting segment. You specified a little the TCM and also the TCM doctors, but we should look at more widely that – especially Chinese natural ingredients. Functional, medicinal, herbal ingredients are not only used in TCM. Actually, when we go to the States, in Europe, we go to many pharmacies, even to supermarkets and to other shops where you see many kinds of supplements, for sleeping, for being active, for focusing and for many other things. Actually, these are all already related to ingredients for traditional Chinese medicine, but not only to TCM, in Europe, but we have also had – now it’s much less –, many herbal remedies and still, today learning from our grandparents and even from our parents, that take these herbs or take ginger with lemon whenever you have a cold. So, there are many relations in this aspect, and the marketing, the model of marketing in recent decades, is that, of course, many modern fashionable companies who are doing supplements, but at the end of the day it’s all about the Chinese herbology market, it’s all about tradition and the history in this (learn about the push for Chinese medicine during the Covid-19 crisis).

Matthieu David: So, something I understand now, your market is overseas right, and you represent some producers from China, you help them to get the certification, do it the right way and you export their production overseas.

Gordon Dumoulin: Yes, yes. So, there are two ways, we do consultancy for Chinese companies. We help them in – among others quality control also in some export how to do business overseas and secondly, we have our export department where we have distributors in Europe, in the States, other countries who sell our products, which we manufacture in corporation with our partners in China.

Matthieu David: I understand that some of your people you know, wanted your help to buy those products in China because you were in China. What is surprising me is you have been able to also actually get the producers as clients for consulting to understand how to manage those productions and to export. Would you mind telling us more about how this articulated? Was it from the beginning that you were advising them and supporting them in production or was it in a later stage? How did you get this knowledge and how did you do it and how a foreigner can help them to do – to produce something they are used to producing.

Gordon Dumoulin: Actually, you are a link on both sides. You benefit from both sides. First of all, when you talk about the Chinese side, how you do business in general – we all know that. Its relation, you build up relations. So, at the beginning of 2010, I took night trains – 70% of my time going from one Chinese herb farm to another (learn more about China’s agricultural strategy). Going to productions who extract botanicals or pulverize to powders and you focus these people and it’s a way of doing business in China that – we hear there are many ways – also in the media, but it’s true it’s always about the win-win corporation. You also have to think about either your supplier or your customer, how they can benefit, and how you can benefit. Because if one doesn’t benefit, the relation will not last. So then it’s a natural growth that – of course with some people, you have a better relationship than with others, but you want to help them to improve because also for my benefit, because I’m buying products from them, so I want them to improve, so I can sell better products to my clients in Europe.

On the European side of the American side – European side they feel comfortable because Gordon is in China and I can speak a little bit the same language. And for many people in Europe or outside China, China is very far away and very unfamiliar so they don’t get a comfortable feeling, so this is what I can bring to them, and transparency is a very big word in this – because we are transparent. Our customers in Europe, they know the Chinese herb farms, they know the productions. They know everything. While many other people in the States or Europe, they try to hide because China is their treasure, so they say okay we deliver products, but we don’t tell you where or how – just the product is good.

But we did it the other way around. We are transparent and we build on trust. We built trust from all sides. So, it’s more like a community where we are in one way or the other the glue and the control and also trying to improve the whole community that everybody gets better in this way – and everybody makes money of course.

Matthieu David: I see. Talking about the product. When you talk about Chinese Chinese natural ingredients market, would you mind being more specific about what it is and especially what’s the difference between having supplements, what is the difference between ingredients for traditional Chinese medicine

 – CTM – one thing I didn’t say about Chinese medicine, Chinese traditional medicine – the World Health Organisation, WHO said, they accepted Chinese traditional medicine as a medicine and in June 2019 – the very recent was last year so I believe that may change a little bit your business and the perception of your natural ingredients by the West. By overseas markets. Would you mind sharing some more about Chinese natural ingredients market and how different they are?

Gordon Dumoulin: Yes. I’m not sure if this influenced the West, but I can explain a little bit more about TCM in general, I will not go into details. TCM, in general, it’s a different philosophy at looking at health. It’s also a more preventive way of looking at health. I’ll give you some examples. For example, they – a lot of people here in Beijing – eat radish after eating and you know when I just came here I said I’m full – I don’t want to eat radish or I’m not in the mood for radish. I better have dessert or some French teas but I looked it up, a radish has specific substances which make the probiotics start working. So, digesting your food. This is the same for nuts and seeds. You see Chinese people all over China and they eat a lot of seeds especially after dinner. And this is for the same reason. Chinese dates, the tribe dates they are often eaten before dinner because it lessens your appetite, so you don’t eat too much. So, in many ways subconsciously even many Chinese people will not have the straight answer why they do that, because it’s a tradition but generally eating or food in China is much more closely related to health and this is also coming back in TCM. In TCM there are many preventive measures, now, of course, you have many medicines which hardly exist in Europe and then you really talk about medicines concentrated syrups and other things, but the link is coming to supplements because supplements in Europe they have also a prevention. You don’t get sick, you have to eat vitamins, tablets every day or you have to drink lavender tea at night because you sleep well. So, there are many ways that you prevent something to happen. This is also in TCM – the value and WHO indeed appraised the TCM as being a medicine but is a different way and I don’t think it’s fully comparable. When you go to Chinese hospitals for example, usually for acute diseases which need to kill something and so to say in your body, you take a killer and it’s usually a Western medicine and you are cured. While –when you are for example having symptoms of something, you feel uncomfortable or you are having headaches or different kinds of symptoms, people often tend to look more to Chinese medicine to see how they can reduce the symptom. Not only to the medicine but to treatments and to behavior. So, the doctors will also tell you how to behave – the same as in Western societies, run more, walk more, do more exercise, sleep early, etc.

Matthieu David: I had a question about Chinese herb farms. Finding factories in China in some way it’s linked to overseas. It’s linked to foreigners and even that – finding the right factories, understanding the factories, how to work with them – it’s not easy. A lot of people struggle with that and you have been able to connect with entities which are Chinese herb farms which are much more remote, usually, I believe don’t speak English and I don’t believe they are used that much to export. Is my analysis correct and if it is – how did you handle it?

Gordon Dumoulin: Yeah first of all it is correct. The first question is actually why people are having problems finding the right partners, the right companies, right suppliers is – first of all, you have to be there. Like I said in the beginning, at the first year I spent 70% of my time in night trains really going to the countryside, visiting many companies, visiting also many Chinese herb farms and look – many were not qualified so –

Matthieu David: How did you find those Chinese herb farms. You can get a train to go to the countryside and then what do you do? How do you prepare?

Gordon Dumoulin: Oh, first we do some research.

Matthieu David: So, research how do you do it because it seems so unclear, so remote, so local – would you mind sharing a bit more?

Gordon Dumoulin: Yeah, I mean we are not going to the local, local Chinese herb farms – we are not going to a local farm whose producing vegetables for their village, but we are going to specialized Chinese herb farms because we are looking for the Chinese natural ingredients market. I’ll give you an example – for example, ginseng root which is familiar to many Western people, the area of the ginseng root in China is in Jilin province. Actually, at the border of North Korea so the famous mountain Changbai mountain is actually the homeland of the ginseng, so you study first. To come back a little early before I went to China, I didn’t know anything about the Chinese herbology market. So, I studied day and night, learning more about ingredients for traditional Chinese medicine, also studied – actually very simple, spending time on the internet talking to people, trying to find out – okay where is this, where is that? So, it’s also about relations, you talk to somebody and they know. Okay, we have a good company that has a plantation for ginseng. So, you take the train or the plane and you fly to Jilin, and you have a look around and you are amazed every day because you learn and then you find out this whole city is all about ginseng. And it is not the only plantation, there are 120 other plantations. So, you go to study more and you go to study more.

Of course, I have also Chinese people with me, who spoke Chinese at that time, because I didn’t speak and I still don’t speak very well, but they can communicate with the local people and we can find out more relations, more companies how to find out, but it takes time and you have to be here.

Matthieu David: So, your clients in the West, would you mind describing a bit more – are the restaurants? Are they more individuals? Are they doctors who are using it for traditional medicine?

Gordon Dumoulin: No, the majority are supplement manufacturers. So, the majority are – there are even big companies who produce actually natural supplements. Then, some of them are also cosmetic companies who are producing natural skincare (learn more about natural skincare market in China). So, we cannot supply to individuals because the quantities are too small because when somebody needs one kilogram and we have to fly that over, it will be very expensive for people. That’s why we also work with distributors. We have distributors in different countries like in the Benelux, in Germany, in France, Spain and we work with them – but they usually also of course target the larger companies and like I said, most is going into supplements, syrups, tablets, capsules, products like this and I think about 10 -20% maybe into skincare (learn more about the skincare industry in China).

Matthieu David: It’s more and more interesting what I’m discovering because I have – we are used to talking to people who are doing import and export businesses, but not at all in  Chinese natural ingredients market, not at all in food from China, but more from factories and we see plenty of people in this industry. So, I believe your business is very unique and your position is very unique. I’d like to understand more about – because you said transparency is very important – your clients know where the farm is. How do you handle the transparency on pricing if they know so much about the sourcing and so on – how do you work on the pricing?

Gordon Dumoulin: We move on the pricing together with our suppliers here in China. So, they know what we are asking in Europe and we also discuss this together. We don’t have any exclusivity, so our model is – actually, we have our own brands and that’s the local brand, so the end-users at the end of the day do not know where it’s coming from. Our distributors they know. If we have a very big customer who wants to visit a plant or wants to visit a plantation – he’s most welcome. They can come but we have to deal and we have the agreement with the suppliers that they know our customers and they will not touch our customers and even – so actually we put the security and that sounds strange for many Western people – we put the trust with the Chinese suppliers as – to be honest, I haven’t been cheated in 10 years. So, if any customer from Europe – and they know for example from which factory it’s coming, or even from which plantation – they need for example ginseng for an herbal tea if they would contact the Chinese herb farms directly the first phone call is coming to us. This guy is calling and how should we handle this? So, it’s in a way a matter of trust we can put and to be honest – we don’t have any legal agreements with this, because you don’t want to go into legal anywhere, so it’s a matter of trust and it’s again about relations what I said before. You build up relations with the people, you show them trust, you show them support, mutual support from both sides and a feeling that we are here to stay and we are going to make a good relationship together and also a pleasant relation together, for the purpose that we can sell and we can have some market.

Matthieu David: I understand. I feel that you are acting like an agent for them, an agent who will actually manage their exports and their overseas relationship. Does it make sense to say so?

Gordon Dumoulin: In one way yes, in one way, yes, but even some of them are large companies. They even have their own export department, so it’s not the only one – we are not working only with small companies, we are working with some leading companies in China for plantation, for processing and even there we have our relations and we do our own business with our own branding. We have good relations and we also support them as I said in the consultancy, in improving their processes and our processes together.

Matthieu David: You are involved in another business I mentioned initially, which is education. Business called – Easton Bridge Education. To give an idea to people listening to us how big this industry is – it is said that private schools account for 35% – let’s say 1/3rd of the total number of schools in China in 2018. So, it’s massive. I believe that the number of private schools in proportion is much higher in China than in Europe for instance. 53 million students are studying in private schools in 2018. That’s also a very fragmented market and when we look at the English language learning market for 2018 globally, China represents a third of it. Like 29-30% of the total. Final thing is that education for kids is one of the segments of the market where parents want to spend. They are eager to spend. When we look at some statistics in Shanghai, so private bilingual schools on the time of education of the kid, parents who were affluent could spend 100 – 200 thousand USD – of course, that’s over many years, but that’s a sizeable amount of money that Europeans, for instance, are not spending. Most Europeans don’t spend, even the affluent ones in Europe. Would you mind telling us more about what you do in the education business in Beijing and a bit more about your clients as well? I’d like to know if what I just described corresponds to what you see.

Gordon Dumoulin: Yes, actually the education has been also born from a – in a natural way. Like you mentioned my wife – we started up Dumoco together 10 years ago. She is from Beijing and at that time she was not my wife yet and we set up the business and we were business partners. She helped me and as we all know the business at the start is a difficult one, so we were fighting for Dumoco for the extract, for the Chinese natural ingredients market, and for the export network and at one point we were – living in the outskirts of Beijing and we had an office at the time, a small office and so my wife at that time said – there are two kids here on the floor and they want to learn English from a foreigner and me was a European mindset, focused and I didn’t study for this and I don’t want to do this, I need to spend time on Dumoco, and then I came to one of my first confrontations of Chinese ways of thinking because she showed me the balance sheets and she said – you still want to pay me or not? So, that was a good one and so she – so I said actually its good. Let them come and we can teach them at the weekend. So that was actually her education. She’s an English teacher, she has an English teaching degree and her passion, her dream is her own school – her own English school (learn more about China’s language school industry).

So, we started this for two kids and we expanded, we rented an apartment here in the Tongzhou district in Beijing and fast forward we 8-9 years later we had a full program in our apartment, so we rented another apartment, ran a full program. Especially in the weekend, and also after school – with me teaching in the weekend to support her and she taught during the week and we had two other teachers and since last summer we moved – we found a corporation and an investor also with a license because we were not actually official, so we found an investor with an education license, we moved to where I’m sitting now, we moved to a new school – 400 – 500 square meters, with also more teachers and now we have about 150 – 200 students running and besides that we are doing international summer camps. So, in the past year, we have organized summer camps to Boston, to London, to Holland. Last winter, just in time before everything was closing – to Singapore. So, this is – yeah this is in a nutshell where we came today.

Matthieu David: I see – what you do is an education center based in Beijing and also education – how do you say that? Education travel?

Gordon Dumoulin: Yeah, we call it winter camps, summer camps, English summer camps, so we find corporations with schools abroad, in the US, Europe, Singapore last winter and then we send them on training there together with some – of course with some other educational culture tourism natural aspects as well.

Matthieu David: How would you describe your clients? Are they very wealthy? Are they affluent? Are they themselves parents have degrees or the opposite, they want the best for their kids because they don’t have degrees? How would you describe them? How would you qualify them?

Gordon Dumoulin: We have many different kinds of clients, of course, you need to spend – I mean they spend quite a lot of money on English courses. Usually average you spend for a 60-hour course as frat you spend about – and then you are not expensive, this is for normal smaller schools you spend between 1 -1.5 thousand USD per kid and then you are talking about group classes. When you have one to one classes you spend even more, but many of them – we are building actually also a very large social environment because most of the parents are here so we get to know them and when it’s clicking we are eating together and drinking some wine –we see that many – of course first of all people need to be able to afford, because some of them taking three classes and then they also have a piano class in the music school and they have an art class in the art school – so they are quite filling, but many of them are entrepreneurs, they have their own business in many different ways, in many different sectors. Some of them work – I would call it the upper-middle class because – no actually the whole middle class. We have some lower – we also have a girl she’s living in a village; she’s coming by bus really 45 minutes by bus, just to spend 45 minutes here and they’re really struggling for this, the parents – both are really struggling for this but the average is middle class. The upper class will have their own really higher private education because then it’s what the price counts – so I would call it you know, average middle class and to be honest, the middle class in China is doing very well and is very much comparable to European middle class – I think you know as well and even in some ways better off in terms of spending power. On what can be spent. So, yes, the clients are all families, most of them all go to public schools and the children go to public school and to our education center based in Beijing. I have a son of 7 years old, he’s going to public school here and many of our kids are his classmates, at least in the same school and to be honest, just as an example how still rare it is also – I’m living really in the outskirts of Beijing, my son is in a public school and this is – it’s a huge public school, I think about 1500 students and I’m still the only foreign parent in the whole school. So, it’s also like an imagination for the listeners that you’re still a minority as so to say but a blissful minority. It’s not something negative at all. But you get close to the people, you get close to the residents in the compound, also with the school – the school has its social factor in this.

Matthieu David: What are the parents looking for? Are they looking for opening the mind of their children? Are they looking for core competencies like English – being fluent in English, or are they looking also now and because the education market may be more mature than before – are they looking maybe also to learn how to play a piece of theatre? How to learn instruments? How to do liberal arts, drawing, and so on? What’s your perception of it and the evolution of it over the last 10 years? My perception and I’d like to know if you agree with that is that – 10 years ago it was much more about core skills, learning English – learning maths, learning whatever core subjects and now it opening up to the drawing, dancing, music instruments, playing theatre. Is my understanding correct? Do you see that with your clients?

Gordon Dumoulin: Yeah, I see that and you are correct. It’s more – you have specific courses, when you talk about English, you have specific courses but our general courses have the aim that the students and the kids are able to express themselves and they feel comfortable to express. We do – in our education center based in Beijing, we do many ways, we play Shakespeare, we have many jokes, we do games and all in English and it’s all about that they can feel more comfortable in expressing themselves. I don’t correct them every time when they make a mistake. Let them talk, let them express, let them speak – and this trend what you just mentioned is correct, people are looking for – you know, kids who are more able to express themselves, to be more diversified in many ways, also internationally that they learn more. We also talk a lot about cultures in other countries so they learn more about this. I’m amazed about what the kids know here about other cultures in comparison to what I learned in Europe about China which was a big mystery at that time. But I’m amazed at what they already know and I want to give it a more attaché that they also see and feel. So, yes and then we have specific courses also of course – I mean for example when a kid needs to have an exam for a certain school, for example, Cambridge or Toefl or things like that, we have specific courses to prepare them for this, so there’s also, of course, a specific target course and then we have the general language course.

Matthieu David: I see, so still you feel that there’s a functional need for education to pass the exam, but it’s opening up to more liberal arts and more non-core skills. One other thing you are mentioning on your LinkedIn profile – it’s a bit another topic, but you say change is inevitable. You have written that – why do you say so, because I wanted to ask you because Peter Drucker who is a consultant we look into a lot at our company Daxue consulting, invented the name of strategy and business, is saying – what’s in common with all entrepreneurs? It’s not their education, it’s not where they come from, it’s not their social background, what they have in common is that they think change is positive. They see change as full of opportunities when none entrepreneurs would see change as a threat. As something which is threatening their position. So why are you writing change is inevitable?

Gordon Dumoulin: Because first of all this – how you look at it, it doesn’t matter. Whether you take it positive or as a threat, but I do believe that change is inevitable. We have a very – unfortunately not a lot of positive situations today, all over the world because of the coronavirus but change is inevitable and that’s what I learnt also here in China. Indeed, in Europe, many people see change as a threat, but in China, you have to change, you have to adapt. There is a certain – I don’t call it negativity, there’s a certain nervousness that you need to improve, you need to change, or this doesn’t work so we need to go another way. There’s always something happening and this is also coming to my third passion what I’m doing, I’m also doing a blog of 5iZ – actually started, I’m no longer on LinkedIn. For me, it’s cross-cultural awareness about different cultures and different societies what the change is there, and what are the differences there. And so, what I learned in China – change is inevitable, but I also see that in other societies that this applies also to other societies and if you see it as a threat it holds people back and societies as well.

Matthieu David: I wanted to talk about 5iZ as you mention it, and especially about the name, I found it very interesting and shows how deeper you know China. You named 5iZ because China is not talking about North, South, West, East only – but also North, South, West, East, and Centre like Tiananmen being at the center of China and the center of the world. Would you mind telling us more about what does it mean for you?

Gordon Dumoulin: Actually it has been – you know, before I went to China I was most of the time in expert management jobs, so I traveled for about 15 years all over the world, meeting many cultures and doing business there, coming to the homes and so you know – culture was always a passion for me and seeing different cultures, and I had been in China before I had moved here, also many times but just being here for a week is something else and plunging in a black hole and start to live here. And China gave me – China as a country, as a society gave me so much learning that you can look at things in so many different ways. We have been brought up which is normal, as Chinese have been brought up here and Europeans have been brought up in Europe, you always have some kind of mindset in the culture and the society where you grow up, and this is natural and this is normal. And having the opportunity to live here, spend time here in a practically almost Chinese environment it was really – I’m very grateful having that experience and banging many walls because you have your own mind-set and like everybody is stubborn and everybody wants to have their right. So, you have many different learning experiences about how people think and how other people can think and approach new things. So, it’s very important that people start to realize all over the world that there are many differences in culture and cultural intelligence in how to do things. Also in business and when we go then into the business side you have many fantastic models on how to do business, but at the end of the day, it’s about feeling the people and about feeling the country and also knowledge about what worries those people – what is their daily life. What’s it all about and how they approach problems, and opportunities as well. How they teach their kids, how they live at home. I’ve been grateful in this and I wanted to share that and coming back to the name, 5iZ – yes center is a very basic thing which I feel also a little now. You know I mean – all the changes happening for example today – also with the virus, but Chinese society 10 years ago and today is completely different almost. You go through many changes and you learn to be more resilient. You learn to be calmer and tackle problems, threats, or opportunities in a calmer, resilient way and if it doesn’t work – fine, you go to the next opportunity.

Matthieu David: It’s close to 1 hour, I have a few questions to end the discussion. The first one and I often ask these questions – what books inspired you the most when understanding about China?

Gordon Dumoulin: For me, one book generally, not only about China – and I read it last year, I’m still reading it again – it’s The Silk Roads, from Peter Frankopan. It’s a fantastic book about the history and about the world history but through a very different perspective and the message what you learn there is that the history what we learned as a kid, in our society is very different from the kid in another society. Such as China or anywhere in the world. And so, this is a book I really recommend – also in understanding China. First of all, you cannot understand China completely – no one understands China, you don’t understand France – I don’t understand France completely – you all have these few items which characterize a country but this is nothing to make this diverse society clear because it’s very diverse. So, just for the perspective – read this book and know that you know nothing about the country. So be objective when coming here.

Then some other books – first of all, there are many books about how to do business, how to be successful, get your things, e-commerce – digital retail, new retail – all this. Read those books, some of them are great but it’s not about understanding China, it’s about understanding the market because China is a society and its people. This is what I’m always telling many people – because people want to know about China – I say why do you want to know about China? Because I want to do business – I say either you find a good local partner, then you don’t need to understand China. If you want to understand China you need to know the culture, you need to spend some time, you need to read about it. Few books that I have on this one is – first of all, a very old one and but still, it grasps a good feeling, its Red Star Over China – from Edgar Snow. Red Star over China- he was an American, he was actually the first foreigner who met Mao Zedong and this story gives you an insight also how people think and we are not talking about the historical events, but how people think and many thoughts are still applied today – how people think in terms of the collectivity of pragmatism in many – the many characteristics which are not defined, but which indicate as the characters of Chinese society is coming back. Secondly, I think – I don’t know if people have seen the Wandering Earth – the movie, the Chinese science fiction movie, a great one last year – I’m not sure if it’s not Netflix already – because I don’t have Netflix here, but read his book, it’s from Liu Cixin, he is one of the biggest science fiction writers in China – so in general, read either fiction or non-fiction biographies if you want to learn about China more.

Matthieu David: If I say more, The Three-Body Problem is written by him as, well right?

Gordon Dumoulin: Yes, exactly.

Matthieu David: And it has been popularised by Obama who read it before it was published and The Dark Forest the other one which was – yeah – I think he’s buried in Peking University and he was the first one – maybe the only one, but he was the first one I’m sure to be the member of the Chinese communist party and he lived in China all over the different periods of China, including during the controlled evolution. What are the most surprising success for you in China and the most surprising failure in China you have witnessed? I’ll give you an example of mine – I’m very surprised how e-commerce developed, because when I arrived people were paying cash at the front door when they get delivered and they didn’t want to use their credit card and now it seems that they use their phone to pay with a QR code that could be scanned with another number, taking more money than what you really want to pay. So, it’s a change I wouldn’t have expected to go so fast and so far.

Gordon Dumoulin: Yes, coming to your example this is very true and we always think about Chinese 10 years – 15 years ago with piles of cash because they wouldn’t trust anything else and they wouldn’t trust other people – while this is totally gone in 10 years, in less than 10 years even. But yes – I mean the daily change, as an example the daily changes that are happening – but also the daily changes and the daily speed what’s happening to yourself. You are really coming in to – you are forced to keep moving, to keep moving either by new regulations, by new opportunities, other companies like you say the new retail is coming. We are forced today, we are forced today with the quarantine or the confinement – our school has been closed for 2 months because we are not allowed to open and we don’t want to open because we want to be safe. We are already working, we have now our video classes at the weekend, we have our online classes. My wife is teaching almost the whole day online classes. We have set up an online library – we all did this in a matter of weeks. As for the surprising success is indeed the fast change which is happening and that you can adapt to that. So actually, this success is not more like business success, but it can come out in the business – the success is that you must break yourself open. You must be more adaptable and you must be more wide looking in things which you might be stuck in the business – for example, you have been doing business for 10 – 15 years at home or Europe or even here in China and you say I cannot do anything else. This is what it is. No, this is not true, even within your own business you can innovate. You can differentiate. As for the speed of differentiation of innovation is stimulated – also even forced upon you because – not forced in a negative way but you go with the flow, and you also want to lead some of those flows. So, this is I feel really a success in myself that you are much more wide – open-minded in doing business.

Matthieu David: Last question – what do you read to stay up to date on China? What are your sources? I believe that’s a common question for foreigners – what kind of sources can they use? It’s hard to read the Chinese newspapers, even for people who have a very good Chinese level HSK 5 or 6 – it could be hard. So, what are the other sources you are using to stay up to date on what’s going on?

Gordon Dumoulin: First of all, I think – of course, you have some English language – like China Daily, Global Times – many people see these newspapers often as not very objective but actually there are many interesting articles and there are many insights which can teach you more about China. Also, about society, also about governance. Some more other sites – there’s also one site – it’s called Sixth Hong and they have some social articles, articles about society, about what’s moving the people and different kind of aspects, they touch these topics and you have similar sites of this like RADI China, Sub China – so you actually have different sites where you can find – so to say non-mainstream insights of China. Because the mainstream – people know but there’s actually – it’s not very interesting because it’s always coming back to the same, and it doesn’t give you an image of society and when you want to do business here or when you want to be interested or when you are interested in China, you need to know more about the people and what’s moving the people – because they are your customers or your suppliers and you also want to trust your suppliers. So, try to find some other news agencies which diversify the news. Of course, go to my blog, I post almost every day different things about Chinese society. LinkedIn is also a fantastic medium with many people telling their own experiences and their own insights and so – this is usually the sources what I’m using, and then, of course, you have the Chinese twitter – Weibo, you have WeChat where you find the trends, what’s happening in China.

Matthieu David: What’s the link for your website?

Gordon Dumoulin: 5iz-China.com.

Matthieu David: Thanks Gordon for your time, thank you very much it was very instructive, very interesting to see how you have been able to develop your business on natural ingredients, a very unique business I believe. I wouldn’t have the chance I think to interview someone who has been able to go into this industry which looks very, very local. Thank you everyone for listening and stay safe during these times of virus outbreak. I hope you all stay safe.

Bye, everyone.

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.

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This article China Paradigm transcript #98: Doing business in the blossoming Chinese natural ingredients market is the first one to appear on Daxue Consulting - Market Research China.

Data source: askCI.com- Market size of telemedicine in China from 2015-2019

Telemedicine consumer penetration

Given the COVID-19 situation in the beginning of 2020, it is no surprise that the penetration rate jumped up by 2% YOY. By April 2019, the number of users of online telemedicine services in China had reached 45 million, with industry penetration reaching 6.6%. The penetration rate continued to rise from 2018 to 2019 and will likely maintain its growth momentum in the future. It is expected to exceed 8% in 2020 and the scale of users will continue to expand.

Telemedicine apps and websites are no longer just patients from 1^st-tier cities, but people in 2^nd and 3^rd-tier cities are beginning to use telemedicine platforms. People under 35 years old are the main users, however, the middle-aged & elderly groups’ needs have not yet been explored. Telemedicine companies should pay more attention to the convenience and operability of online consultation to seize this part of consumers.

The characteristics of telemedicine industry in China

5G technology

Source: Sohu.com – Construction of 5G base stations is accelerating and 5G networks are expected to cover prefecture-level cities nationwide by the end of the year

In 2020, 5G technology helped telemedicine enter a new stage of development and explore new scenarios for application. Telemedicine in China started relatively late. In 1988, the PLA General Hospital conducted a remote case discussion of neurosurgery with a German hospital via satellite, which was the first telemedicine activity in the modern sense in China. China’s telemedicine industry has developed rapidly later on, owing to the development of computer technology, communication technology, digital medical equipment technology, hospital information management technology and a series of core technologies in telemedicine.

In early 2020, during the COVID-19 outbreak, China’s telemedicine was more widely applied and developed with the support of 5G technology. Zte and Sichuan Telecom assisted West China Hospital of Sichuan University and Chengdu Public Health Clinical Medical Center to realize 5G remote consultation of two COVID-19 cases for the first time.

5G telemedicine trolley has been launched in Wuhan Huoshenshan Hospital. In some places, China Mobile has launched the application of “5G infrared thermal imaging temperature measurement” to realize the simultaneous scanning and temperature measurement of many people.

Driven by 5G technology, the application scenarios of telemedicine have been expanded, such as remote ultrasound, remote surgery, mobile ward rounds, remote monitoring, remote consultation and remote first aid.

The uneven distribution of medical resources

In China, the distribution of superior medical resources is extremely uneven. More than 70% of the third-level grade-A hospitals are located in the eastern region, making the potential demand for telemedicine in the central and western regions huge.

Data source: chyxx.com – The proportion of third-level grade-A hospitals in the three regions in 2018

Telemedicine in China’s ageing society

China’s huge population base has already put medical resources to a severe test. On top of this, China has encountered the problems of relatively unbalanced economic development and unevenly medical resources distribution. At the same time, China’s population is aging, and immense pressure is put on the younger generations to care for the elderly.

The United Nations issued a standard: as 65 years old people account for more than 7% of the total population, the country is considered an aging society. According to data released by Chinese National Bureau of Statistics (NBS), the proportion of the population over 65 years old has reached 11.9% in 2018.

Data source: chyxx.com – The proportion of people aged 65 and over in China from 2000 to 2018

As the elderly have entered a period of decline, they are much more likely to be infected with various diseases than their younger counterparts, which greatly increases the market demand for medical resources. Telemedicine can solve the imbalance of medical services in different regions to a large extent as well as integrate and utilize medical resources through the Internet, which will be conducive to the stability of our society and the protection of people’s healthcare.

Telemedicine platforms in China under the influence of COVID-19

Accelerate the construction of telemedicine platforms in China from hospitals

Due to the COVID-19 outbreak, the urgent need for epidemic prevention and control has promoted the construction of telemedicine platforms in China from hospitals, which reached a new peak in February 2020, with 65 telemedicine platforms from hospitals built in a single month. During the epidemic, in addition to online outpatient services and pneumonia consultation services provided by existing telemedicine platforms, traditional public hospitals and other medical institutions also launched online telemedicine platforms on an emergency basis.

Previously, most of the public hospital informatization construction remained in the “digital hospital” level, such as “intelligent outpatient service”. The degree of informatization is mainly reflected in basic services such as hospital registration, consultation, settlement and medical record management. The epidemic has accelerated the construction of remote online consultation in hospitals and the real patient-oriented Internet diagnosis as well as treatment services which have begun to develop.

Data source: Xinhua.com – Number of Chinese hospitals with own telemedicine platforms from 2019-2020

Take one of the leading platforms – PingAn Good Doctor as an example

PingAn Good Doctor is the wholly-owned subsidiary of PingAn Group and leader in telemedicine services in China.

It covers four major business segments: online medical consultation, consumption medical care, health malls, health management and interaction. The number of users reached 5.67 million on February 5th, with an increase of 8.4% before the 2020 Lunar new year.

In terms of city distribution, the proportion of customers from new first-tier cities is the largest while the proportion of customers from first-tier cities is the smallest.

In terms of age distribution, consumers aged 24 to 30 account for the largest proportion.

Data source: qianfan.analysys.cn, Ping’an Good Doctor users are disproportionately in first tier-cities.

Data source: qianfan.analysys.cn, Ping’An Good Doctor users are usually young, although elderly are more likely to experience health problems

Monthly active users of PingAn Good Doctor app increased rapidly since January, 2020 (COVID-19 outbreak).

Data Source: qianfan.analysys.cn, monthly active users of Ping’an Good Doctor

Limitations and Opportunities

With the deepening of “Internet Plus”, Internet economy has become an important factor in China’s economic development. “Internet + medical treatment” has been constantly applied and developed.

The coverage rate of 4G network has reached more than 95% and 5G network has been officially commercialized. Software services, cloud computing, big data and other industries are developing rapidly, laying a good technical foundation for telemedicine. With the use of automated and intelligent technologies, telemedicine is gaining more and more recognition from patients. Therefore, it can drive the increase of huge demands and the potential space of telemedicine market will be huge.

Since 2009, a series of established policies have demonstrated the government’s strong determination to develop telemedicine. With the intensive introduction of policies, the policy environment of the telemedicine industry in China is clear and the industry will usher in rapid development.

However, the telemedicine industry in China has not yet developed a mature business mode, remaining some problems like vague pricing policies, uneven payment systems and wide variations in health care from place to place. Additionally, an obvious concern with telemedicine is that it is easy to ignore symptoms that can only be diagnosed in a “face-to-face” setting, leaving health-care providers vulnerable to negligence claims and insurance coverage. At the same time, patients are also prone to misdiagnosis or missed diagnosis.

Social habits and careful regulation hinder the application of telemedicine. For many people around the world including Chinese, the COVID-19 outbreak is already forcing a change in social habits that is likely to have a permanent positive impact on telemedicine.

Author: Qing Zheng

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This article Telemedicine in China: Healthcare reaches a new status quo during the COVID-19 pandemic is the first one to appear on Daxue Consulting - Market Research China.

60% of Chinese families eat soup every day, meaning about 500 million bowls of soup are consumed nationwide every day, 320 billion bowls of soup every year. The average person consumes 4.6 bowls of soup per week. That is to say, the magnitude of the soup market in China is enormous, dynamic, and recession-proof.

Overview of the ready-to-eat market in China

Soup is one of the most popular ready-to-eat foods in China. As people’s lifestyles change, the demand for ready-to-eat food is expected to grow faster than in the past five years. There is a growing demand for ready-to-eat food, especially for middle-income and high-income consumers, who can afford higher prices. Meanwhile, the ready-to-eat soup market in China reached a new high during COVID-19. On the one hand, the epidemic has led to the offline consumption of leisure snacks to be interrupted and forced consumers to shift to online shopping; on the other hand, ready-to-eat food is accelerating to become a powerful consumption supplement for the catering industry.

Ready-to-eat soups are healthier and tastier alternatives and the convenience of instant soups supports these consumers’ fast-paced lifestyles. Factors such as high availability, less cooking time and travel friendly packaging push the development of the ready-to-eat soup market.

China Dominates the ready-to-eat soup market in Asia-Pacific Region

The expansion of the instant food market will further support the growth of the ready-to-eat soup market in China. Manufacturers are using various methods to increase their share on the ready-to-eat soup market in China. This include distributing innovative products, strengthening their presence in new markets or regions, as well as their base in existing markets.

Market size in China peaked during COVID-19

Under the influence of Covid-19, ready-to-eat food is quickly growing in China. Since February 2020, data shows that the overall sales of ready-to-eat food on Tmall have increased nearly sevenfold from a year earlier.

It is expected that by 2020, the business of soup market in China will reach US $4.818 billion in revenue. The average revenue of soup segmentation in China in 2020 will be US $3.33 per capita. In terms of volume, China’s per capita consumption of soup food will be 0.5 kg in 2020.

Source: Statista.com-Revenue in the soup segment in China (Forecast adjusted for expected impact of COVID-19), June 2020

According to data from the ecommerce PinDuoDuo, sales of more than 1,000 products including fresh fruits, ready-to-eat food and leisure snacks exceeded 100,000 during the “Not closing for the Spring Festival Campaign” in 2020. According to Tmall international, ready-to-eat food has become the new choice for ‘staying at home’.

Korean instant rice, Vietnamese instant noodles with salted egg yolk, Japanese vegetable miso ready-to eat soup and Australian whole wheat instant cereal are all popular dishes for home diners. The data shows that sales of imported instant noodles rose 12 times year on year, while ready-to-eat soup and instant rice rose more than 80% year on year.

Consumption upgrade in ready-to-eat foods

Since 2013, the consumption of instant noodles in China has seriously declined. In recent years, Chinese people pay more and more attention to their health, so ready-to-eat market in China is also forced to either upgrade or lose consumers. This trend in consumer preference contributes to the rise of premium ready-to-eat foods.

In line with consumption upgrading, the large traditional ready-to-eat food companies have successively launched premium ready-to-eat products, ‘original soup’ instead of seasoning powder and ‘meat slices instead of dehydrated meat. Ready-to-eat food has got rid of the marketing message of ‘make you full’ and is moving towards ‘nutritious, delicious and convenient’.

After the outbreak, ready-to-eat food may become a daily consumer product

Ready-to-eat food will be one of the six annual food trends for 2020, according to Tmall’s 2019-2020 national taste data released at the end of 2019. Sales of semi-finished food rose 111% year-on-year in 2019. Sales of ready-to-eat foods such as ready-to-eat soup and self-heating hotpot grew by more than 50% on Tmall.

The epidemic has helped shift the nature of ready-to-eat food from a popular trend online to a daily consumer product.Therefore, if the ready-to-eat industry and enterprises can grasp the changes in consumer demand after the epidemic and promote the ‘return’ of health value from a strategic perspective, they will surely achieve the greater development after the epidemic.

Competing brands in China’s ready-to-eat soup market

Source: taobao.com – 5 flavors of ready-to-eat soup from Su Bo

Combined with the ranking and evaluation of soup brands on Chinese e-commerce sales channels and Chinese brands ranking websites such as Paizi10.com,Qiang100.com and Sougou Guide, the following brands in the ready-to-eat soup market in China are summarized.

Chinese ready-to-eat soup brands

SuBo (苏伯)

Source: taobao.com – Spinach egg soup from Su Bo

‘SuBo’ is similar to the pronunciation of ‘soup’. It originally comes from Shandong Province. The brand is one of the best performers in the soup market in China in terms of overall performance. It is not only a popular Chinese soup brand in China, but also in Europe, America, Japan, Southeast Asia and other countries. Today, the ready-to-eat soup of this brand is sold in Chinese supermarkets, fast food chains, high-speed trains and on the Internet.

XinMeiXiang(新美香)

‘Xin Mei Xiang’, a company from Hubei province, produces and sells ready-to-eat soup, cooking package, freeze-dried fruit, dehydrated seafood, meat, vegetables and other products. ‘Xin’ means new, ‘Mei’s stands for beautiful, while ‘Xiang’ goes for appetizing.

The products are exported to the United States, Japan, South Korea and other countries. The company has several freeze-drying production lines and vacuum freeze-drying technology to give the customers innovative and appetizing experiences.

Xiao Yao Lao Yang Jia（逍遥老杨家)

This Chinese soup brand name means free and unfettered Mr.YANG. This brand, from Henan Province, is famous for its ‘Hu La Soup’. ‘Hu La’ soup is a famous kind of local cuisine in Henan province which is made with pepper, chili, and bone soup. ‘Hu La soup’ differentiates itself with its spicy taste.

Source: Taobao.com – Hu La soup from Xiao Yao Lao Yang Jia

A Yi Bo（阿一波）

A Yi bo Food Industry and Trade Co., LTD., originated from Jinjiang City, Fujian Province, was established in 1990. It is a well-known brand of nori, and a large enterprise specializing agricultural products deep processing and focusing on the production of Marine green food. In terms of instant soup, Nori ready-to-eat soup from A Yi Bo has an outstanding performance on Taobao sales.

Source: paizi10.com – Nori egg drop soup from A Yi Duo

Li Ziqi’s flagship store on T-mall（李子柒旗舰店）

Li Ziqi is a KOL who makes short food videos. With more than 25 million followers on Weibo, 38.9 million followers on Tiktok, and more than 11 million on YouTube, she is known as the “The expert of oriental food and lifestyle”.

Source: Youtube.com – The youtube homepage of Li ZiQi, Chinese food KOL

Li Ziqi’s flagship is her online food store (most of which are ready-to-eat food) on T-mall, which sells a variety of delicacies including a variety of ready-to-eat soup.

According to the total sales data of 21 products currently sold in Li Ziqi’s flagship store, the e-commerce wholly-owned news calculated that its total sales volume exceeded 1.3 million, and the total sales value reached 71 million RMB.

Haifusheng（海福盛）

Established by Xinsanhe (Yantai) Food Co., LTD., Haifusheng brand is specialized in the R&D, production and sales of high-end ready-to-eat food, such as instant soup, instant porridge, instant noodles, instant fruit and other ready-to-eat food.

Tian Li (天利)

Tian Li Food (Xuzhou) Co., LTD., founded in September 2009, is invested by Hong Kong Tian Yi International Group Co., LTD., located in Xuzhou, China. The company takes arctium burdock as the main raw material to form a green deep processing industry of agricultural and sideline products, among which the Wu Xing vegetable soup is deeply loved by the public. (The Wu Xing, also known as the Five Elements, is a fivefold conceptual scheme that many traditional Chinese fields used to explain a wide array of phenomena, from cosmic cycles to the interaction between internal organs and from the succession of political regimes to the properties of medicinal drugs. The “Five Phases” are Fire, Water, Wood, Metal and Earth.)

Han Chang (酣畅)

Han Chang brand was founded in 2010. As a professional brand of western food, it has been focusing on western food for 7 years and advocating the life concept of “Eating stylish western food and living a good-quality life”. The brand’s ready-to-eat western thick soups, such as mushroom cream soup, chicken corn soup, borscht, are popular among Chinese soup consumers.

Super Hi(超级嗨)

Super Hi, a brand from Sichuan province, has flagship stores on JD.com and Taobao. The brand began selling self-heating products, with popular categories such as self-heating rice and self-heating hotpot. The products have been well received by Chinese soup consumers. The chicken soup and duck soup from Super Hi have been recognized for their original taste. Since the Spring Festival 2020, the online orders of Super Hi have increased by 200%-300%, which is remarkable.

Source: Taobao.com – Chicken soup from Super Hi

Foreign ready-to-eat soup brands in China

Jia Le家乐 (Knorr)

Founded in 1838, Jia Le (Knorr) is the world’s No.1 condiment brand owned by Unilever. Its products are sold in more than 100 countries and are consumed by 320 million people worldwide. The products from the brand Jia Le (Knorr) has always been committed to producing high-quality products and bringing fresh and delicious ingredients to consumers. Its breakthrough innovation in flavoring products not only satisfies the taste of global consumers, but also adds endless fun to the gourmet life.

In 1993, Jia Le (Knorr) came to China, launching Jia Le chicken powder, leading to a new concept of health. Subsequently, in order to continuously satisfy the taste of Chinese soup consumers, Jia Le introduced other soup powder products and sauce products. In September 2007, Jia Le launched Thick soup Bao, a kind of ready-to-eat soup in China, which opened a new page for the seasoning market of the Chinese catering industry.

Chinese ready-to-eat soup consumer characteristics

Chinese soup customers have a higher degree of trust in brands

Brand is what Chinese soup consumers value most when choosing soup. The branded soup gives people a much greater sense of security than non-branded soup. Also, word of mouth plays an important role in consumers’ choice of ready-to-eat soup.

Young “Zhai people” in China are bursting out with great consumption potential

The expression of Zhai people (宅人群) refers to men and women who depend on the internet to meet their daily needs without leaving their homes. Also, people who don’t like to go out except for work and prefer to stay at home are described as ‘zhai’. These people usually rely on food delivery services, but because of the COVID-19 outbreak, ready-to-eat food has become their first choice.

On the other hand, with 240 million single people, the ‘single economy’ in China is flourishing. Also, people living alone also have a greater need for ready-to-eat food. This group of consumers will become the new target group of the soup market in China. Moreover, ready-to-eat soup fits this demographic’s spending habits.

‘Healthy’ has become the new rigid demand for the soup market in China

With the further enhancement of health awareness, ‘healthy’ has become the new rigid demand. The health-related products, knowledge, content and activities have attracted more attention of Chinese soup customers.

Author: Qing Zheng

Learn more about China’s ready-to-eat market

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According to White paper on mental health of Urban Residents in China, among 1.1 million people in the sample, nearly 75% suffer suboptimal levels of mental health  while only 10.3% enjoy a healthy mental status. The paper also indicates that there is a relationship between the mental health and physical health. 50.1% of people who have physical health also suffer mental health problems. Specifically, people who are diagnosed with tumours, diabetes and hypertension are more likely to have anxiety and depression.

A more recent survey by Teenager newspaper reported that in 2018, more than a third of the young adult in the age group 14-35 were at risk for depression and 10% had severe depression. The rate of young adults with no mental health issues dropped by 5.3% between 2008 and 2018. The risk of mild-to-moderate depression increased 5% (compare to 2008) and the risk of severe depression was also higher than in 2008. All the evidence points out the fact that more and more people in China are facing mental health problems. Additionally, the Chinese government announced a series of documents (Health China movement健康中国行动) to urge local school and institutions to pay more attention to children and teenagers’ psychological wellbeing. It is therefore important to understand the current development of China’s mental health care market and how it is organised.

Mental health care market in China: The growth of C2C psychotherapy online platforms

According to iiMedia research, the scale of e-commerce users of therapist services in China exceeded 20 million in 2018, and it is expected to triple in 2020. Rather than offline services, Chinese tend to choose online therapist services as it is more convenient and private. There are a large number of consumers needing a therapist for emotional setbacks as well as depression. This research suggests that with the development of user education the growth of the e-commerce market for therapist services will slow down in the next few years, and the services will refine themselves with more diversified segments.

Data source: iiMedia, Chinese go online for therapy sessions

Song Guo Qing Su (SGQS松果倾诉) and Hao Xin Qing (HXQ 好心情) are the e-commerce psychotherapy platforms that are trending. Both SGQS and HXQ use a C2C business model to deliver their service. SGQS attracts many independent yet less qualified therapists to join the platform. A client can choose either to communicate via text or a call and the therapists will charge accordingly. The price is in a wide range and usually much cheaper than the professional therapist in the hospital. However, SGQS does not guarantee the quality of the therapists. The same kind services are proposed on Tao Bao (淘宝) as well.

In contrast, HXQ is relatively more professional in terms of quality of therapists. According to HXQ website, the therapists registered with HXQ are all from public hospital psychiatry, neurology and psychology department doctors. Almost 20 thousand psychiatrists, accounting for 80% of the psychiatrists nation-wide, are registered with HXQ. HXQ uses the cloud and big data technology that share the sources with the supply chain of the medical and health products. Hence, HXQ is not only a provider of psychological consulting services but also a health supplement retailer.

Image source: Sohu new report, CEO of HXQ’s presentation about online mental healthcare market in China

Supply in the the mental health care market in China

In a China Paradigms interview, Zhang Ying Fei, a psychological therapist in China points out that the Chinese mental health market is underdeveloped. Even though many people want to become a therapist and some of them do obtain a certificate, low future income and high upfront investment are obstacles. In order to get the certificate, aspiring therapists need to invest time and money for training, which normally lasts six months to one year.

Independent therapists face unstable income and high investment in training

The supply of therapists in China is short partly due to the sacrifices that therapists must make. According to Zhang, “Even if someone has the certificate they are not going to be a therapist. Who can really be a therapist; according to what I observed are those that are really determined and so they have to sacrifice many things; their time, their current job”

See our China Paradigms episode with Zhang Ying Fei

Zhang says the length of the training is not enough to train people professionally. Therefore, extra investment of time and money is needed for more professionalism. This normally takes a few years and the student needs to be financially independent to do so. The low income is another obstacle, being an independent therapist in China does not guarantee a high income. It is quite the contrary, most of the people take this profession as a part-time job because of the low income and unstable consumer leads. The pay is around 200 to 300 yuan per hour which is a relatively low return on the prior investment. Additionally, there is time needed to manage the clients.. To summarize, there are four obstacles to become an independent therapist: high investment in time and money for training; low future income; unstable consumer leads and difficulty of self-managing clients.

Opportunities and challenges in mental health care market in China

Data driven technology to improve the service

Mr Chen, the CEO of Hao Xin Qing (HXQ) says the next step of HXQ is to strengthen the online systems and attract more registered doctors to join the platform. Due to the relatively conservative Chinese society which possesses a stigma against mental disorders, in combination with expensive consulting fees, Chinese people with mental sub-health are often not willing to seek professional help.

According to 2019 white paper on Mental and Psychological, 92% of Chinese who suffer mental health problems never receive any treatment. Problem such as depression and anxiety are often ignored. Some of them even refuse to admit they have mental problems. Providing an online platform protect patients’ privacy and reduce the cost for both sides. The white paper indicates that indirect mental treatment via online platforms costs an average of 350 Yuan while the direct treatment via off-line hospital costs 1,032 Yuan. Around 50% reduction on cost via online platforms. In the future, HXQ will consider introducing the offline services for their patients if there is need for rehabilitative treatment.

Future market entrants will have to discuss the growing challenges. First, the therapist’s certificate in China is easy to obtain. This reduces the quality of the therapists and increases the complaints from the consumers. This lack of regulatory policies in the mental health market makes it difficult for people with complaints to report.  Secondly, there is no standard fee in the industry. Companies charge differently, raising concerns about the quality of the service as well as barrier of client trust. Therefore, regulations are necessary for the future to guarantee the growth of the mental health market in China.

How did COVID-19 effect the mental health of Chinese people?

Listen to our Daxue Talks episode with David Ammerschlaeger

This article The mental health market in China awakens through digital channels is the first one to appear on Daxue Consulting - Market Research China.

China’s position in the  global API market

Pharmaceutical products have drastically varied features, some being patented and customized, while others generic and bulk manufactured. The production of pharmaceuticals, therefore, is heavily reliant on outsourcing and import and export. According to Results Healthcare analysis, the worldwide outsourced manufacturing market reached $71.5 billion in 2015 and is growing steadily. Since drug products are likely to be assembled where they are patented, API represents more than two thirds of the outsourced pharmaceutical market.

Compared to India or Europe, China is best at bulk manufacturing unbranded chemical API, according to sinolink securities.

Source: Sinolink securities, Segmentation of APIs. The API industry in China focuses on unpatented, bulk products.

China is world’s largest producer of pharmaceutical ingredients

Globally speaking, the chemical and generic APIs account for 70% of global API, while biotech APIs account for the remaining 30%.

China is the source of 40% of the global APIs, according to Optima insights. In addition, chemical APIs dominate theAPI industry in China. In 2017, the global API market size was at $156 billion, according to Sinolink securities. Chinese chemical API manufacturers had in total 500 billion RMB, which corresponds to approximately $74.6 billion. Thus, China takes 68.3% of chemical API market worldwide in terms of value.

Asia and Europe are the main export destinations of the  API industry in China

According to China Chamber of Commerce for Import & Export of Medicine and Health products (CCCMHPIE in short): in 2019, APIs produced and exported by China reached 10.12 million tonnes (+9% year-on-year), worthy of $33.7 billion (+12% year-on-year).

The destinations of APIs produced and exported by China comprise of 189 countries and regions, mainly in Asia, Europe and North America. Over 2019, API export grew in Asia and Europe, but dropped in America, largely due to the Sino-US trade war. In fact, the volume of API produced and exported by China to the U.S. decreased 11% year-on-year. So much so that an increase in average export price of 11% did not compensate enough for the trade friction.

Data source: CCCMHPIE, Chinese API export destinations

To be more specific, the leading export destinations by country are India, the U.S., and Japan.

Data source: CCCMHPIE, leading Chinese API export destinations

APIs take up 81% of total value of Chinese pharmaceutical exports

The majority of Chinese pharmaceutical exports are APIs. In 2018, according to China Chamber of Commerce for Import & Export of Medicine and Health products: APIs exported from China accounted for 81% ($30 billion over $37 billion) of total value of exported Chinese pharmaceutical products. The rest of Chinese exports are pharmaceutical preparations, finished drug products (11%, $4.1 billion over $37 billion) and biochemical drugs (8%, $2.7 billion over $37 billion).

Data source: CCCMHPIE, composition of Chinese pharmaceutical exports

When it comes to API exporters in China, private companies take the lead. According to China Chamber of Commerce for Import & Export of Medicine and Health products, in 2019 there were in total 12,462 API manufacturers and exporters in China, an increase of 1,056 from 2018, almost all privately held.

Data source: CCCMHPIE, Segmentation of Chinese API exporters by ownership

India is both competitor and customer of the API industry in China

The trade statistics suggest that nearly 75% to 80% of the APIs imported to the United States are from China and India. These two countries have well-established manufacturing facilities and an abundant talent pool serving the pharmaceutical industry.

India is a fierce competitor for API production

India is by far the world’s champion of drug master files (DMFs). What is a DMF? According to FDA, Drug master files (DMFs) are voluntary submissions to the import country authority, and contain confidential information about human drug products. APIs belongs to the Type II of DMFs, which is concerned with drug substance, material used in their preparation, or drug product.

While China holds 12% of DMFs from the U.S., India holds almost half of them. Being the largest holder of DMSs gives India the edge to export higher-value APIs, enlarging the industry’s attractiveness.

There are several reasons for India to outcompete China for API export in the last decade. Firstly, India normalized the API production with drug production, gaining bargaining power in the global market. Secondly, Indians generally speak better English than Chinese, which facilitated pharmaceutical trade with developed countries. Lastly, India adopts Common Law system, making the legal activities more fluid when dealing with western clients.

Data source: Thomson Reuters, Sinolink securities, Distribution of U.S. DMF holders

India relies heavily on China for API imports

India’s API imports are valued at $3.5 billion to per year. Of which 70%, worth $2.5 billion, are APIs produced and exported by China. 

Data source: BCG analysis, Sinolink securities, Indian API imports from China

The Indian government has long advocated “API independence” and invested in API industry. Nevertheless, it is difficult to cut back dependence on China due to its climate characteristics. India mostly relies on China for APIs related with fermentation (发酵类产品),  for which China represents 70% of global production. At around 10°C higher than China, fermentation is way more costly than in India.

Value and volume of China’s API exports tell two different stories

A quick example is to compare the API produced and exported by China in terms of both value and volume. Interestingly, even though the Association of Southeast Asian Nations takes 41.1% of volume of China-manufactured API, it only accounts for 9.8% of the value exported by China. Inversely, Europe and North America are the destination of 41.5% of the value of China-exported API, but in terms of volume, that only amounts to 28%.

Data source: CCCMHPIE, Chinese API export destination based on value

Data source: CCCMHPIE, Chinese API export destination based on volume

Sino-American API trade

There has been a question mark over whether or not China is the major supplier of APIs to the United States. Whereas the U.S. Food and Drug Administration data shows only 13% of its API is imported from China, other sources points to the opposite.

Both assertions are likely to be true and not necessarily contradictory, depending on whether we refer to volume or value, or the number of manufacturers.

On the one hand, China is indeed the world’s largest pharmaceutical producers and the biggest supplier to U.S. by volume. The observation that “China is the world’s largest producer of pharma ingredients and the world’s second largest pharma market” is confirmed by National Medical Products Administration in 2017. China in 2019 exported over $37 billion of pharmaceutical products, including APIs and DPs. In comparison, India’s total pharmaceutical exportation amounts to $20 billion in 2019/20.

On the other hand, USA seem to well diversify its import in terms of value. USA imported $78.9 billion pharmaceutical products in 2019, and China only accounts for $4.22 billion in terms of API value, a mere 5%. In addition, approximately 28% of manufacturing facilities making active pharmaceutical ingredients (APIs) for the U.S. market are based in the U.S. The remaining 72% of API manufacturers supplying the U.S. market are outside the U.S., this includes 26% in EU, 18% in India, and 13% in China.

Even though the number of China’s API manufacturers supplying the U.S. market is not great, the bulk API volume they manufacture and export can be high. Due to large-scale manufacturing capabilities, cost efficiency and adequate availability of commodity bulk drugs and intermediates.

China is positioning itself to capture a greater portion of the global industry

In summary, the massive API industry in China is an important global player of production and export. With the aging population and the growing pharmaceutical demand, China is positioning itself to capture a greater proportion of the global API manufacturing industry.

Author: Della Wang

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This article The API industry in China: Producing and exporting to the global market is the first one to appear on Daxue Consulting - Market Research China.

The Chinese pharmaceutical market consist of biologics, generics, OTC drugs, and traditional Chinese medicine. The traditional Chinese medicine market comprises about 30-40% of drug sales in China. It also displays more rapid growth than other segments of the pharmaceutical market in China. Yangtze River Pharmaceutical Group, Shanghai Pharmaceutical Co Ltd, and Yunan Baiyao Group take up over one-third of the market share, indicating a highly consolidated market. They all provide traditional Chinese medicines. Regarding the traditional Chinese medicine market specifically, key players involve China TCM, Yunnan Baiyao, Beijing Tong Ren Tang, Guangzhou BYS, and Pien Tzhe Huang. TCM products are generally categorized into Chinese patent medicines, decoction pieces, and Chinese herbs.

The traditional Chinese medicine market in China will keep growing in the new normal

Though often controversial in modern times, Traditional Chinese Medicine’s (TCM) has played a significant role in the health care system in China since ancient times. It is predicted that TCM will continue to grow in significance in the post-COVID-19 era in China. A survey about public trust in TCM in China showed that, as of November 2019, 49% of Chinese respondents prefer traditional Chinese medicine to Western medicine treatment (51%). Recent years have also witnessed a steady growth in the volume of diagnosis and treatment of medical institutions specializing in TCM. Such a phenomenon is a result of political, economic, socio-cultural, and technological implications. An increasingly aging population, rising GDP per capita, expanding health insurance programs and urbanization, technological advancement in TCM industry, and very importantly, favorable government policies support as well as promotion of TCM in mass media jointly contribute to the TCM market growth.

Notably, the Chinese government has set TCM as a strategic priority to support the development of the medical industry. The policies issued will facilitate progress in TCM medical care, scientific research, education, and culture. It will encourage the establishment of a more sophisticated TCM service network that covers both urban and rural areas. Furthermore, the State Council called for the protection and industrialization of TCM herbs and innovation in the TCM industry.     

Chinese herbal decoction pieces and Chinese medicine formula granules are growing in popularity

Among the subcategories of TCM, Chinese herbal decoction pieces (中药饮片) and TCM formula granules (中药配方颗粒) are growing in popularity. TCM decoction pieces are mainly Chinese herbs that have been processed. It uses decoction technology such as ultra-fine pulverization to processed raw materials (e.g. herb, insect, shell, dried plants) based on Chinese medicine theories and Chinese medicine processing methods, which can be taken directly as a pharmaceutical formula or taken directly, or further processed into Chinese patent medicine products. Chinse decoction pieces can be used directly in clinical treatment. Development of modernized decoction technology has led to the strong growth. The TCM formula granule grew steadily in the past ten years and will also continue to display an upward trend in the future.

Upon doctors’ prescription, the assistants do not give patients raw materials, but processed recipes, patients will have to use these powders or liquid to make a Chinese medicinal soup. With the policy dividend, the Chinese decoction pieces sector has developed steadily. The revenue growth rate bottomed out in 2018 and reached 210.49 billion yuan, an increase of 14.2% year-on-year. It shows a prospect for growth in the coming years. General hospitals and TCM hospitals are the major consumer markets for processed TCM, with revenue accounting for 48%, followed by clinics with revenue accounting for 22.5%.  

The discussion of TCM efficacy polarizes into two competing positions

Before the COVID-19 outbreak, analysts had predicted the strong growth of TCM market revenue. Given that TCM was said to be used to treat over 90% of patients in China during the COVID-19, it is predictable that public trust in TCM will increase, leading to growing demand in the market. The demand here refers not only to the treatment of confirmed diseases but also to general health optimization. TCM is known for optimizing health by balancing the entire body system, hence it is a preventative medicine. Many Chinese believe TCM is effective for general health optimization and treating minor or chronic ailments. Compared to western medicine, they believe TCM does less harm to one’s body  because it’s side effects are minimal. These perceptions have been rooted in the minds and hearts of the majority of individuals in China. 

What TCM Skeptics say

There are also a large number of TCM. Some say the theoretical foundation of TCM was much weaker than that of western medicine which is backed by sound physiochemical studies and research data. TCM is an experience-based subject and has a high level of ambiguity and uncertainty. That is why TCM is still not fully accepted as part of the modern medical science system. The status quo of TCM is that there is a lack of evidence to prove its efficacy due to its complexity. A traditional Chinese medicine prescription may have dozens of medicines, thus it’s hard to tell which one(s) are effective, what is the effective dosage, and whether it remains effective if we single out each ingredient. Even though it has been used in clinical diagnosis and treatment for centuries, it remains an issue to explain TCM’s pharmacological mechanism.    

In short, it does not come to a simple conclusion to say whether TCM is effective or not. The core of this discussion is not TCM itself, but the research framework and system. Tu Youyou’s achievement in the area of TCM is a stark example of the truth that with an evidence-based research method, TCM is proved to have high value in health care. Tu Youyou (屠呦呦) is a Chinese pharmaceutical chemist, studied traditional herbal medicines and managed to extract a substance, artemisinin (also known as 青蒿素), which inhibits the malaria parasite. She received the 2015 Nobel Prize in Physiology or Medicine for her work and brought TCM into the limelight. 

The role of TCM during COVID-19 remains uncertain

Talking about  COVID-19, while there is still no vaccine for COVID-19, western drugs like Remdesivir and Avigan are said to be effective. In China, during the early stage of the pandemic outbreak, there were news informing that the Chinese Academy of Sciences Shanghai Institute of Materia Medica (SIMM) along with the Wuhan Institute of Virology have had preliminary findings showing that Shuanghuanglian liquid, a traditional Chinese patent medicine, can inhibit the novel coronavirus. Suddenly people set off on a panic buying spree. Amid the buying spree were rebuttals to the rumor, saying that there was no strong evidence to prove that Shuanhuanglian can effectively inhibit the virus.

According to the National Medical Products Administration, by 15 March 2020, TCM was said to be used to treat 91.64% cases in Hubei Province, 89.10% in Wuhan. The proportion of Chinese medicine participating in treatment nationwide is 92.41%. Apparently, with the statistics released, there is a heated discussion on TCM on the Internet. Searches for Chinese medicine on Baidu have increased significantly during the COVID-19. While the mass media keeps promoting TCM, a lot of people are questioning the credibility of the statistics and the link between TCM and COVID-19 treatment based on the statistical approach as well as pathology.  

[Baidu Index, Search frequency for ‘Traditional Chinese Medicine’ spiked during the COVID-19 outbreak in China]

Will TCM products be accepted abroad?

Meanwhile, China has sent TCM drugs like Lianhua Qingwen abroad as part of humanitarian aids. It seems like a step forward of TCM on a global scale. However, there is still a long way for TCM to go to be accepted overseas. The key is an evidence-based modern medicine approach, determining the efficacy by comparing the existing evidence, not just the impression and the individual. It is a process from roughness to preciseness. In other words, for TCM to be accepted in the western world, using a western “ruler” in investigations is crucial, just like Tu Youyou’s case. It is going to be tough for TCM to enter the western culture using Chinese standards because it is by nature a complex and unfamiliar oriental mechanism to the western ideology. 

The public opinions call for a scientific approach in TCM investigation   

Zhong Nanshan, an advisor in managing the COVID-19 pandemic, once written in his autobiography that traditional Chinese medicine, as an accumulation of empirical medicine, must follow the path of evidence-based medicine, truly convince people of its efficacy in the clinic, and then further explore the mechanism. To tackle the bottleneck of empirical medicine in traditional Chinese medicine, practitioners must transform effective individual patient cases of traditional Chinese medicine into generic and effective solutions to the disease groups through modern evidence-based medicine research models.

Therefore, although TCM is raised to a high strategic position in domestic settings, it still has a long way to go in global settings. It is too early to say TCM is a step closer to an alternative to Western medicine, given that there are still various unresolved doubts in its cradle. To compliment or to undermine, there are complicated factors involved. Under the COVID-19 pandemic, it is hard to justify the role of TCM in a phenomenal event like this. Admittedly, it does facilitate people’s thinking about TCM, which will contribute to the development of TCM investigation in the health care system in China. Perhaps in the “new normal”, we will witness a transformational journey of TCM in China, endorsed by the government’s initiative and leading practitioners coming out of the pandemic.  

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This article The Traditional Chinese Medicine market: Boosted by COVID-19? is the first one to appear on Daxue Consulting - Market Research China.