A. Best Prospects for Non-Agricultural Goods

1. AGC Agricultural Chemicals
2. ICH Fine and specialty Chemicals
3. TEL Telecommunications Equipment
4. CSF Computer Software
5. FRA Franchising
6. PMR Plastic Materials and Resins
7. BLD Building and Construction Materials
8. DRG Pharmaceuticals
9. POL Pollution-Control Equipment
10. MED Medical Devices
11. MTL Machine Tools
12. APG Air Traffic Control Equipment
13. TRA Tourism

Below are the descriptions and statistics for the best prospective U.S. commercial exports to China for 1997-1999 (in US$ millions). The exchange rate used was 8.27 RMB to 1US$. All statistics are unofficial.

1. Agricultural Chemicals (AGC)

China's agriculture-related markets have been the subjects of great attention. Imports of chemical fertilizers have grown rapidly in recent years, ranking among the top U.S. exports to China. China lacks the raw materials to produce many products such as potassium and phosphate fertilizers, and domestic chemical fertilizers can just meet 86.5% of total market demand. However, China still restricts imports of nitrogenous fertilizers such as urea to protect local producers. Imports of pesticides and herbicides have also been rising substantially, although China's exports of pesticides have exceeded imports since 1994. The government's control of import quotas are still seen as an obstacle for exporting agricultural chemicals to the local market. China's accession to the World Trade Organization (WTO) would gradually phase out the quotas.

1997 1998 1999
Total Market Size 10,845 11,850 12,400
Total Local Prod. 8,125 9,400 10,000
Total Exports 440 750 870
Total Imports 3,160 3,200 3,270
Total Imports from U.S. 1,165 1,200 1,220

*The above figures are calculated in US$ millions (1,000,000's)

2. Fine and specialty Chemicals (ICH)

The fine and specialty chemical industry is a development priority for China's chemical industry. China needs to import many fine and specialty chemicals and intermediates to meet the increasing market demand for chemicals with a wide variety, good quality, and a high level of technology. These imports are not all reflected in the statistics below because of complex multi-national supply relationships. If GDP growth rates remain at approximately 7 to 8 percent, there will still be substantial growth in the fine and specialty sector, as indicated below.

1997 1998 1999
Total Market Size 7,720 7,870 8,330
Total Local Prod. 7,040 7,400 7,800
Total Exports 1,700 1,830 1,970
Total Imports 2,380 2,300 2,500
Total Imports from U.S. 262 280 300

*The above figures are calculated in US$ millions (1,000,000's)

3. Telecommunications Equipment (TEL)

Since the early 1990s, China's telecommunications market has grown about 20 percent per year. In 1999, China plans to invest about $20 billion in its telecommunications sector. The break-up of China Telecom into fixed-line, mobile, satellite and paging entities and the transfer of the paging section to China Unicom may introduce some competition into the services market. The Chinese Government is also considering the entry of new telecommunications operators such as the China Cable TV Network Corporation and the China Railway Telecommunications Company. These competing companies will seek the best quality products at the lowest price, possibly leading to increased equipment sales opportunities for foreign firms.

China's Ministry of Information Industry (MII) is expected to: digitize public and private networks; build a nationwide broadband network using fiber optic cable, microwave and satellite systems; expand the nationwide GSM mobile network and deploy CDMA systems; improve management and billing systems; and promote internet usage, especially electronic commerce. By the end of 1999, MII plans to add 15.1 million to its current 96 million fixed line telephone users, 14.7 million to its current 29 million mobile phone users, and two million to its current one million data communications users. MII predicts that year-end nationwide teledensity will almost attain 13 percent while urban telephone penetration will reach 29 percent.

In early 1999, MII introduced a telecommunications product licensing system, which requires the issuance of a license for all telecommunications equipment before being marketed in China. MII encourages operators to purchase domestically manufactured products to support national telecommunications manufacturers. MII is also pressing for reviews of joint venture contracts to ensure that foreign partners are transferring sufficient amounts of technology. Greater flexibility is sometimes shown to foreign companies that have exclusive technology or are willing to invest in priority areas such as rural inland China.

Because of its need for increased mobile phone capacity, China decided to commercialize the U.S.-developed CDMA system in April 1999. China Unicom, the only carrier licensed to build and operate the CDMA system, plans to invest $834 million in CDMA infrastructure this year. The operator expects to achieve a capacity of 2.6 million lines by the end of 1999 and 12 million by the end of 2000. China also needs to provide more bandwidth, both terrestrial and satellite, for its growing market demand for information services. China is aggressively laying fiber optic cables throughout the country and is deploying ATM, xDSL, and DWDM, among other transmission technologies. China has issued licenses to China Telecom, China Unicom and Jitong Communications to test internet protocol telephony in 25 major cities. If the tests prove successful, additional licenses will be issued.

China's telecommunications services sector remains closed to direct foreign participation. However, China is engaged in WTO accession discussions that may eventually open both the basic and value-added services markets. Telecommunications specialists realize that China requires foreign expertise to develop the sector and a number of foreign companies already provide various kinds of telecommunications consulting services. Foreign companies have had less success entering the services market using the Chinese-Chinese-Foreign (CCF) financing model with China Unicom. In August 1998, the Chinese Central Government raised concerns about this investment model and called for a review of the over 40 CCF contracts. China Unicom and its foreign partners are still seeking to resolve this issue in a way that is fair to all parties.

Best subsector prospects within this sector include:
Cellular networks, especially CDMA systems;
Internet telephony networks;
Broadband transmission technologies;
Transmission media such as fiber optic cable and satellite;
Paging networks;
Telecommunications consulting services, especially
management, billing, and customer care.

1997 1998 1999
Total Market Size 10,000 11,500 13,000
Total Local Production 5,000 6,500 7,500
Total Exports 2,000 2,000 2,500
Total Imports 7,000 7,000 8,200
Total Imports from U.S. 800 800 850
*The above figures are calculated in US$ millions (1,000,000's) and represent unofficial estimates.

4. Computer Software (CSF)

Major growth in software markets may be imminent. The biggest problem remains in the illegal copying of software as the piracy rate is over 90%. But government commitments to buy legal copies and the Y2K flaws in illegal copies may create new demand. For now, the most sought after retail products are games and entertainment software. The highest dollar value software are operating systems and database management software and Japan remains a large competitor in the computer game industry. Most U.S. computer products appear to enter China via grey marketing channels from Hong Kong and do not appear in official Chinese trade statistics. The following figures do not include the software used in telecommunication switches.

1997 1998 1999

Total Market Size 1,500 1,970 2,170
Tot. Local Prod. 500 700 800
Total Exports 1 1 1.1
Total Imports 800 1,000 1,300
Total Imports from U.S. 720 900 1,000

*The above figures are calculated in US$ millions (1,000,000's)
and represent unofficial estimates.

5. Franchising (FRA)

Despite the slowdown in GDP growth rate to the officially targeted 7% for 1999, the swelling consumer demand for choice and variety has created worthwhile opportunities across the retail spectrum. Growth in retail spending slowed down from 10% to 1 - 2% between 1998 to 1999 nationwide. In major coastal cities, however, this slow-down is much less noticeable. Already Asia's largest retail market outside of Japan, by 2005 China is projected to be home to more than 230 million middle-income consumers who will earn over $1,000 annually, whose retail spending combined will exceed $900 billion.

Franchising has proven a promising mode of entry into China's consumer markets and tapping into portions of that spending. China's consumers are very open to experimentation with American-style shopping and food & beverage outlets. They are seeking higher standards of service, better product quality and wider selection, and more comfortable and sanitary venues in which to spend and consume. American food service franchises are exceptionally popular in China, and are poised to capture dominant shares of this burgeoning market. American brands such as the McDonald's, KFC and Pizza Hut have become household names, with hundreds of outlets established nationwide. Other American franchises such as Subway and Schlotzsky's are also quickly making their way to more Chinese cities. The potential for franchise development in many lucrative markets, however, is presently still unexplored. Best prospects include food & beverage, automotive servicing, film processing, health & entertainment (including video rental and movie theaters), bicycle and sporting goods outlets, education and test preparation services.

1997 1998 1999 est.
Total Market 344,400 392,500 435,675
Total Local Production 341,000 388,400 430,680
Total Exports N/A N/A N/A
Total Imports 3,400 4,100 5,800
Total Imports from U.S. 1,100 1,600 2,240
*The above figures are calculated in US$ millions (1,000,000's) and represent unofficial estimates.

6. Plastic Materials and Resins (PMR)

The plastic materials and resins market in China is being driven by demand for higher quality products with the explosive development of end-user industries. Many imports are coming from Asian competitors whose currencies have plummeted during the Asian financial crisis.

The local market requires imports of polyethylene (LDPE and HDPE), polypropylene (PP), polystyrene (PS), acrylonitrile butadiene styrene (ABS) and polyvinyl chloride (PVC). This market is subject to the fluctuations of its up-stream supply and down-stream market demand. Engineering plastics, which possess special physical and chemical properties, are used widely in various industries as special materials.

U.S. products such as engineering plastic materials and additives, with high-technology inputs, are very competitive in the local market. This segment is expected to grow faster than any other.

1997 1998 1999
Total Market Size 8,830 10,450 11,610
Total Local Prod. 2,870 3,300 3,780
Total Exports 440 530 620
Total Imports 6,400 7,680 8,450
Total Imports from U.S. 550 610 670

*The above figures are calculated in US$ millions (1,000,000's)

7. Building and Construction Materials (BLD)

The U.S.-China Presidential Housing Initiative, agreed upon in 1998 in Beijing provides for increased cooperation between the two countries on building China's housing. Perhaps more influential to U.S. companies' ability to compete will be China's accession to WTO. Currently, China's tariff rates for many building materials attempt to "encourage" local production over exports.

Still, the housing market projects continued growth for the near term. While Chinese authorities claim a residential growth rate of 35 percent over the past few years, most analysts agree that a more realistic estimate for the near term would be around 15-20 percent. The per person amount of living space in urban China has already gone from 3.6 square meters in 1990 to 8 square meters in 1998. The goal for 2005 is 12 square meters per person, keeping the housing market booming. Housing construction in Shanghai alone was 15 million square meters in 1996, 16.8 in 1997, 15 in 1998 and an estimated 12 in 1999.

There are three basic types of housing in China. "Commodity" and "Benefit" housing, which both fall under the heading of "Economical" housing are the most common types. (Benefit housing was allotted to workers by their employers up until late 1998.) These two types of housing generally cost in the $272-302 (2250 - 2500 RMB) per square meter range. The third group amounts to less than one percent of all housing, and is geared towards expatriates and wealthy Chinese. This type of housing starts at the $700-1000 (5800-8300 RMB) per square meter level.

Although there continue to be building projects at hand, the number of empty residential and commercial structures coupled with China's recent efforts at making lending institutions more profitable are of increasing concern. In Beijing and Shanghai the glut has already reduced prices of commercial real estate, while more new buildings continue to go up.

In addition to construction of buildings, the Chinese government has made great strides in upgrading the transportation infrastructure here. Roads and bridges, railroads and stations, light rail and subways, airports and seaports are all included in the Ninth-Five-Year-Plan (1996-2000), which called construction a "pillar industry", worthy of government investments of substantial time and money to support construction projects. For example, in 1998, 431 billion renminbi (RMB) ($52.1 billion) was spent on urban housing, and 216.8 billion RMB ($26.2 billion) was spent on highways. Although this Plan is nearing its conclusion, predictions are that infrastructure construction including will remain a major component of the government's Tenth 5-Year Plan which is now being formulated.

While there is intense competition between foreign companies (mainly from Japan, Taiwan, Germany, Italy, Hong Kong and Korea), U.S. companies have fared well in many of the sub-sector categories, shown by an analysis of official Chinese import statistics.

The data provided below summarize the import trend of building materials, based on imports in several HTS categories. These categories only represent imports of stone products, wood products, ceramics and glass products and so must therefore be viewed as incomplete, though representative of general trends.

1997 1998 1999
Total Market Size 43963.1 47597 52530
Total Local Production 45,300 49,000 54,000
Total Exports 4356.8 4521.3 4690
Total Imports 3019.9 3118.3 3220
Total Imports from U.S. 248.7 241.2 245

*The above figures are calculated in US$ millions (1,000,000's) and represent unofficial estimates. Production numbers are estimates based on Chinese statistics. Trade numbers are based on Chinese customs figures for the above four groups of HTS codes.

8. Pharmaceuticals (DRG)

Until recently, China's pharmaceuticals market has been one of the fastest growing markets in the world. From 1990-1996, the western pharmaceutical market grew almost 20% annually and has now expanded into a $14 billion market. While overall demand should continue to grow at 10%, import and joint-venture product market share and profits are expected to fall. Joint-venture drugs account for 50-60% of the drug market. In 1998, the value of imported drugs dropped to $1 billion. Due to pressures from the reimbursement system, which favors domestic medicines, import drug market share will continue to gradually shrink. The challenges facing U.S. exporters and j-v companies exist in a changing healthcare environment which now includes great individual contributions for health insurance coverage, the prospect of individual choice for hospital services and healthcare products, and new retail outlets for medicines.

Recently implemented central and local government price and profit control measures aimed at containing the rising costs of healthcare, and in particular, medicines, may unfairly disadvantage imported and joint-venture products in pricing and treatment. Also, the government's National Essential Drug Bulletin, which lists all drugs that are available for state reimbursement, promote domestic companies by listing only those foreign drugs which do not have a domestic substitute. The lack of intellectual property rights enforcement is another key concern as are regulatory barriers.

The drug distribution system is inefficient and adds considerably to the retail cost of medicines. It is hoped that WTO accession will open the distribution system by allowing private and foreign firms to operate in the distribution system.

In 1998, gross domestic output value reached $19 billion, increasing 14% over the previous year. The domestic industry is characterized by non-branded generic production, overproduction and losses. The government is undertaking the consolidation of the over 6,000 pharmaceutical enterprises, of which 71% are state- and collectively-owned.

It is estimated that most hospitals derive over 60% of their revenue from prescription sales and hospitals remain the main outlets for pharmaceuticals, with 70 - 85% of all medicines sold through hospital pharmacies. This will change with the separation of hospital pharmacies from health care services, and with the growing numbers of retail pharmacy outlets. The trend is already evident. By 1998, the retail value of drugs increased from 5% to 15%, and in some areas reached 20% - 30%. Retail pharmacy outlets are expected to grow in numbers once the government introduces its system to classify drugs as over the counter (OTC). SDA announced it would implement the OTC system in 1999.

The young sub-sector market for dietary supplements has taken off in the past several years. Experts estimate that the industry, currently worth $2.4-3.6 billion, will grow to $6.1 billion in 2000 and $12.1 billion in 2010. Despite recent setbacks due to the Asian economic crisis, the industry promises to continue this trend as growing numbers of consumers seek products with curative, weight loss and other health enhancing effects. The number of dietary supplement domestic suppliers has increased 30-fold since 1992. Complicated product registration requirements and inexperienced and inefficient distributors are common obstacles to export and sales. (The following statistics do not include this industry sub-sector.)

1997 1998 1999
Total Market Size 17,549.48 20,116.01 22,469.29
Total Local Production 17,306.04 19,728.89 22,490.93
Total Exports 639.29 693.55 598.64
Total Imports 243.44 387.12 577.00
Total Imports from U.S. 20.87 35.04 34.97

*The above figures are calculated from Chinese Customs statistics (only registered imports therefore are included) and production figures from SETC (which include traditional Chinese medicine production). (US$ millions/1,000,000's)

9. Pollution-Control Equipment (POL)

Quantifying the Chinese environmental market is difficult because accurate data is scarce and environmental goods and services do not fit cleanly into standard customs classifications. China spent roughly $ 8.7 billion on the environment pollution treatment in 1998, rising 14.5% of that in 1997. Chinese authorities hope to boost environmental spending to 1.5% of GDP by 2000, about $16.8 billion annually based on official growth projections, to address China's most pressing environmental needs. The market is growing rapidly, but only a portion of it is truly accessible to foreign firms due to financing and hard currency constraints, low-cost local competition, closed bidding practices and other market barriers. Products enjoying the best sales prospects include low-cost flue gas desulfurization systems, air and water monitoring instruments, drinking water purification systems, vehicle emissions control and testing devices, industrial wastewater treatment equipment, and resource recovery technologies. Most end-users and regulators hold an extremely favorable opinion of U.S. technology.

Most large U.S. environmental firms have concentrated on World Bank and Asian Development Bank projects. The future may be brighter as affluent coastal cities begin to dramatically increase environmental spending, multinational investors uncork new sources of demand, and municipalities experiment with new project financing models. As income levels rise in a huge country with acute environmental needs, China's environmental market may grow to become one of the world's largest. However, American companies may find that their competitors have already gained firm beachheads because these firms are now winning contracts with the help of concessional financing, grants, and other tied aid from third country governments. According to UNDP statistics, environmental tied aid programs are not drying up, and many U.S. companies cite this as their biggest competitive challenge.

1997 1998 1999
Total Market Size 3,452 4,042 4,835
Total Local Production 1,440 1,800 2,250
Total Exports 38 50 65
Total Imports 2,050 2,292 2,650
Total Imports from U.S. 307 368 450

*The above figures are calculated in US$ millions (1,000,000's) and represent unofficial estimates.

10. Medical Devices (MED)

China is the second largest medical-device market in Asia (after Japan), estimated at more than $1.4 billion for 1998. The market is now the third largest in the world for high-tech equipment like CT, Nuclear Medicine, MRI and Ultrasound equipment. Imports account for 40-50% of market share, with the U.S. controlling 16-18% of the total market, followed by Japan and Germany. Although figures are highly variable depending on the market segment, market growth in general is expected to be about 10% over the next three years. Local manufacturers continue to lose ground to imports in many important segments of the market.

There are currently more than 200 foreign medical-device companies operating in China. Domestic production capability continues to grow, although the vast majority have yet to comply with GMP guidelines. Domestic industry strength will continue to be in the low- to medium-technology range and therefore may not be directly competitive with many imported products.

The Chinese health care system is currently in a state of change. Over past several years, the Chinese Government has instituted a series of reform measures in both the urban and rural health care systems. Major equipment purchases must now be preceded by a letter of need issued by the Ministry of Health. Price caps/controls and a reimbursement list, not unlike that seen in the pharmaceutical sector, are also designed to bring down costs. Regulatory system reforms have been undertaken although registering products with the SDA, which has serious resource constraints, can still be a lengthy process.

Decision to enter into this highly competitive market should be taken carefully, even though steady economic growth, a large and growing population, and increased wealth with a commensurate increase in access to health care should make this an attractive market in the long term. Most companies in the market today, however, report that it may take years to realize profits on an investment in China.

1997 1998 1999
Total Market Size 2,851.24 3,697.98 4,931.18
Total Local Production 2,781.14 3,627.57 4,731.61
Total Exports 186.25 209.84 157.12
Total Imports 256.35 280.25 356.69
Total Imports from U.S. 75.22 104.17 157.27

* The above estimates are calculated from Chinese Customs statistics (only registered imports are included) and production figures from SDA (which do not exclude non-medical device production at local enterprises). (US$ millions/1,000,000's)

11. Machine Tools (MTL)

In spite of continued U.S. export control restrictions on the sale of machine tools to China, U.S. manufactured machine tools are still sought by Chinese buyers. This year China will host the Sixth Biannual China International Machine Tool (CIMT) Trade Show in Beijing October 20-26, 1999. This event is one of the largest trade events in China for U.S. exporters. The USDOC-AMT (Association of Manufacturing Technology) American Pavilion generally fills an entire hall floor at the China International Trade Exhibition Center.

In a special preparatory trade promotion activity for 1999, AMT has organized a large U.S. machine tool delegation. From Sept. 12-24, 1999, it will visit 24 entities in the following cities in Eastern China - Shanghai, Nanjing, Wuxi, Jiangyin, Suzhou, and Kunshan. The aim of the delegation is to incite buyer interest for U.S. exhibitor products at CIMT the following month in Beijing. Delegation members will look at potential user sites and offer on the spot advice on the unique versatility and effectiveness of U. S. machine tools for specific end-user needs and applications. AMT is coordinating this event with the Shanghai Commercial Center.

Sophisticated American numerically controlled machine tools are always the first choice by automobile and aircraft manufacturers and Chinese Universities. However, ever stricter USDOC export controls, USDOC export license processing delays, USDOC license rejections, stringent U.S. Consular Service business visa requirements, Chinese government passport processing emnt and visa delays and rejections, are driving Chinese buyers to look toward Germany and Japan for their machine tool needs.

1997 1998 1999 EST
Total Market Size 3214 2870 2969 Total Local Prod'n 1893 1713 1750 Total Exports 281 234 213
Total Imports 1602 1391 1492 Total Imports from U.S. 120.9 101.61 118

*The above figures are calculated in US$ millions (1,000,000's)
and represent unofficial estimates. The source of the 1997 and 1998 figures is the China Machine Builders Tool Builders Association (CMBTA). The figures for 1999 are FCS estimates based on CMBTA first quarter results.
12. Air Traffic Control Equipment (APG)

Although not expanding at the rates earlier predicted, China's aviation market is still growing at rates above the world average, putting tremendous strain on China's limited air traffic control (ATC) infrastructure. Recognizing the inherent safety and resulting public relations issues associated with an air traffic control system, the Chinese Government remains committed to updating not only individual airport systems but also to adding up to ten area control centers (ACC) over the next 10-15 years.

Chinese aviation authorities are familiar with the technical superiority of U.S. high tech products, and the reliable service and training that U.S. suppliers provide to their customers. While competition from the French is especially fierce, U.S. exports in this sector have been steadily growing, while the Italians have lost market share to both US and French firms.

The data provided below summarize the import trend of ATC products, based on imports in several HTS categories. These categories only represent imports of radar, remote radio control apparatus, navigational aids, and parts thereof, so must therefore be viewed as incomplete, though representative of general trends.

Industry analysts and business people agree that the Chinese authorities have available and are willing to spend up to $500 million during the next five years on core components of ATC equipment.

1997 1998 1999
Total Market Size 120 140 170
Total Local Production 0 0 0
Total Exports 0 0 0
Total Imports 120 140 170
Total Imports from U.S. 30 55 119

*The above figures are calculated in US$ millions (1,000,000's) and represent unofficial estimates.

13. Tourism (TRA)

The number of Chinese visitors traveling to the United States has been steadily growing over the past 10 years. However, the Chinese government has yet to designate the United States as one of China's official tourist destination countries. Chinese citizens who visit the United States are technically not tourists. For the purpose of U.S. visa applications, most Chinese visitors to the United States go under the category of "business trips." Nonetheless, almost all Chinese visitors build a significant tourist component into their itinerary ranging from a half-day stop at Disneyland to a multi-city tourism spree across the country.

Before embarking on their trip, most Chinese tourists consult friends who have visited the United States before. They then carefully plan their itinerary to ensure that they pack in as many sites as possible. Some of the top U.S. destinations for Chinese tourists include Los Angeles, San Francisco, Honolulu, Las Vegas, Orlando, New York City, and Washington, DC. Seldom do Chinese tourists travel to one U.S. location for a longer period of time unless they are visiting family. The largest concentrations of Chinese in the United States are located in the vicinity of Los Angeles, San Francisco, New York City, and Houston. By now, many Chinese have already visited the United States at least once so they are now seeking out more non-traditional destinations. This may provide additional U.S. cities with an opportunity to develop Chinese tourism.

Except for official Chinese government delegations, which by Chinese law must fly Chinese airlines, most Chinese visitors prefer the service and courteousness of U.S. carriers such as United Airlines and Northwest Airlines. Chinese visitors tend to reside in hotels that fall into the mid-range category and they are often willing to stay in the suburbs to secure a more reasonable room price. Chinese travelers to the United States dine almost exclusively at Chinese eating establishments and are even willing to drive far out of their way in order to find Chinese food.

Travel experience to various countries leaves many Chinese tourists convinced that U.S prices for quality name brand products are the lowest in the world. Most visitors come to the United States with long shopping lists and have a mall or two on the travel agenda. This desire to shop in the United States is facilitated by the official allocation of $2,000 in foreign exchange to each Chinese citizen going on overseas tours. It appears, however, that most visitors bring many times the official quota by exchanging local currency for U.S. dollars on the gray market.

U.S. Exports of Travel & Tourism Services to China, 1994-97
in US Millions
1994 1995 1996 1997
Mainland China:
Travel 369 406 807 1,101
Passenger Fares 9 18 100 142
otal (Travel & Tourism) 378 424 907 1,243
Hong Kong:
Travel 567 644 624 741
Passenger Fares 249 325 380 471
Total (Travel & Tourism) 816 969 1,004 1,212

Mainland China and Hong Kong:
Travel 936 1,050 1,431 1,842
Passenger Fares 258 343 480 613
Total (Travel & Tourism) 1,194 1,393 1,911 2,455
Percentage Share of Regional Total
China:
Travel 2.1 2.0 3.7 5.1
Passenger Fares 0.1 0.2 1.3 1.9
Total (Travel and Tourism) 1.6 1.5 3.1 4.3
China and Hong Kong:
Travel 5.4 5.1 6.5 8.5
Passenger Fares 4.0 4.6 6.3 8.3
Total (Travel and Tourism) 5.0 5.0 6.5 8.4

Source: ITA/TD/SIF/OSI, based on estimates in the Survey of Current Business, Oct. 1998

B. Best Prospects for Agricultural Goods

1. Grains
2. Grass Seeds
3. Oilseeds
4. Poultry Meat
5. Hides and Skins
6. Snack Foods
7. Fresh Fruits
8. Beef and Pork Variety Meats
9. Dairy Ingredients
10. Seafood
11. Forest Products

1. Grains

Wheat PS&D Code: 0410000
Corn PS&D Code: 0440000
Barley PS&D Code: 0430000

Although the volume of trade is likely to fluctuate depending on domestic production, China's demand for wheat, corn and barley is expected to grow in the next few years. The underlying demand factors in the next five years will be limited land for local production, increasing population, better incomes as well as changing consumer preferences, which will favor greater wheat and corn consumption over rice. Imports continue to be controlled by the central government and purchases are dominated by the state grain monopoly, COFCO. However, the WTO accession package being discussed with China calls for allowing greater access to China's markets by private importers. For more information go to http://www.fas.usda.gov to view the Grain and Feed Annual, report number CH9012.

MY1997/98 MY1998/99 MY1999/00
Total Market Size 228.5 238.9 237.7
Total Local Production 231.1 238.5 234.5
Total Exports 6.2 3.0 3.0
Total Imports 3.6 3.4 6.2
Total Imports from U.S. 0.4 0.7 1.4
Unit: Million Metric Tons

2. Grass Seeds

China's quest to beautify its cities, curb soil erosion and growing deserts and improve its forage industry is causing the grass seed market to expand rapidly. Growth has been especially strong in the last two years, due to the floods of 1998 and concerns over environmental degradation. U.S. grass seeds compose 75 percent of the import market, due to their superior quality and aggressive marketing efforts by U.S. seed organizations. Future annual growth in total imports is forecast to be 30 percent for the next 2 years. Major competitors of the U.S. are Australia and New Zealand. For more information go to http://www.fas.usda.gov to view the Planting Seeds Annual, report number CH8060.

MY1997/98 MY1998/99 MY1999/00

Total Market Size N/A N/A N/A
Total Local Production N/A N/A N/A
Total Exports 1,299 2,600 3,200
Total Imports 3,051 4,000 5,200
Total Imports from the U.S. 2,280 3,000 3,900
(Unit: metric tons)

3. Oilseeds

Soybeans PS&D Code: 2222000 (beans)
Soybean Meal PS&D Code: 0813100 (meal)
Soybean Oil PS&D Code: 4232000 (oil)

Long-term prospects for soybeans and soybean products are expected to continue improving in future years. In 1998, China imported some 2.6 MMT of soybeans, 570 TMT of soybean meal, and 420 TMT of soybean oil from the U.S. alone. Short-term prospects however, have declined due to the Asian financial crisis and a general slowdown in China's economy, which has caused demand for soybean products to fall. Recent policy changes in China have also favored imports of soybeans over soybean products.

Short-term prospects are weakest for soybean meal, which has been most directly affected by the slowdown in the livestock sector. Persistent rumors of a reinstatement of the 17% VAT on soybean meal have also served to keep imports low. Oil demand remains high, but imports have fallen. This year, the government has delayed announcing import quotas for vegetable oil for several months, and quotas are expected to be lower than in the past as the government seeks to boost prices in support of the domestic crushing industry. As a result of the constraints placed on processed products and declining domestic production, soybean imports continue to grow, though an increasing portion of these imports are coming from South America. Competition is also growing from imported rapeseed. For more information go to http://www.fas.usda.gov to view the Oilseeds Annual, report number CH9014.

Soybeans

MY1997/98 MY1998/99 MY1999/00

Total Market Size 17,500 17,170 17,670
Total Production 14,728 13,850 14,050
Total Exports 168 180 180
Total Imports 2,940 3,500 3,800
Total Imports from U.S 1,890 2,600 3,000
Unit: 1,000 metric tons

Soy Meal

MY1997/98 MY1998/99 MY1999/00

Total Market Size 12,760 11,455 12,185
Total Production 8,580 8,220 8,500
Total Exports 18 15 15
Total Imports 4,198 3,250 3,500
Total Imports from U.S. 795 570 665
Unit: 1,000 metric tons

Soy Oil

MY1997/98 MY1998/99 MY1999/00

Total Market Size 2,945 2,738 2,895
Total Production 1,775 1,718 1,775
Total Exports 80 80 80
Total Imports 1,250 1,100 1,200
Total Imports from U.S. 380 420 440
Unit: 1,000 metric tons

4. Poultry Meat

China is a net exporter of poultry meat, but because its export and import markets are disjointed, both exports and imports are expected to exhibit double-digit growth through the end of the century. The primary exports are live birds to Hong Kong and de-boned chicken pieces to Japan. The import sector consists primarily of frozen parts such as feet, wings, wing tips, legs, and gizzards. The rapid rise of the fast food industry in China, both domestic and foreign-owned chains, bodes well for continued strong demand for imported poultry meat. Import statistics reported below are based on USDA PS&D data and take into account transshipments through Hong Kong into Southern China. For more information go to http://www.fas.usda.gov to view the Poultry Semi-Annual Report, report number CH9802.

1997 1998 1999
Total Market Size 10,760 11,320 11,860
Total Local Production 10,400 10,700 11,000
Total Exports 420 380 400
Total Imports 780 780 760
Total Imports from U.S. 500 480 470
Unit: 1,000 metric tons)

5. Hides & Skins PS&D Code: 2111000

China is a major market for imported bovine hides and skins which are processed and used in finished leather goods for export. Over 50 percent of hide imports enter China via Hong Kong as re-exports. The finished leather export industry relies on high quality hides for raw material, making U.S. hides extremely competitive. During the past 3 years the U.S. market share has grown to 24 percent. Demand for U.S. hides will continue to grow as consumers of China's finished leather products demand better quality. Demand for imported semi-finished leather and wet blues is forecast to increase more quickly than for raw hides. South Korea and Taiwan presently are the leading suppliers of semi-finished leather and wet blues. However, South Korea's raw hide imports are believed to originate in the U.S. Recent slowing demand abroad for Chinese finished leather products and falling hide prices could threaten U.S. hide exports to China in the short run. Rising Chinese income levels will create a future market for high quality finished leather goods, bringing increased demand for U.S. hides. For more information go to http://www.fas.usda.gov to view the Hides and Skins Market Brief, report number CH8055.

1997 1998 1999
Total Market Size 1,624 1,794 1,698
Total Local Production 2/ 350 357 363
Total Exports 76 63 65
Total Import 1/ 1,350 1,500 1,400
Total Imports from U.S.1/ 450 600 600
Unit: 1,000 Metric Tons

1/ Imports are estimated and include re-exports through Hong Kong.
2/ Production is estimated.

6. Snack Foods

Reliable statistics are not yet available on China's consumption, production, or trade of snack foods, but U.S. trade data clearly reflects the increasing demand for this high-value product. In the 1993-1997 period, U.S. direct exports of snack foods to China increased at an annual rate of 42 percent to a record high of $12 million in 1997. Regional economic crisis and restructuring of the state sector slowed down China's economy in 1998, and U.S. direct exports of snack foods for that period fell over 25% to $8.6 million. Improving living standards, combined with consumers interest in convenience and quality, continue to generate demand for imported snack foods. A mild economic recovery and stabilizing regional markets are expected to push U.S. exports back up as much as 15% in 1999. When considering the broader category of snack foods that includes nuts and chocolate (which are not included below, but are experiencing steady market growth), the following data are conservative. Hong Kong remains an important conduit for these products, and it is certain that the below figures grossly underestimate the actual sales of U.S. snack foods in China.

1997 1998 1999
Total Market Size N/A N/A N/A
Total Local Production N/A N/A N/A
Total Exports N/A N/A N/A
Total Imports N/A N/A N/A
Total Imports from U.S. 12,000 8,600 10,000
Unit: U.S.$1,000

7. Fresh Fruits

Although China's fruit production is huge, important export opportunities still exist thanks to the country's poor post harvest storage and handling practices and facilities. Imported U.S. varieties that have done well to date include apples, oranges, plums, and table grapes.

At the present time, Washington state apples, Washington state cherries, and California table grapes are the only U.S. fruits with full access to China. A recently negotiated agreement will allow U.S. citrus full access soon. Although U.S. pears and many types of stone fruit currently do not have access due to phytosanitary restrictions, ongoing negotiations between USDA and China's Ministry of Agriculture may result in access in the near future. A few Chinese importers have licenses to import U.S. fruits (other than apples, cherries, and grapes) for hotels and supermarkets that cater to overseas visitors.

A large amount of China's fresh fruit imports enter the country through Guangdong province, which borders Hong Kong, and then is distributed to most of China's major cities. Much of this fruit is not recorded in China's official customs statistics, but appears in Hong Kong transshipment data. The value of these fresh fruit transshipments exceeded U.S.$ 170 million in 1998. For more information go to http://www.fas.usda.gov to view the Citrus Annual (report number CH8645), the Fresh Deciduous Fruit Annual (report number CH8630), and the Stone Fruit Situation (report number CH9602).

1997 1998 1999
Total Market Size N/A N/A N/A
Total Local Production 50,893 54,529 57,000
Total Exports 602 564 550
Total Imports 638 646 655
Total Imports from U.S. 8 13 15
Unit: 1,000 Metric Tons

8. Beef & Pork Variety Meats

Similar to poultry parts, there is a tremendous demand in China for beef and pork cuts of all types. Since many livestock parts are not eaten by American consumers, America has a large supply of beef stomach and pork tongue, ears, hearts, stomach, kidneys, liver, intestines, feet, and tails at reasonable prices. Beef stomach (omasum) can be legally imported and is in high demand. Beef and pork are not permitted entry into China by the State Administration for Entry-Exit Inspection and Quarantine (SAIQ), except for consumption in major hotels, restaurants and the food processing industry. However, consumption of imported meats is on the rise in China, most of which enters via Hong Kong through various ports in Guangdong Province and then is shipped north in insulated trucks or rail cars. China's total imports of beef and pork in 1998, including muscle meat and offal, exceeded 217 thousand tons, more than 80 percent of which was re-exported from Hong Kong. Imports of these products increased by over 50 percent in 1998. For more information go to http://www.fas.usda.gov to view the Livestock Annual, report number CH9037.

9. Dairy Ingredients PS&D Code: 0224200

While Australia, New Zealand, and the EU presently are China's primary dairy suppliers, the United States will become more competitive in the future, as Federal dairy support prices fade away by 2002. Whey powder is the U.S.'s leading dairy export commodity to China. Presently, no whey powder is produced in China. Strong demand for whey as an ingredient in piglet feed and baby formula will remain strong. There also is potential for dry milk powder exports, as consumers demand increasing quantities of domestically produced ice cream and yogurt. For more information go to http://www.fas.usda.gov to view the Dairy Annual Report, report number CH8047.

Powder Milk (Non-fat & Whole fat)

1997 1998 1999
Total Market Size 435 461 481
Total Local Production 390 411 431
Total Exports 8 8 8
Total Imports 53 58 58
Total Imports from the U.S. 6 7 8
(Unit: 1,000 metric tons)

10. Seafood

China has been one of the largest producers of seafood products in the world for several years, making the country also one of the world's biggest seafood exporters. However, China's ocean fishing fleet catches and inshore fishing resources are facing difficulties meeting demand. China also imports a large amount of seafood from other countries. Aside from the United States, Russia, Argentina, Japan, and South Korea have been major seafood exporters to China. U.S. exports of seafood to China include salmon, pollack, squid, flat fish, sole, king crab, and yellow croaker. For higher value products such as crustaceans and molluscs, Australia, Canada, and the countries of Southeast Asia are major U.S. competitors. For more information go to http://www.fas.usda.gov to view the Live Seafood Market Brief, report number CH8637.

1997 1998 1999
Total Market Size N/A N/A N/A
Total Local Production N/A N/A N/A
Total Exports 746 823 890
Total Imports 492 683 750
Total Imports from U.S. 85 65 68

11. Forest Products

Despite the current economic slowdown, forest products imports have continued to grow, and the prospects for continued growth are excellent. Increased import demand is being driven by growing consumption and declining domestic supplies. The government's housing reform campaign has helped to stimulate consumption by increasing the demand for wood products for interior decoration and furniture. Demand is greatest for hardwood products, as Chinese consumers are unfamiliar with softwood. There has also been growth in the construction of wood-frame housing, though this has been restricted to the very high end of the market.

The decline in domestic supply is largely the result of China's current ban on logging in state forests. The ban was instituted as a result of floods in 1998, which were blamed on the effects of over-logging. The ban has already brought about modest increases in domestic timber prices. The government responded by reducing tariffs on a wide range of wood products in early 1999. U.S. exporters to this market face strong competition from European hardwoods and from tropical hardwoods from Southeast Asia.
Roundwood

1997 1998 1999
Total Market Size 63,288 59,032 55,139
Total Production61,308 56,800 52,623
Total Exports 24 22 20
Total Imports 2,004 2,254 2,536
Unit: 1,000 metric tons

Temperate Hardwood Lumber

1997 1998 1999
Total Market Size 8,825 8,273 7,788
Total Production 8,300 7,636 7,025
Total Exports 308 300 292
Total Imports 833 937 1,055
Unit: 1,000 metric tons

Note: Statistics are derived from the FAS 1998 Forest Products Annual Report, and do not reflect the impact of the logging ban. Updated statistics will be available in the 1999 Annual. To view the 1999 Forest Products Annual (report number CH9042) after July 15th go to http://www.fas.usda.gov t. Roundwood and temperate hardwood lumber statistics do not reflect trade in finished furniture, veneer, plywood, etc.