Market Information
Asia Pacific

The Ginseng Market in Shanghai 
and the Yangzi Delta Region

Canadian Consulate General, Shanghai
July 2002

Market Overview

Ginseng has been an integral part of Chinese medicine for thousands of years. It has been credited with everything from improving mental ability, longevity of life, reduction of stress, and chronic pain. There are two main forms of ginseng- North American (white) and Korean (red), each having a different effect. As balance is key in Chinese medicine, North American ginseng is sedative & relaxing, increasing the "yin" energy, whereas Korean Ginseng is more stimulating & invigorating, increasing the "yang" energy.

Canada is the largest grower of North American ginseng. Canada also ranks third in the world for all ginseng production, behind China and Korea. Hong Kong and China are important markets, as over 95% of ginseng roots are shipped to these two countries. The size of Shanghai's population and its high levels of disposable income make the city an important market for Canadian ginseng products.

Market Statistics

Consumer Demand

In 2001, the consumption of ginseng in Shanghai reached 100 tonnes, 20% of which was Canadian. Demand is expected to fall to 90 tonnes in 2002. Shanghai's 13.3 million residents have an average annual income per capita of US$1558 (nearly double the nation-wide average) which has been increasing roughly 10% per year. This creates excellent opportunities for high quality and value-added ginseng products. In addition, as disposable income rises, individuals are more willing to spend money on health related products. 

Canadian Exports

Hong Kong and Mainland China are important markets for Canadian ginseng representing 95% of the total exports. It is a well-known secret that a great majority of the exports to Hong Kong end up in Mainland China. From 2000 to 2001, exports to China have increased by 115% from CND $5,210,287 to CND $13,981,265.

Figure 1: Statistics Canada

Competition

Traditionally, North American ginseng was exclusively grown in Canada and the United . Since the late 1970's, China cultivates North American ginseng and has supplied it to the domestic market. It is well known among the Chinese population that the 'China White' is not the same quality as imported North American ginseng and has a low potency rate. North American ginseng remains the preferred form, and is sold at a premium price.

As market barriers are lowered and the economy adapts, the main competition will come from substitute products. These include other herbal remedies as Gingko Biloba, different Fish oils or various vitamins. As income rises, consumers can now afford these different products. The estimated decline in 2002 consumption rates can be attributed to these substitute products.

Import Procedures and Distribution Channels

Individual ginseng growers sell the majority of Canadian ginseng to Hong Kong middlemen or directly to Chinese or Canadian ginseng traders. Direct sales (pricing, grading and payment terms) are difficult to arrange. The ginseng is normally sold in bulk, and processed in either Hong Kong or China before it is sold to the end-customer. It is important to keep in mind that while selling in bulk, producers mitigate immediate risks, they fail to develop consumer loyalty and future sales. As consumption and competition increases, these two issues will become increasingly important for market success.

Chinese importers are required to obtain two certificates in order to import ginseng. First, from the 'Ministry of Health and National Medicine Administration' and second, a business license from the 'Industrial and Commercial Administration Board'. In May 1999, Beijing established a 'National Drug Supervision Bureau' operating under the Ministry of Health. Imported North American ginseng must adhere to strict guidelines regulating its quality, production, processing, testing and trade (transportation and storage). For each shipment, importers are required to apply directly to the bureau in Beijing for an import permit. The permit must be shown at the port of entry and to the regional institute of drug control to request an inspection. Only once, the ginseng has passed the established guidelines is it allowed into China. The approval procedure can be both lengthy and complicated, as it subject to the importer's previous record and the nature of the contract.

The Chinese government has made significant progress on halting ginseng smuggling over the last 10-12 months. Though, other grey channels have surfaced to sustain the trade via Hong Kong. Today, officially, 40% of Canada's ginseng production to Hong Kong is re-exported to end-users in Mainland China. Industry experts predict the number to be double the official figure. The majority of the North American ginseng in Shanghai is from Hong Kong. The 'grey market' is opaque and vulnerable to Chinese customs and government changes in the trading system. Canadian exporters are encouraged to seek out and use direct routes into Mainland China.

Figure 2: Statistics Canada

Consumer Preferences and the Shanghai Market

As of April 2002, the retail price of North American ginseng in the Shanghai market was as followed: $308 CDN for super large roots, $246 CDN for large roots, and $185 CND for small roots. (Depending on the quality of the root) It is important to note that the above prices are 8 to 10 times higher than the farm gate prices in Canada. The majority of imported ginseng is processed in the south of China. Processing factories clean, dry and grade the roots. Only the more expensive roots will be sold at the above-indicated prices. All the fibres from the smaller roots are removed and sold by the pound ($2-3 CND) to make capsules, shampoos and powders.

The roots are then graded, trimmed and classified into different qualities. Some factories cut off the fine roots, slice the ginseng and package it to be sold up north. The remaining roots are sliced sold by the pound ($16-20 CND) for making teas and other ginseng products. Consumers prefer unprocessed, ginseng roots. Consumers prefer the exterior of the ginseng root to be golden in colour, and the interior creamy and compact. The root should be easy to slice. The ginseng should have a mild taste. It shouldn't be too strong, bitter or bland. Even though, Canadian ginseng is well represented in the market, awareness of Canada as the country of origin is practically non-existent. Consumers believe that the ginseng originates from the United States, particularly from Wisconsin. Ginseng packages often adorn the label of 'American ginseng' leaving consumers to assume the content originates in the United States.

In recent years, a market for value-added products has emerged. Middle age consumers are the bulk of these consumers. They often have fast paced schedules, and do not have time to prepare the roots for themselves or their children. Value-added products are generally sold in supermarkets in the form of capsules, teas, soups, candies and beer.

Impact of China's accession to the WTO

Import tariffs have and will continue to decline significantly. The rate has fallen from the 1999 level of 40% to 11.8% in 2002. The Value Added Tax (VAT) is set at 13%. The import tariff will be reduced to 7.5% by 2006. The Chinese government has also agreed to eliminate domestic support programmes and export subsidies.

Industry exports speculate that the short term will not bring immediate changes to the trading system. Even though duty has been lowered, the short-run ginseng trade is not expected to increase. To date, Canadian ginseng has found creative routes into China avoiding the high tariff rates. As the current grey markets avoid taxes altogether a lowered tax does not make a difference. There is also a concern that non-tariff barriers such as quota documentation and the hygiene requirements will have a negative impact on trade. There is a fear that exporting using the official, legal channels will become increasingly complicated and time consuming.

Inversely, once the trading system has adapted to the new rules and the procedure is in working order, the ginseng trade is expected to increase. The system should provide Canadian exporters with increased protection for officially exported products, increased regulation and transparency. This should make it easier and therefore more profitable for Canadian ginseng companies to do business in China.

Strategies and Recommendations

1) Canadian ginseng growers must adopt an aggressive and consistent marketing campaign. This campaign should concentrate on promoting the 'Canadian' brand and developing a loyal consumer base.

2) Canadian exporters should look into direct routes for trade, and avoid the Grey markets. This will give Canadian exporters greater control over the marketing, distribution and price of their shipment.

3) Canadian ginseng growers should work together to develop a coordinated strategy for accessing the Chinese market. Together, they can pool their resources, develop a marketing strategy and gain a better understanding of the current market conditions.

Import Regulations and Administration

1. Shanghai Customs of The People's Republic of China - Responsible for the regulations and inspections on import and export documents and certificates 
Address: 13 Zhong Shan Dong Yi Lu
Shanghai 200002
Tel: 86-21-63232410
Fax: 86-21-63232095
Website: www.shcus.gov.cn

2. Shanghai Entry-Exit Inspection and Quarantine Bureau of The People's Republic of China - Responsible for the inspection of imported and exported goods
Address: 1208 Minsheng Road, Pudong New Area
Shanghai 200135
Tel: 86-21-68563030
Fax: 86-21-68565939

Additional Resources

Agriculture and Agri-Food Section
Canadian Consulate General
#604-1376 Nanjing West Road
Shanghai, 200040
Tel: (86-21) 6279-8400
Fax: (86-21) 6279-8401
E-mail: shirlie.wu@dfait-maeci.gc.ca

Henry Deng
Senior Commercial Officer
E-mail: henry.deng@dfait-maeci.gc.ca

Shirlie Wu
Commercial Assistant
E-mail: shirlie.wu@dfait-maeci.gc.ca

This report was prepared by Janelle Whitley - July, 2002.
Sources: Statistics Canada, Chinese Customs and the China Statistical Yearbooks (1998-2001)
Special thanks to the following people for their valuable input: Amos Tin (Export Specialist- Asia/Pacific, Market Development Branch, Ministry of Agriculture, Food and Rural Affairs, Province of Ontario) and Houston Wong (Commercial Officer, Agriculture and Agri-food Consulate General in Hong Kong)