Market Information
Asia Pacific

Food Distribution in the Yangzi Delta

January 2005

Prepared by:
Canadian Consulate General in Shanghai
Suite 604, Four Shanghai Centre
1376 Nanjing Xi Lu
Shanghai, China
200040
Tel: (86-21) 6279-8400
Fax: (86-21) 6279-7456
E-mail: henry.deng@shanghai.gc.ca
Internet: www.shanghai.gc.ca

The Canadian Consulate in Shanghai offers a series of different market research reports for Canadian exporters. These reports are designed to provide Canadian exporters with a market overview, the latest trends, opportunities, and challenges in various dynamic industries. A list of the complete reports can be found in the appendix section of this report.

TABLE OF CONTENTS

EXECUTIVE SUMMARY

REGIONAL OVERVIEW

IMPORTATION

DISTRIBUTION: A GLANCE

DISTRIBUTION CHALLENGES

RECEIVING PAYMENT

TRANSPORTATION INFRASTRUCTURE & LOGISTIC

FOOD MERCHANDISING

APPENDIX

BIBLIOGRAPHY

EXECUTIVE SUMMARY

Canada's performance in China and the Yangzi Delta continues to improve annually. Increasingly, Canadian companies are choosing to enter the China market with their product, or expand their existing services. In 2002, Canadian exports to China were valued at approximately 2% of China's total imports, making Canada the 6th largest trading partner with China. In 2002, the total Canadian food export to China reached $584 million, of which 11% entered through or to Shanghai. The total fishery/seafood export to China in 2002 was $124 million, in which 15% entered through or to Shanghai. In the first three months of 2003, Canadian exports to China reached $88.5 million.

For the Canadian exporter, distribution is one of the largest challenges. China's sheer geographic size, complicated distribution industry and regional differences make national distribution a challenging and daunting task. Establishing a comprehensive, thorough distribution system is critical for success in the Chinese market.

China is in a period of transition. Its accession to the World Trade Organisation (WTO) has created significant new opportunities for Canadian exporters and has facilitated access to the Chinese market. The Chinese import process has been streamlined and has become increasingly transparent. Infrastructure projects are blossoming, a strong consumer culture is emerging and a penchant to try new, imported products is developing.

China's distribution system has evolved drastically over the last two decades. With free market principles at work, the system has undergone the necessary changes to compete in the world market place. Although state-owned companies control the majority of distribution, they are limited to distributing bulk and certain niche commodities. Strong private sector distributors and wholesalers have emerged to meet the demands of foreign import products and exporters. Employing a private distributor is the most common method used by Canadian exporters.

Though improvements are constant the transportation infrastructure is inadequate, the distribution industry fragmented, the legal system under-developed and the banking structure opaque. These barriers can have a negative impact on the import process. Canadian companies are strongly advised to perform due diligence before entering the market.

This report is designed to provide Canadian companies with a comprehensive overview of the distribution system in China and the challenges associated with distribution. A dedicated Canadian company, with the right combination of product and strategy can penetrate and be successful in the market. Nation-wide distribution is obtainable with the right strategy and a little creativity.

MAP OF THE YANGZI DELTA REGION¹

Anhui:
Population: 63 280 000
GDP per capita: $879.22
Expenditure on food: $760.77

Jiangsu:
Populatoin: 72 550 000
GDP per capita: $2176.06
Expenditure on food: $931.71

Shanghai:
Population: 16 140 000
GDP per capita: $6295.13
Expenditure on food: $1572.20

Zhejiang:
Population: 46 130 000
GDP per capita: $2467.30
Expenditure on Food: $1339.18

REGIONAL OVERVIEW

East China, also known as the Yangzi Delta region is a major importer of Canadian agricultural commodities. Canadian exports of grains, oilseeds and live seafood are among Canada's top ten exports to East China. The city of Shanghai is one of the best potential markets in China for imported and value-added foods. The Canadian Consulate's AgFood team places strong emphasis on promoting Canadian processed foods in this market. The neighbouring provinces of Jiangsu, Zhejiang and Anhui provide excellent opportunities for agricultural technologies, including farming, animal genetics, food processing, and seafood/fishery processing and aquatics. It should be noted that with the rapid development of logistics and infrastructure networks in the Yangzi Delta, second tier cities in the region, such as Hangzhou, Wenzhou, Nanjing, Suzhou, Wuxi and Hefei are increasingly viewed as potential markets for imported foods.

Shanghai

The market for imported food products in Shanghai is developing rapidly. In 1990, Shanghai opened its first supermarket. Prior to that date, food shopping was primarily carried out in wet markets or government-owned dry goods stores. Today, there are 3,300 modern retail outlets operating in the city, (each over 700 square metres in size), of which 2,000 were established in 2002 alone. Four of the top ten supermarket companies in China are headquartered in Shanghai.

In the past, distribution was a main challenge for foreign importers. The system was fraught with bad infrastructure and inadequate food storage facilities. Of late, there have been significant improvements in this area. The governments of Shanghai and the surrounding provinces have invested significantly in developing regional transportation infrastructure. Accessing smaller villages or hamlets can still be difficult, but the infrastructure provides good coverage to major regional centres. Improvements in retailing and warehousing capabilities are also noteworthy.

The 2002 per capita GDP in Shanghai reached US$4,900, and the 2003 GDP growth rate reached 11.8%, both at the top in China. The average Shanghai resident spends 43% of his budget on food. Of this percentage, close to 10% is spent on dining out. Overseas expatriates and high-income Shanghai residents are able to buy imported food on a regular basis. Shanghai's drive to become an international city has heightened the city's growth. Key events such as the Expo 2010 in Shanghai will accelerate the flow of investment and people into the city from both international and domestic sources. As a result, Shanghai will continue to be an ideal market for high-quality processed or imported food products.

Shanghai's vibrant hospitality industry, modern distribution systems, established retail system and adventurous consumers are creating significant opportunities for Canadian exporters. There are currently 28 local importers or distributors in Shanghai that regularly import processed food from Canada. Canadian products are perceived as clean, natural, safe and of good quality. Canadian seafood, especially live seafood and fishery products, are particularly welcomed.

In 2002, Canadian goods accounted for approximately 1.3% of China's total imports. According to AAFC statistics, the total amount of Chinese imports from Canada reached $307 million dollars. Approximately 1/3 of Canadian exports entered China through the port of Shanghai. Grains, barley and oil seeds account for the most significant share of Canada's total exports to China, while processed food exports are minimal. However, the combination of China's accession to the World Trade Organization (WTO) and a growing interest in foreign foods is leading to increased demand for processed food products in the region.

Provinces of Jiangsu, Zhejiang and Anhui

These three provinces have strong agricultural capabilities. Local governments have emphasised the development of local agricultural infrastructure and production technologies, and have accordingly allocated significant investment funds. Jiangsu province is the largest national producer of cotton, swine, poultry and aquatic products. It is also an important producer of rice, wheat and oilseeds. Zhejiang province has the largest fishing base in all of China. It is also a major producer of grain, tea, fruit, silk, flower and animal husbandry. Anhui province is the largest beef cattle producer in East China; the second/third largest oilseed producer in China and its in-land aquatic industry is also developing rapidly.

Urban dwellers in these three provinces are using their new purchasing power to demand increasingly high-quality food products, either from the Shanghai market, or imported directly from overseas countries. Consequently consumer demand is spurring the local development of the food processing industries. Several companies have already emerged in the local food and beverage processing sector, such as the Yurun Group in Nanjing (meat), the Wahaha Group in Hangzhou (beverages), and the Qiaqia Group in Hefei (native Chinese produces).

Canada has enjoyed significant success in the animal husbandry sector in the region, particularly in Zhejiang province, due to two CIDA-funded projects focused on breeding dairy cattle and lean swine farming. These successes are generating increased commercial follow-up and trade leads between Canada and the Yangzi Delta region.

Opportunities and Competition

The following imported food products have recently sold well in the Shanghai and Yangzi Delta markets. These items provide an indication of potential opportunities for Canadian exporters.

• fish and seafood
• processed meat
• dairy products
• wine and beverages
• confectionery
• nutraceutical product

Canadian wheat, malting barley, peas, canola seeds and other commodities continue to sell well in the Yangzi Delta region. Agricultural technologies, food processing, swine/dairy/beef genetics, animal feed and fish/aquatic also have great potential in these markets.

Competition for Canadian exporters is intense, but varies significantly depending on the product. Canadian products are perceived to be relatively expensive and are not all that well known. The USA is the largest exporter of processed foods and agricultural technologies to China. Australia, the UK, New Zealand and several Southeast Asian countries are also active in the market.

PERCENTAGE OF SHANGHAI HOUSEHOLDS GROUPED BY DISPOSABLE INCOME

Shanghai Statistical Yearbook

Per Capita Annual Living Expenditure of Urban Households- Shanghai 2001

Shanghai Statistical Yearbook

In 2002, Canadian exports accounted for approximately 1.3% of China's total imports. The total exports of agri-food products totalled $CND 283,585,921. A quarter of which entered through the port of Shanghai. Food exports (grains, barley, and oil seeds) account for the significant share of Canada's total exports whereas processed, valueadded food exports are minimal. However with the combination of China's market reforms and the growing interest in imported food, they have risen in the last years.

Food purchases represent the largest expenditure of consumer spending. Urban households currently spend 39% of their annual living expenditure on food purchases. Of this per cent, close to 10% is spent on dining out. Recreation and education represent the second biggest 13% expenditure with only 13%.

In 2002, the following food products were reported to have sold well in the Shanghai and the Yangzi Delta market and are expected to ontinue
to provide future opportunities for Canadian companies:

• Fish and seafood;
• Processed meat;
• Dairy products;
• Wine and beverages;
• Confectionery;
• Nutraceutical foods.

However, the Chinese market is not an easy market to enter. The key to success is recognising that opportunities lie in specific regions and income groups. Significant time and effort needs to be dedicated in researching and formulating a market entry strategy. Making assumptions based on other markets may prove costly when applied in China. A key success factor is to be attentive and to address local market needs. Shanghai consumers are sensitive to issues of convenience, sanitation, flavour, nutrition and price. Consumers are willing to pay a premium price for foods viewed as higher quality, nutritious and imported. Shanghai's drive to become an international city has heightened the city's growth. Key events, such as Expo 2010 in Shanghai and the 2008 Beijing Olympics, will accelerate the money and people flow into the city by both foreign, local and government sources. As a result, Shanghai will continue to represent an ideal market for processed and imported food products. For the right product and strategy, opportunities exist. With careful planning, dedication and consideration, Canadian exporters can be successful in the market.

IMPORTATION

China's recent accession to the WTO has created significant new opportunities for Canadian exporters and has facilitated access to the Chinese market. Lower tariff rates, transparent reporting systems and international standards are creating an increasingly favourable trading environment. The importation system and procedures have greatly improved over the last five years. Nevertheless, there are still significant challenges and barriers. The main hurdles are clearing quarantine, obtaining the correct paperwork and adjusting to the new system. At present, the Chinese government is in the process of reforming their systems and implementing new ones. The transition period has created confusion as companies' need to scramble to become compliant with new laws. In addition, an increasing number of new non-tariff barriers are applied during the import process further complicating the procedure.

Quarantine

For foreign food exporters, the largest challenge and hurdle begins with the quarantine and health inspection. The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) in Beijing, is the national bureau responsible for the inspection and quarantine of any export or import of animal, plant and foodstuff products. They are also responsible for creating technical standards, policies and regulations. Regional offices are established throughout the country to assist with implementation, but have no influence on creating or approving regulations. The Shanghai Entry-Exit Inspection and Quarantine (SHCIQ) normally inspects all agriculture or agri-food products once they arrive at the Port of Shanghai. Exemptions and sampling rates are determined based on the history of the importer or exporter, the products involved and the volume.

Challenges associated with the AQSIQ include import licenses, labelling regulations, lack of transparent regulations, non-scientific quarantine, bureaucracy and inflexibility of the bureau. Exporters largest complaint is that the detention of products is done on an unscientific basis, using regulations against the WTO and that few Chinese producers can meet. The largest example is genetically modified food products and pathogen-free meats. In most cases, there are no written documents stating the requirements.

For dairy and meat products additional regulations apply. China has official protocols with Canada for export of beef and pork products from Canada. AQSIQ requires a Chinese inspector visit and assess the foreign meat processing plant. Once approved, the plant is granted permission to export their product to China. Currently, there are 40 Canadian meat plants approved to export their product. This process is managed by the Canadian Food Inspection Agency (CFIA), who in turn works with AQSIQ to arrange their inspection and approval.

Chinese Customs

Chinese Customs is an implementation organisation. It simply enforces the laws and regulations created from various Chinese government departments. Customs is responsible for assessing tariffs, quotas and verifying appropriate licenses. Exporters and foreign business in Shanghai quote the largest improvement has occurred within Chinese customs. The import-export process has been streamlined and general transparency increased. Customs have written documents and have held workshops outlining the customs procedure. With proper documentation, clearing products is relatively easy. Whereas clearing a good once took weeks, today, the average time is 3 days. Classing systems and Electronic Data Interchange (EDI) are allowing certain companies to further fast track their goods. Challenges associated with Chinese Customs are inflexible working hours, bureaucratic nature, non-tariff barriers, HS classification, national favouritism and custom duties.

Clearing the Product

Once the shipment arrives at the point of entry, the imported products undergo the following before being released from AQSIQ and Customs:

1. Inspection and Quarantine by the AQSIQ – The process is normally done at the port of entry or at the importer's bonded warehouse. They test for pesticides, antibiotics, visible and non-visible problems.
2. AQSIQ will also ensure the label is correct.
3. If approved, AQSIQ issues a Pass certificate.
4. The product is inspected by Chinese Customs
5. Chinese customs verifies the packing list, commercial invoices and shipping documents. They classify the good and determine the amount of duty to pay. They are also responsible for checking the quality, weight and quantity.
6. Once all the correct documentation and payment is received, customs will release the product to the importer.

Other Players

There are various government departments involved in importing goods to China. The Minister of Agriculture (MOA) is responsible for the development and safety of the Chinese agriculture sector. They are central in formulating regulations governing genetically modified organisms (GMO). GMO regulations apply to animals, plants (canola, wheat, soybeans) and microorganisms. Any product or commodity genetically engineered to alter the genetic make-up of the product.

China's rules require safety certificates stating GMO products are not harmful to humans, animals or the environment. Exporting companies must now provide scientific experiments demonstrating the product is safe for consumption. Once the product is determined safe, the Minister of Agriculture will issue a safety certificate. In addition, not nationally applied, all GMO food products require special labelling. The labelling is intended to give Chinese consumers the power to decide to purchase GMO or non-GMO products. It is the responsibility of the exporting company to declare the use of GMO in their products. The AQSIQ has the right to search and examine the product. If they determine genetically modified products, the product will not enter China and will be handled accordingly.

The original GMO regulation was issued in January 2002. Under a United States brokered deal, the Chinese government agreed to issue "interim certificates" while exporters performed the necessary tests and the Chinese finalised the details. Since then interim certificate have been extended from the initial December 2002 deadline, to September 2003 and recently to April 2004.

North American farmers are particularly negatively affected by the GMO regulation. The majority of the American soybean crop and the Canadian 'rapeseed' crops are genetically modified. The opponents claim China's regulation has no scientific basis, going against WTO regulations on Agriculture. The Chinese government is stalling to provide time for Chinese farmers to cultivate their own industry. Extensive lobbying on the American and Chinese government continues to occur in efforts to change the current regulations. Soybeans are particularly sensitive as no quota system dictates their flow. Tariff Rate Quotas apply to bulk such as wheat and canola.

The Minister of Health determines and approves functional food products. Functional foods are defined as any products possessing health care functions, but are limited in the purpose of curing diseases. Importers are required to apply to the Minister of Health for a 'functional foods certificate' and approval number endorsing the safety of the product. The application procedure involves functional tests, scientific evidence supporting the product and complete lists of ingredients. The certificate must accompany the product during the import process, and the approval number must be printed on all packaging.

Licensed Importers

Under China's current trade regulations, Chinese companies must obtain an import license before entering goods into the country. Import licenses are issued by the "Industrial and Commercial Administration Board" of the newly founded "Ministry of Commerce". The Ministry of Commerce is a joint government department combining the old bureau responsible for external trade, the "Ministry of Foreign Trade and Economic Co-operation" (MOFTEC) and the bureau responsible for internal trade, the State Economic and Trade Commission (SETC). Currently, full import licenses are only available to large state-owned and domestic private companies. Private Chinese companies must meet certain criteria (import levels, annual revenue, and number of employees) before qualifying for an import license. Full import licenses allow companies to sell directly to the public; act as an agent for a smaller Chinese or foreign distributors who do not possess a license; import goods for internal manufacturing and import materials for manufacturing. Also, these companies have access to foreign capital.

Foreign distributors, joint venture companies (JV) and wholly owned foreign enterprises (WOFE) can only import goods for internal manufacturing and materials for the manufacturing process. They cannot function as a trader to re-sell the imported products directly to another buyer or the end-user. As a result JVs, WOFEs and smaller Chinese companies commission an import agent (company with a full license) to import goods on their behalf. Once cleared, they are free to distribute the product and sell directly to end consumer. The import agent will also organise payment for the goods to the foreign party. Restrictions on import licenses are scheduled to be removed. In 2004, JVs are permitted to obtain import licenses, followed by WOFEs in 2005. The import licence system will be abolished completely in 2006.

Import Tariffs and Value Added Tax

China's accession to the WTO has resulted in a significant reduction of tariffs on key agriculture and agrifood commodities. On average tariffs for all goods range from 15.3% to 12%, a 21.6% decrease from their original levels. In 2003, agricultural tariffs will be cut from 18.1% to 16.8%. Tariff reductions will occur over the period of the next three years. In addition, a value-added tax (VAT) is applied to all products entering into the market from abroad. Though improved, the VAT plus the tariff can significantly increase the cost of the import. The following chart demonstrates the tariff rate and the VAT on key import products. The VAT is 13% on unprocessed, unpackaged food and 17% on processed, packaged food.

Food Labelling

Effective November 1 2002, all imported and exported food products must adhere to the Chinese labelling regulations. All food labels must be inspected, verified and issued a 'Certificate of Import Export Food Labelling' by the AQSIQ. AQSIQ specified laboratories will test the food nutrition and quality to ensure that the label is accurate. An approval certificate is required prior to applying for goods-arrival inspection and other customs formalities.

Shanghai applications can be submitted to the SHCIQ. They will perform the initial testing, and submit it to the AQSIQ for final approval. If all the correct documentation is provided, approval of the label should be issued within 50 working days. One application can be submitted for the same product (ingredient, package) and the only difference is the weight. The importer can import the goods only once the AQSIQ approval certificate is received.

All packaged food products (international or local products) must be affixed with a Chinese language label indicating the following:

• Name of the food
• Ingredient Table
• Net contents on the packaged (volume or weight)
• Name and Address of the importer and manufacturer
• Production and Expiry date
• Storage directions
• Country of Origin
• Quality Rating, Product Standard Coding and Special content marking if applicable

In addition, the regulation recommends standards such as the batch number, serving method, calories, and nutrients. Labelling refers to all written language, graphs, symbols, layout and explanation materials of packaged food products. All Chinese language must be in simplified Chinese characters. Please see the Appendix B for a copy of the registration form. Label stickers can be used providing they have received the AQSIQ approval. The stickers cannot be detached from the product. The size of the English characters cannot exceed that of the Chinese.

Import Route

The most common method to import products to the Chinese market is to work with a local distributor or wholesaler. The Chinese party will arrange all custom formalities, import licenses, paperwork and distribution of your product. Canadian companies avoid the hassles of customs, logistics and distribution. As identified above, the distributor does not need to actually possess a licence to import the product, as they employ government certified company (private or stateowned) to import goods on their behalf. Additional distribution methods and challenges will be discussed in the proceeding section.

In the past, many goods entered China by using a series of grey channels. Though this has declined significantly, it is still common for certain goods as ginseng or fruit products. Grey channel products are subject to less duty, avoid quarantine and the time delay involved with the official route. The Chinese government has taken significant steps in the past years to halt smuggling and curtail grey channels. Companies are strongly advised not to use such illegal routes to enter China.

Points to Remember:

• The import process has become increasingly streamlined and transparent. With the proper paper work a hassle-free, fast clearance is possible.
• Certain products such as GMOs, grain, oilseeds, nutraceuticals and meat products require special licenses before entering the Chinese market.
• Ensure the correct; certified labelling is placed on all products.
• The largest hurdle begins with the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). Their processes continue to be non-transparent and inflexible.
• Under WTO accession, import tariffs are scheduled to be reduced. The value added tax (VAT) and import tariff attribute to the total cost of export process.
• Canadian exporters work with a local distributor or wholesaler. The Chinese party arranges custom formalities, import licenses, paperwork and distribution of your product.
• Avoid all grey and illegal routes into China.

DISTRIBUTION: A GLANCE

Today, the distribution system has evolved drastically. The government has loosened its control and opened the market for competition. As a result, the system has improved. Eastern coastal cities, as Shanghai, have developed the necessary infrastructure to meet the market's need. Much needed infrastructure projects, industry reorganisation and elimination of restrictions on foreign participation will further improvement. Nevertheless, distribution remains the largest challenge for foreign companies striving to achieve market success. It is also the most crucial. China's vast geographical size requires the movement of goods over long distances- a daunting task given China's inadequate transportation infrastructure, lack of warehousing facilities and different regional characteristics. Despite improvements, the distribution system remains chaotic and inefficient.

China's accession to the WTO is expected to improve the current situation. The distribution industry will become increasingly open to foreign companies. By 2006, foreign companies will be granted full trading and import rights. Industry analysts believe this will be a positive step for the distribution industry. Foreign operators will introduce new competition, infrastructure, and management expertise. The Chinese government will reserve the right to exclusively manage the trade of certain products (bulk commodities, tobaccos) and to maintain restrictions on certain sectors of the transportation industry (air).

The traditional Chinese state-controlled distribution system has been almost abolished. The remnants of the old system remain in place, but are in the midst of revamping their organisations to compete in the market economy. Today, four major types of distributors handle modern distribution systems in China. These include state-owned distributors, private domestic companies, foreign-based distributors or wholesalers, and establishment of a foreign presence. Each of these distribution systems offers a unique set of advantages and disadvantages. In general, private domestic distributors are the most feasible and accessible channels for Canadian companies to work with when entering the market for the first time. Depending on the company's future plans, current resources, and product line, the other methods remain viable options.

Traditional to Modern Distribution Systems

Traditionally, the Chinese distribution system was opaque, hard to navigate and difficult to maintain control of the product. All goods were mandated to enter the country through a stateowned Foreign Trade Corporations (FTCs). The FTC would subsequently fan them out to provincial, city or regional state-owned distributors or wholesalers. FTCs were not permitted to sell products directly to the end user. As no market forces were at work, distributors provided basic services as transportation and some warehousing. Customer service, marketing or sales reporting were non existent.

The traditional distribution system was divided into three rigid hierarchical levels. The first tier concentrated on major cities as Shanghai, Beijing, and Guanzhou. These cities allocated and transported the products to the second tier, provincial wholesalers. Second tier wholesalers were located in the provincial capital or other medium-size cities in the province. These wholesalers delivered the goods to the third tier, local wholesalers. Also, large state owned department stores were also considered third tier and were responsible to distribute to the smaller retail stores.

Under the traditional distribution system, the State Planning Commission dictated national production levels and the allocation of raw materials and funds to the sector bureau of major cities. In turn, the bureau would distribute to provincial factories. Provincial factories were responsible for the smaller cities', township's and village's factories. Every level of the hierarchy was responsible for meeting a production quota imposed by the State Planning Commission. The Ministry of Trade (since been replaced by the Ministry of Commerce) managed and oversaw the distribution of the products to retail outlets and determined the price for all goods in the market.

The following graph represents the traditional distribution structure.

The year 1986 marked the breakdown of the traditional state-owned distribution system. The majority of the state-owned distributors became private distributors and/or wholesalers. Additionally, numerous small, private distributors have opened their doors over the years. Confident in the first-mover concept, foreign multinationals have rushed to the market in preparation of future liberalisation. Foreign companies now operate in the distribution, logistics, warehousing, sales and marketing sectors. Today, only products such as grain or coal continue to be distributed through the traditional system.

The following graph represents the modern distribution system. Designated large department stores, hotels and large supermarkets are the only actors who can import directly from overseas manufacturers or suppliers. Significant layers and regulations have been removed. Exporters are now able to exert more control on the product, and penetrate deeper into the market.

Distribution Channels

Companies selling in China, whether importing or distributing locally made goods, must rely on a combination of distribution channels to reach retailers and consumers, especially if they attempt nation-wide coverage. In general, markets are highly regional and different characteristics and regulations apply in each. The key to approaching the China market is to treat it as a series of different markets, and not just one. Despite the drawbacks and challenges, foreign operators have been successful at creating interim solutions to their distribution woes. Albeit, they are not the most cost efficient and practical, foreign operators are increasingly able to reach their target destinations with minimal hassle and within their time frame.

As identified above, the most common distribution methods to import and to distribute products in China are:

• State Owned Distributors
• Private Domestic Companies
• Foreign Based Distributors
• Establishing a local presence

One practice may not be enough to achieve deep penetration or nation-wide coverage. Often, a combination of different strategies is needed to be successful.

State Owned Distributors

State Owned Distributors are commonly used for large bulk commodities (barley and canola) and niche products (wine and spirits) requiring specialised import licenses. They seldom import small quantities of goods. It is estimated that 70% of food imports, including bulk commodities, enter the country through a state owned distributors. Often, state-owned distributors own their own transportation and logistics companies. The Shanghai Food Import Export Corporation General, Shanghai Fisheries General Corporation Group (monopoly on frozen products), Shanghai Wine, Spirits and Sugar (monopoly on alcohol) and the Shanghai Food Group are the largest operators in Shanghai. Traditionally, state owned distributors were notorious for their inefficiencies and lax service standards. Today, due to increased market competition and entry of global players, they have reorganised their operations and have significantly improved the services they offer.

Advantages

• Access to an established distribution and transportation network
• Possession of needed import licenses
• Strong purchasing power and access to foreign capital
• Connection to government parties

Disadvantages

• Specializes in large import orders
• High commissions
• Difficult to maintain control over the product

Private Domestic Companies

Private domestic distributors or wholesalers are the most chosen mode of distribution for valueadded food products. Distributors represent a series of related, but non-competitive products. They provide customs clearance, basic distribution, warehousing and sales for the product. Depending on the company, a range of additional services may be offered. Additional services may entail issuing credit reports, market information, sales analysis or promotional support. As stated earlier, working with a domestic distributor is the most common method for Canadian exporters to enter the market.

The Canadian Consulate in Shanghai can assist in locating a reputable and experienced distributor. Please see the Appendix on Canadian Food Distributors in the Yangzi Delta for a list of distributors carrying Canadian food products in Shanghai. Other sources include the local chamber of commerce, word of mouth, trade organisations and other Canadian government departments. Another key, effective method is to attend trade shows related to your product field. Distributors circulate among booths looking for potential product ranges. Shanghai is home to numerous trade shows throughout the year catering to a wide variety of products. The largest all-purpose food shows are Food and Hotel China (FHC) and SIAL.

Advantages

• Competitive Prices
• Knowledge and acceptance of local
• Geographic scope
• Can offer additional services as sales report and marketing. Eyes and ears on the ground.
• Close to the end user and can provide quick turn-around time.

Disadvantages

• Lack of control over sales personnel
• Danger of disloyalty (commission based, leave for higher paying market product)
• May not be familiar ith your product or its standards.
• Poor handling and distribution.

Tips for dealing with your distributor

• It is important to provide Chinese language information to your local distributor. This will assist the company in selling the product to both the retail outfit and the end-consumer.
• One of the largest complaints of local distributors concerning foreign importers is their commitment to the market. Domestic companies are interested in representing companies who have long term commitment in the market.
• Exporters should provide marketing financing and promotional materials. Do not assume the distributor will automatically privide this service.
• Working closely with the distributor will help create relationships, demonstrate commitment, ensure the product is marketed, experience in the market and achieve higher sales.
• Establish local staff presence to work and assist distributors.

Foreign Based Distributor and Wholesalers

Foreign-based distributors offer a fuller and more modern range of distribution services with wider coverage, on a multi-regional, or near national basis. They have established arrangements with local governments and local companies to solidify their foundation. In most cases, they are multi-national companies operating in more than one world market and their product range and representative services are not limited to food products. They offer a wide range of services from advertising, distribution, transportation and logistics. The better known companies operating in the China market include SIMS Trading, Jebsen & Co. Ltd., Inchcape PLC, EAC and JDH (Li & Fung).

The key drawbacks to using a foreign-based distributor are the added costs to the company, lack of local connections and propensity to carry large, niche products. Higher costs are associated with the use of a foreign presence and the additional services they provide. The cost is in turn reflected in the price of the good. Generally, foreign distributors carry international brands recognisable around the world.

Direct Sales to Customer by Establishing a Local Presence:

For companies serious about the market and prepared to make a long-term commitment, establishing a local presence is a useful strategy. There are three main mechanisms that allow foreign companies to operate in China. These include establishing a representative office (RO), Joint venture (JV) or Wholly Owned Foreign Enterprise (WOFE). Depending on the license, a local presence allows the foreign company better control over the marketing, pricing, distribution and sales of the product. Direct contact with retailers and market players enhances business relationship furthering potential success.

Each license entails a different application process, business scope and set-up fees. A representative office is the cheapest method to establish market presence. Applicant companies must be a minimum of a year old and possess a certain level of registered capital (depending on the region). Applications are approved in 30 days, and the application cost is approximately $CND 4050. A RO license allows the company to rent office space, hire employees, market the product, perform market research, provide support service and establish relationships. A RO can not issue invoices and receive payment for goods or services provided in China; can not manufacturer any goods and can not hire staff directly. Taxes are based on expenses incurred. To circumvent the trading restriction, a RO issues invoices from their parent company or a Hong Kong shell company. In addition, a RO can not receive an import license, and must continue to rely on a local importer and distributors to import the product on their behalf. Closing a RO is difficult, as it requires permission from the Chinese bureau.

Joint Venture establishments are another option to establish a presence. A JV is used when the Chinese party can provide beneficial assets (technology, licenses, land, infrastructure) or the industry is closed to complete foreign participation (restaurants, bars, logistics, education). There are two forms of JV- equity and co-operative. In an equity partnership, the foreign companies pays the Chinese partner a pre-determined lump sum in a set time frame. Often, the Chinese partner is silent and retains no management control in the company. This arrangement is common for the restaurant and bar industry. Equity joint ventures are based on shareholder and company profits. Their main drawbacks are lack of full management control, and sharing of profits. Companies entering a JV arrangement are advised to perform due diligence on their Chinese partner before undertaking any venture.

Increasingly, foreign companies are choosing to open a WOFE. The licensing arena (consulting, trading and manufacturing) has opened significantly creating a host of new options. A WOFE allows foreign companies access to China's cheap labour force, better access to the local market and local production rights. Famous brands as Pepsi, Coke, Frito Lays, Wrigley's Gum, Dove Chocolate bars, Kit Kat are all produced locally. Manufacturing locally allows for easier distribution, lowered prices and greater market awareness. WOFEs have complete control over management, distribution, sales, hiring practices and invoicing. Taxes are based on profit. WOFE have the ability to convert local currency to foreign dollars for remittance offshore. The key impediment to this option is the required capital involved to obtain a licence and to operate in the Chinese market. In Shanghai, the required registered capital is $188,000.00 to 268,000.00. Registered capital can be used as working capital. The additional costs of running the operations are applied above this amount.

Advantages

• Maximum level of control over the product
• Establish relationships with local contacts
• Establish long term presence and brand name of the product
• Perform market research
• Legal entity status

Disadvantages

• Higer costs associated with establishing an office (rent, salaries, processing)
• Required commitment to the market

It is recommended that interested parties consult professional advice before reaching a final decision and commencing application procedures. In Shanghai, there are numerous well qualified, knowledgeable consulting companies and lawyers specialising in the above. A list of consultants can be obtained by contacting the Canadian Consulate General in Shanghai.

Combination Strategies

Given the vastness of the country and the fragmentation involved in the industry, it may be necessary to identify and use a combination of different strategies. Establishing a Representative office to work with a Chinese distributor is one combination option. Appointing various distributors in each region of the country is another. At relatively low costs, this option involves paying a limited number of distributors to sell and distribute the product. Distributors could effectively handle transportation and logistical co-ordination. The key is to develop a manageable network that is reliable and trustworthy. In general, distributors are strategically chosen in the south east, central east, and north central areas of China. Often, beverage (including spirits and beer) companies.

EVALUATING A POTENTIAL DISTRIBUTOR

Does the distributor have a strong, financial background?

To ensure payment and proper distribution, extensive due diligence is required to determine the financial status of the distributor. Providing they are not competitors, suppliers or other clients are often willing to supply information. Third party credit checking companies offer credit checks.

Does the distributor have a good knowledge of the local business market, regulations and import procedures?

A distributor who is intimately aware of the import procedures and Chinese regulations will ensure a smooth transition of the good to the market. It is estimated that the importer causes 50% of the Customs delays. The history of the company, their experience, their business activities and a list of their clients (international and domestic) are good indicators of their performance.

Does the distributor have adequate and maintained facilities (warehouse, transportation)? Is the distributor physically strong (man power, infrastructure, expertise)?

In general, Chinese distributors lack adequate storage and transportation systems. Products with special requirement, as cold storage, may find it more difficult to find a distributor. Distributors will advertise modern facilities, but as due diligence, it is important to either visit the facilities or exactly determine the nature of these.

Does the distributor have an established distribution network?

Depending on the need of your products, it is important to choose a distributor who can provide regional coverage. A well-connected and established distributor in one area may have insufficient capacity in a neighbouring area.

Do they offer additional services (marketing support, sales report)?

Do not assume all distributors offer a full set of services. Additional services as marketing support and sales reports are not common. Some distributors are willing to assist with marketing the product providing they receive adequate financing and promotional materials.

What is their current product portfolio? Are there similar products to yours?

Similar product lines can determine the experience of the distributor in selling your product. It will also eliminate any conflicting interests with other products that are too similar.

Does the distributor have all the necessary licenses to operate legally in China?

Review the distributors licenses to ensure they are able to offer the services they advertise and meet you company's needs.

Points to Remember:

• Distribution remains the largest challenge for imported products in China.
• China accession to the WTO and improvements in domestic infrastructure, are expected to act as a catalyst for future development.
• State-owned distributors, private domestic companies and foreign-based distributors are the main mechanisms to distribute goods in China.
• A combination of methods may be necessary to distribute the product nationally.
• A clear examination of the exporter's need and long-term vision is advised prior to selecting the right distribution strategy.

DISTRIBUTION CHALLENGES

The single greatest challenge of nation-wide distribution is the development and management of an effective distribution system. Achieving a broad and deep penetration of agri-food products in key population centres is a challenge. Difficulties stem from a variety of problems:

• Legal constraints and regulations
• Accounts receivable
• Fragmented distribution system (wholesaler, distributor, retailers)
• Intellectual Property Rights
• Out-dated or ill-equipped transportation system
• High cost to enter the market (establishing a presence, price of imported foods)
• Establishing Relationships

Legal Constraints and Regulations

Since 1979, China has made significant advances in legal reform. The increased economic activity, foreign investments and foreign companies operating in the market will continue to act as a catalyst to further legal reform. Under WTO, China has committed itself to the development of an independent, transparent, and impartial legal system.

Although, China has opened its doors significantly to the outside world significant legal restrictions remain in place. For example, foreign companies establishing a local presence must obtain the correct licensing requirements. Licenses narrowly define the activities (hiring practices, business activities and required capital) a company can perform in the market. Certain industries still require a joint-venture partner to open and operate (restaurants). In addition, the use of import licenses is considered a non-tariff barrier.

Protectionism remains a problem for international companies accessing the market. Local governments tend to support the domestic industry to the foreign one. Protectionist practices occur on a national and provincial level. Practices include support packages, reduced property rental, reduced taxes and government assistance. In addition, laws and regulations are interpreted and applied differently from region to region. Export subsidies and quota requirements are still employed to develop the domestic industry.

Another key concern for foreign companies operating in the market is dispute resolution. Under WTO requirements, China is required to establish a dispute resolution system. Though improvements have been made international lawyers and foreign companies prefer to settle disputes through business practices or international arbitration centres. Reasons cited are time and cost of the judicial process; lack of judicial independence; professional capacity of the judicial system; high levels of corruption; and lack of real enforcement mechanisms.

Accounts Receivable

A key legitimate concern for any business is receiving payment for their goods or services. Unfortunately, simply making a sale and signing a contract does not ensure this will occur. Distributors can be slow in rendering payment for the goods or simply defaulting for various reasons. The problem occurs for both foreign and domestic enterprises. All to often, credit is extended on the strength of relationships and transactions are performed on a cash-only basis. Exporters who extend credit to their wholesalers or distributors do so at their own risk and our advised to perform their own due diligence.

The problem is compounded by a weak credit system. Though in the planning stage, there is no national credit information bureau. Trial run services have begun in Shanghai and Beijing. Performing credit assessments can be a daunting task. With no central information base, financial history and dept repayment is difficult to ascertain. Various third party service providers, as Duns & Bradstreet, offer credit assessments. The Chinese government recognises the need to develop a sound credit system in order to ensure financial stability, further economic development and to compete internationally.

The system is further effected by an under-developed judicial system, lack of real enforcement mechanism in which to collect defaulted payments, a developing banking system and tightly controlled foreign currency. Please see the section entitled 'Receiving Payment' for additional details on receiving payment in China.

Fragmented Industry

The entire distribution process is highly fragmented with many layers of people and organisations between the importer and the end consumer. Each layer ultimately adds to the price of the item. The whole process can be time consuming, frustrating and difficult to manage. The problem applies equally to Chinese based companies. Fragmentation occurs within distribution, wholesaling, warehousing, suppliers, transportation and logistics.

Retail stores are forced to deal with many different wholesalers or distributors to stock their shelves. Most companies carry a limited product range. The main reason is they lack the necessary capabilities, licenses, finances or warehouse space. In addition, companies may lack the management skill and manpower to carry a varied line of products. Adequate warehouse space continues to be a problem. Distributors or wholesalers often own small quantities or rent from a third party. Refrigerated capabilities or special requirements are difficult to find. In such, opportunities exist for companies offering specialized services.

Intellectual Property Rights

A key element of China's WTO membership is adherence to TRIPS (Trade Related Aspects of Intellectual Property Rights). China is also a member to the Berne Convention for the protection of literary and artistic works and the Paris convention on patents and trademarks. Membership to these international organisations has not yet corrected the problem. Though the government is trying to stem the problem, it lacks the enforcement capabilities and the system to be effective. China continues to be a haven for counterfeit goods. It is estimated that 20% of the consumer goods on the market are fake. Food products are no exception. A recent survey by the China National Administration for Industry and Commerce estimated 70% sold in restaurants and hotels are fake. The problem is significantly better in Beijing and Shanghai. As counterfeit products are generally of lesser quality, their appearance on the market can seriously undermine the real brand and the company. While exporters have little control over the reproduction, steps can be taken to ensure better protection.

Foreign companies are encouraged to register their trademark with the State Administration of Industry and Commerce (SAIC) trademark office. SAIC is responsible for registration and enforcement of trademark laws in China. Trademarks are granted on first come, first serve basis. Patents are registered at a separate office. The State Intellectual Property Office issues and enforces patent laws. While registration does not ensure counterfeiting will not occur, it provides the legal backing should it take place. Exporters are advised to contact an intellectual property lawyer for further information on the process and the fees involved.

Points to Remember

• Protectionist practices continue to be an issue at both the national and local level of government.
• Disputes are normally settled through International Arbitration Centres, as the Chinese judicial system is still in a process of development and transformation.
• Determining the distributors or wholesalers ability to pay is difficult, as no national credit information bureau or real enforcement mechanism exists.
• The distribution system is fragmented with many different actors between the product source and end user.
• Copyright and trademark violation continues to be an issue in the Chinese market place. Though no absolute protection is guaranteed, steps can be taken to ensure counter-action.

RECEIVING PAYMENT

Receiving payment from your Chinese buyers should be given special attention. Export risks can be minimised depending on the method of payment. Payment terms should be well negotiated, understood and mutually accepted between the Canadian exporter and the Chinese company before any trade transactions occurs. As the Chinese government maintains tight control over foreign currency exchange and the Remnibi is a closed currency, it is important to ensure that the Chinese importer can access foreign currency. Using an established, reputable distributor or buyer should mitigate this problem. The possible methods of payment include (in order of risk) payment upon receipt, consignment, letter of credit and payment in advance.

• Payment upon receipt should only be pursued if a long-term relationship has been established with the Chinese buyer and extensive due diligence has been performed to establish credibility. Money is commonly transferred using a telegraphic transfer (TT).
• Payment on consignment is received only when the goods have been sold in the market. If the Chinese buyer is inexperienced with import goods or is not convinced the product will sell well, consignment may be their preferred payment option. Alternative payment arrangements may ensue depending on the success of the product.
• The most common and encouraged method of payment is a letter of credit (L/C). A L/C is a letter from the Chinese importer's bank confirming and guaranteeing the payment once the goods and proper documentation (Bill of Lading) are received. A L/C can be issued based on receipt, or on a term basis. Exporters are protected as they are guaranteed payment for their goods. If the Chinese buyer defaults on payment, the bank is obligated to pay. Although many banks can issue a L/Cs, the Bank of China is the major issuing bank. The Bank of China has an established L/C program, a good reputation and is recognised for their neutrality. Other issuing banks include the People's Construction Bank, the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China, the Bank of Communications and foreign banks with branch offices (HSBC, Citibank, Standard Chartered) in China. It is important to note that obtaining a confirmed letter of credit is impossible, as China does not allow letters of credit issued by its banks to be confirmed by others, Chinese or foreign.
• Payment in advance is the less risky financing option for the Canadian exporter. Exporters are assured payment and have the added working capital prior to the good's delivery. Depending on the contract, a down payment is often negotiated as a guarantee of later payment. Advance payments are common for seafood, or high value goods. In general, Chinese buyers are not willing to pay in advance for goods.

TRANSPORTATION INFRASTRUCTURE & LOGISTICS

Freight Transportation in China

Depending on the nature of the product and the company, transportation is a key element in achieving success for your product and should not be overlooked. Great strides have been made to improve transportation infrastructure in Shanghai and other eastern coastal cities. Good roads, frequent trains and waterways also connect the major cities in the neighbouring provinces.

Though improvements have been made in transportation and logistics, retail demand and China's own export market have grown at a faster pace. Distributing westward, nationally or away from regional hubs continues to cause significant challenges. The infrastructure system is archaic, undeveloped, and over-burdened with users. Co-ordination between different modes of transportation and provincial interpretation of regulations are also problems. At the moment, there are four different government bodies regulating air, water, rail and road. Provincial protectionism impedes the development of the system and adds to transportation costs. The American Chamber of Commerce predicts that logistic costs are often more than 16% of the product cost compared to 4% in most developed countries. Another estimate by Morgan Stanley places the damage rate at 2% or higher for goods. Damage is caused by excessive handling and inadequate infrastructure. Added costs include highway tolls, corruption, vehicle repairs, protectionist practices and unpredictable delays.

Creativity is required when incorporating transportation into a distribution system. While there is no blanket approach, some companies have strategically established regional distribution centres to effectively warehouse and distribute their products. While others out-source the entire transport process to a third party logistics company. Others, string together various local licenses and modes of transport to reach the end destination. Companies need to choose the system, which works best for their product and their future strategies.

Infrastructure will continue to improve. The development of an efficient transportation and logistic industry is necessary to sustain China's own economic growth rate. Recognising this need, the Chinese government has committed financial resources to develop the nation's infrastructure. The Shanghai government plans to transform the city into an international transportation hub. Extensive development plans for the ports, air, rail and road systems have already begun.

Third Party Logistic Companies

Given the complex nature of transportation and distribution in China, companies may wish to employ a freight-forwarder or third party logistic company to assist with the process. Recent years have seen the Chinese market flooded with a variety of small, multi-national or domestic providers. Under current Chinese regulations, with the exception of three, third party logistic companies require a joint-venture partner to operate nationally in China. Wholly owned foreign providers can only operate within designated free trade zones. Under China's WTO accession, this restriction is scheduled to be eliminated by 2006. The three exceptions include Maersk, APL and P&O Nedlloyd.

As with choosing a distributor, third party logistics companies should be chosen carefully. Onsite visits, client testimonials, word-of-mouth, client portfolio and infrastructure can assist in discerning the capabilities of the company. Researching different avenues and providers should be performed before making a final decision. The right match will make the difference in the market.

Although the competition is substantial, there remains significant opportunity for the right logistics company. There are currently over 70 000 companies registered as logistic providers in the market. The majority of these companies offer no more than basic transportation and warehousing facilities. Their basic understanding of customer service levels and exporter's needs are limited. Third Party logistics companies should gear up to offer turn-key solutions with a full range of service possibilities. Companies that offer unique, customized services to small to medium size enterprises should fill in a niche sector of this complex and growing industry.

Air

Air transport is the quickest and safest mode of transportation. It is also the most expensive. Often breakable, high-value, small electronic or rush items are transported by air. Significant investment has been injected into the air cargo and passenger industry. Over the last five years, the government has newly constructed or renovated over 40 of the national airports across the country. The majority of the airports situated in the Yangzi Delta have been newly built, or renovated airport to handle air cargo. In 2001, the Shanghai government opened the first-phase of the Pudong International Airport. The second phase in scheduled to begin in 2003 and will further expand the airports handling capacity. The major global airlines now have regular routes from Shanghai to their respective international destination. DHL, UPS, ANA and FedEx have facilities at the new airport. In addition, many of China's domestic airlines have re-vamped their services and offer enhanced passenger and cargo services.

The new Pudong airport is a much-needed supplement to the existing Hong Qiao airport. Together the two airports handled 7,082,198 metric tons of cargo in 2002, with Hong Qiao receiving 732,532 and Pudong receiving 634,966. Cargo handled at Pudong increased 80% from 2001, while that of Hong Qiao decreased 2.7%. It is important to note Pudong airport only became operational in 2001. As the industry develops, the Shanghai government plans to continue transferring more and more services from the old airport to the new one. At the time of publication, the Hong Qiao Airport handles the majority of the domestic routes in China.

Water

Shanghai, located at the mouth of the Yangzi River, is renowned for possessing one of the busiest and most modern ports in China. In 2002, the Shanghai port attracted the highest dollar amount of imports entering China, with Nanjing, Jiangsu province in fourth place. In recent years, shipping facilities, operations and customer services have been streamlined allowing for greater efficiency. According to Shanghai port officials, the port handled a record 220 million tons of cargo in 2001, a 10% increase from the prior year. The major international carriers (COSCO, OOCL, MAERSK, and APL) have regular, fixed schedules to Shanghai.

The Shanghai Port Authority is constructing a deep-water port in order to enhance its port handling capabilities and compete with other Asian ports as Singapore or Hong Kong. At the moment, the Shanghai port is limited in the size of container ship it can accept, as the mouth of the Yangzi delta is only 8.5 metres deep. In 2001, the port was capable of handling 5.61 million 20-foot containers. In 2010, it will handle 20 million containers. Other renovations and expansion plans are being carried out to other ports through out the country and the region. Currently, there are over 170 ports in operation in China.

Whereas China's off shore and ocean going shipping has expanded rapidly, inland water transportation has slowed in growth. Inland water transportation lacks the technology and finances to develop. They do not possess the capabilities to handle large container ships.

Roadways

Trucking is the most used form of transportation. It is also the most cost-effective and efficient. Eastern coastal cities, as Shanghai and its neighbouring regional centres, are well connected by a series of roads and highways. Outside these areas, the road system requires significant upgrading. Recognising the need for improvement, the State Development Plan announced an additional 200,000 kms of new roads, of which half will be expressways. Currently in China, there are 1,698,000 kms of highways, of which only 19,400 km are expressways.

The main drawback of the trucking industry is its high degree of decentralisation. The average Chinese trucking firm owns one truck. There is no one national trucking company. The decentralised state makes tracking, logistics and reliability a challenge. In addition, corruption and local protectionism continues to hamper the development of a nation-wide industry. Out of province truck drivers are often forced to pay high toll fees and obtain regional licenses. Local cities have their own distribution system, and often accord their companies sole rights for distribution.

Within the city of Shanghai, main roads are congested and in peak times slow. To reduce congestion, Shanghai plans to construct 300 kilometres of expressway by 2005 and 650 kilometres by 2010. The city now has about 240 kilometres of expressway in service. Accessing the city centre and residential districts is still a challenge. In an effort to control city transportation, large trucks are not allowed within certain areas at certain periods of time. Special licenses may apply. Roads in neighbourhoods are relatively small, and not built to accommodate large trucks. Alternative distribution methods include smaller trucks, bicycle or motorcycles are used.

Rail

Traditionally, the railway was the most used form of transportation. It remains the cheapest form. The railway networks covers a large geographic territory. All provinces in China are connected through railway. Rail continues to ship the majority of China's commodities (grains and coal). The rail system continues to be overburdened with use. Transport delays are common. The China's State Planning Commission announced plans to construct an additional 6000 kms of new railway lines. The current length is 71 000 kms of line. An intermodal system between various forms of transportation is yet to be widely developed. Plans to further develop and increase the effectiveness of the intermodal system have been discussed.

A key drawback to rail transportation is handling. Of all available modes of transport, the damage rate is the highest. Goods are brought by truck to the station, unloaded and switched to rail, off loaded at the final destination and loaded on a truck to reach the end-customer. Handlers are notorious for mishandling goods. In addition another problem occurs as key products as grain and coal, often have priority over consumer products.

Packaging

Given the above transportation infrastructure, it is no surprise that goods undergo rough transport and handling. Good packaging is necessary to protect against the damage. Goods should be packaged in tamper-resistant materials to protect against rough handling and bad weather. Special arrangements will need to be made for special requirement goods.

Proper labelling on the goods (in both English and Chinese) will facilitate the transportation and import formalities. Markings on containers should identify the buyer, the port of entry, gross and net weights, the country of origin, and any handling cautions (Fragile, Refrigerated). A packing list identifying the contents of each container must also be included, and all markings must agree with those on the bill of lading (or other shipment documents).

FOOD MERCHANDISING

The Retail System

Over the last decade, the Chinese retail market has undergone remarkable growth, as well as significant, profound change. The change has accelerated and facilitated the access of imported goods to the end consumer. Traditionally, food products were purchased daily from local wet markets and dry goods from local state–run stores. Western-style retail stores have begun to replace the traditional structure. Today, food retail outfits house flashy displays and a complete set of goods in one location. Hypermarkets, supermarkets and convenience stores have proliferated the city providing convenience, reasonable prices and improved sanitary conditions. The Shanghai consumer has accepted the evolved system with enthusiasm. Currently, there are over 3300 retail food outlets (over 700 square metres) operating in the city, of which 2000 were established in 2002.

Restaurant and Hotels

Five Star hotels, stand-alone five star restaurants and fast food outlets have become and continue to become an integral element of Shanghai's food industry. A vibrant hospitality industry has appeared in recent years catering to Chinese and foreign business people, residents and tourists. The number of visitors (business and tourism) to Shanghai has grown, on average, 8% a year and is projected to reach 140 million by Expo 2010. In 2002, Shanghai attracted 80 million domestic and international travellers to the city. In 2002-2003 alone, the Four Seasons, the Hilton, the Westin, the Sofitel and the Shangri-La have all opened new ventures in the city.

The four and five star hotel, tourist and restaurant industry offers one of the largest opportunities for imported foods. The need to cater to the varying international cuisine and food preferences of this growing sector has created opportunity and will continue to do so. To date, imported food products enjoys a high penetration rate and is well accepted with these retailers. Also, end users have the financial capital to purchase the more expensive food.

Hypermarkets and Discount Warehouse Stores

Hypermarkets are one of the newest market players to the retail industry. At their advent on the scene, sceptics quickly predicted their failure as Chinese traditionally bought daily, small purchases. The store's ability to offer convenience, variety and low prices to the consumer won the loyalty and acceptance. Today, there are over 50 hypermarkets operating in Shanghai. Hypermarkets are normally foreign and joint venture owned. Defined by size (7800 square meters plus) and product selection, a 'Hypermarket' is a large retail concern selling a wide variety of products from frozen goods to household products in one location. One floor may also be dedicated to restaurants and services. Stores are often two or three floors and have extensive frozen food, produce, fresh meat, fresh fish and household sections. Additional features, such as bakeries, pre-made foods and alcoholic beverages are the norm.

Prices are kept down due to the unique nature of their distribution system. Retail concerns, such as Carrefour or Wal-Mart (2003 Shanghai opening), are now planning to establish a nation-wide procurement system to further streamline their operations. Hypermarkets often buy directly from the manufacturer or importer. Thus, eliminating the numerous layers that regularly characterise the industry. Effective supply chain management systems and foreign expertise also contribute to their success. Hypermarkets are an important driving force for changes in the industry. Distributors or importers are forced to up-date their systems and be effective. To supplement their income further, hypermarkets charge high 'slotting' fees for goods to be displayed on their shelves.

The largest foreign presence is French based Carrefour. Carrefour was one of the first retailers to enter the Chinese market and to pioneer the hypermarket movement. Since 1994, they have opened 32 stores nationally; six of which are in Shanghai. Metro, a German based retailer, is also prominent in the market. At the moment, the largest presence of Canadian food is available at the Hongqiao Friendship Store. Local Chinese retailers have quickly adjusted to the new process and have entered the market. A 2003 merger of the four largest Shanghai state-owned retail outfits will create significant new competition in the hypermarket and supermarket industry. The new "Bailian" group will command 4.6 billion Canadian in assets and possess a distribution network spanning 20 provinces. The merger was viewed as necessary to consolidate in order the over-saturated retail industry and to provide significant competition to foreignors.

Though import food selection differs greatly by hypermarkets, these outlets are a good entry point for imported food. Their target market has the disposable income to try new products. In addition, their streamlined system is relatively easy to access and to navigate. At present, the imported selection is relatively small, but is continually expanding.

Supermarkets

The advent of supermarkets in the mid 1990's was the beginning of the retail revolution in Shanghai. In 1991, the first supermarket opened its doors. Today, in 2003, there are over 2500 supermarkets operating throughout the city representing the most widespread outlet for food procurement. The largest supermarket operators are Chinese-owned companies. The top leading companies in Shanghai are Lianhua and Hualian. Each company also operates a set of convenience stores and hypermarkets. Lianhua and Hualian are now members of the newly formed Bailian group.

Stores (700 to 1,200 square meters) are located in city neighbourhoods and cater to individuals in their vicinity. Neibourhoods with higher disposable income or foreigner populations tend to carry higher priced items, higher quality and imported foods. Shelves are cramped with a variety of dried goods, beverages, certain dairy products, and a limited frozen food selection. Depending on the store, fresh produce and meat can also be purchased in the outlet. While some of these retail outfits carry imported food, the penetration is rather low. Foreign brands (Coke, Dove, Kit Kat) produced in China can be purchased from all stores. Certain supermarkets as Parksons or City Supermarket, cater solely to expatriate and high-income Chinese by carrying exclusively imported products.

In 2001, 75% of supermarkets operated as part of a larger chain. The Chain store approach facilitates and co-ordinates distribution. Stores rely on close relationships with local food distributors. The hypermarket distribution system remains the more effective of the two. As the retail and distribution system continues to evolve and the acceptance of imported food deepens, penetration will also grow at the supermarket level.

Convenience Stores (C-stores)

Convenience stores have and continue to sprout up on every street corner. At present, there are over 3500 stores in Shanghai. By 2005, the estimated number is 5000. The majority of Shanghai's chain stores are locally owned, with the exception of a few foreign funded enterprises. 7-11 owns 30% of the Lawson stores. The convenience store market in Shanghai is extremely competitive, and has limited room for expansion.

Convenience stores resemble their Canadian counterparts, offering a selection of convenience foods and groceries at slightly higher prices than supermarkets. As in Canada, they often provide 24 hours services offering an array of hot, late night and early morning snack food. It is important to note that convenience stores carry a majority of local products, or local foreign joint venture products. Imported products rarely adorn the shelves. Convenience stores are often operated by larger retail concerns, as supermarkets or other food producers. For example, Kedi stores are owned and operated by Shanghai Bright Dairy & Food Corporation, the main dairy producer, processor and distributor in Shanghai. Lianhua (Kuaike) and Hualian (Lawson) also operate a set of convenience chain stores. Few independent stores exist in the market. This link facilitates the distribution of goods as stores tap into the system of their larger counterpart.

Wet Markets

Traditionally wet markets were the main centres for food procurement. Fresh meat, fish, vegetables, fruit and grain can be purchased from a multitude of different vendors. Wet markets predominantly cater to the low-income and older population, as prices are low and the produce fresh. Purchases are generally small and intended only for daily consumption. Although, today wet markets are declining in importance, they still remain an important source for food procurement. The majority of fruit and vegetable purchases continue to be made at this level. Wet markets are found throughout Shanghai and outlying areas. They tend to be located on side streets and back lanes.

Kiosks

Small kiosks are often found on street corners or hidden in back lanes. Kiosk shelves are crammed with a miscellaneous assortment of goods. Neighbourhood patrons or passer-bys' purchase small convenience goods such as a beverage product, cigarettes, snacks, instant noodles or tissue. Imported foods have not reached this level of the retail structure. Purchase amounts are normally quite small, as patrons do the majority of their food shopping at bigger retail outlets as the supermarket or hypermarket.

Kiosks are normally owned and operated by independent families. Family members are responsible for the procurement of the products in their stall. Accessing and distributing to this sector of the retail section is complicated, costly and time consuming. The independent nature, the size and physical locations of the kiosks makes distribution a key problem.

Department Stores

Modern day department stores, similar to the Hudson's Bay of Canada often have one or two floors dedicated to food sales. Normally department stores are operated as independent units and sell the same products as the supermarkets or hypermarkets. The Department stores primary purpose is not to sell food products, but to sell a host of products from clothing to electronics. Food retail is an added convenience for the shopper. Depending on the store, a certain degree of mported products are sold in this medium.

The Local Consumer

The United States Department of Agriculture (USDA) estimates that imported foods account for less than 5% of food stocks in Chinese hypermarkets and supermarkets. This percent does not include foreign brands produced in China such as Nestlé or Coca-Cola products. Leading retail chains are beginning to diversify their product range, and increasingly carry import foods. In general, imported food is purchased by the middle-upper income younger Chinese. Import food purchases are often made out of curiosity to try something new or as a gift to relatives or friends. As a result, repeat sales are more difficult to achieve than the first. Price, brand and quality remain the leading decision making factors.

As any global market, consumer preferences need to be closely examined before formulating a market entry strategy. Canadian exporters are advised to perform thorough market research before entering the market. Research is needed to clearly understand the end consumer and their preferences. A common misconception is that the Chinese market in one market. In reality, it is a series of local, regional markets. Trends vary from one city to another. Cities to watch are Shanghai, Beijing and Guanzhou.

Marketing your Product

Advertisements for Coke or Pepsi are splashed on the side of buses; Juicy Fruit gum commercials dance across television screens; and USA grown oranges are painted on the city's towering billboards. Advertisement increasingly effects consumers and their decision-making habits. As a result, foreign food companies have and continue to invest significantly large sums of money in developing marketing and advertising campaigns. The key is to find an outlet and an image that appeals to the Chinese consumer.

Developing and marketing a brand is increasingly important. Creating a recognisable brand will make the difference between success and failure. Branding is a relatively new concept in China's retail sector. Prior to 1980s, no real brands existed in the market. Today, brand names have become one of the top decision making factors influencing consumer-purchasing decisions. Evian water or Pringles potato chips are repeatedly chosen over others, as consumer identify with the name and quality of the product. Recognizing the importance, Chinese producers have also jumped into the game and are building effective brand names for their products. Premium branding will assist in ensuring repeat purchases of the product.

An important element of promotion is education. Western products are often new to Chinese culture and taste. Certain products require significant education. For example, historically, dairy products have been viewed as a supplement for the young, weak and elderly. The challenge is now in convincing the society of the importance at all age levels. A western product may need to employ a different strategy in China. For example, Canadians know and use peanut butter as a spread on bread. As the local Chinese does not consume huge amounts of bread, peanut butter was advertised as a sauce for noodles, rice and vegetables. As a result, the product has been successful in the market.

Other key elements of effective marketing are ensuring the product is attractively packaged, Chinese language information correct and catchy advertisement slogans are used. Brightly coloured, innovative packaging will help differentiate the product on the shelf. As the majority of residents, walk or bicycle to the store, package size should be relatively small. Special care should be given in translation and Chinese language information. For example, Coca-Cola's success can be attributed partly to its Chinese name. Coke's Chinese name is "Ke Kou Ke Le", which means 'delicious and happiness'. Imported products may consider including Chinese language information on its origin, potential use and recipes.

Recognising the importance of marketing and promotional activities, exporters should not rely on their distributor to provide such service. Distributors are 'order takers', and do not necessarily have the resources or the money to provide added services. Exporters may want to develop their own marketing strategy, or provide additional finances or promotional material to their distributor to assist in marketing their product. In-store promotions and taste tests have been successful in introducing products to the market.

Pricing

Although, the Shanghainese are among the wealthiest people in China, price remains an important factor in their purchasing decision. Consumers are willing to pay higher prices for imported food, as it is often viewed as having higher quality and consumers are curious to try something different. Imported food should be priced to maintain its exclusivity, while at the same time not outside an affordable price range for consumers. With exception to certain products, as ginseng, wine or chocolate, where consumers are willing to purchase at much higher prices providing they believe in the quality and value of the product. The following table provides the prices on various imports, foreign brands locally produced and local products.

Taste

Creating products that target the Chinese taste are key to success. Significant market research is required to determine and match local consumer preferences. For example, a leading brand's plain potato chip has a small amount of sugar in the ingredients. Popular chip brands include seaweed, shrimp, roasted pork or curry, whereas in Canada, they are Ketchup and Sour Cream and Onion. Another example is the popularity of Aloe Vera yoghurt on the market. The Chinese eat Aloe Vera in a variety of dishes, and believe in its health benefits. Though not necessary, products catering to local tastes have enjoyed greater success.

In store Requirements

In-shore promotion has proven to be successful for the promotion of imported products. Taste tests are a good mechanism to promote the product at the store level. Food festivals are also popular. Festivals are organised individually by the store or with the partnership of a private, or foreign public actor. Annually, the Canadian Consulate General in Shanghai organises a Canadian food festival in one of the leading retail stores in the city. The goal of the festival is to promote Canadian value-added food products in Shanghai.

Promotion and marketing alone are not always enough to establish a product in the market. There are a number of other in-store factors that are crucial for success. The product must be constantly available, stocked in good condition and displayed correctly. Products requiring cold storage facilities may encounter problems. The distributor must constantly maintain relationships with the store and check the status of the product. The store will not provide any additional services. Due diligence on distributors is fundamental, if frustrating, requirements that will help alleviate this problem.

It is also a worthy investment to pay the 'slotting fee' for friendly eye-level shelf space. The customer will not be able to miss the product. "Slotting fees" are a common practice in China retail outlets, and a constant issue between suppliers and retailers. The slotting fee is not necessary shelf placement, but the right to enter into the store's product portfolio. As more and more products rush to the market, current rates are increasingly steeply.

Points to Remember:

• Imported food accounts for 5% of total food stocks in Chinese hypermarket and supermarkets.
• Imported brands produced in China have greater success. They are able to compete on price, market awareness and production costs.
• Price, taste and branding are key elements to understanding the Shanghainese consumer. As any market, consumer preferences vary immensely from the Canadian market. Effective and adequate market research should be performed to ensure an understanding of the market.
• Additional requirements may be needed to ensure that the product reaches the consumer. These include the placement of product on shelves, packaging and market timing.

APPENDIX

A. The Shanghai Agfood/Fishery Team

Mr. Henry Deng, Trade Commissioner, Team Leader
Telephone (86-21) 6279-8400 ext 5563
Email: henry.deng@international.gc.ca

Ms. Claire Zhu, Trade Commissioner
Telephone (86-21) 6279-8400 ext 5561
Email: Claire.zhu@international.gc.ca

Ms. Dora Wang, Trade Commissioner Assistant
Telephone (86-21) 6279-8400 ext 5560
Email: dora.wang@international.gc.ca

Our fax number is (86-21) 6279-7456

B. *Application Form for Import Food Labelling Verification

*PDF format, requires Adobe Acrobat Reader

C. 40 Canadian Food Suppliers in Shanghai

Atlantic Aquatic Co., Ltd.
Products: Live Lobster, Crab, Geoduck, Oyster

ASC Fine Wine Co., Ltd.
Products: Iniskillin Icewine, Iniskillin

City Supermarket Co. Ltd.
Products: Value-added Food & Frozen Products

Canada Beef Export Federation
Products: Beef, Veal

Evergreen Vegetable Co., Ltd.
Product: Hydroponic Vegetables Product: Frozen Seafood

Clearwater Fine Foods
Product: Frozen Seafood

Gao Fu Foods Co., Ltd.
Product: Canadian Beef

Kampery (Fo Shan) Food Industries Ltd. – Shanghai Office
Product: 3 in 1 Milk Coffee Chateau

McCain Foods Limited China
Products: Potato Products, Microwave foods

Montrose Food and Wine
Products: Icewine, wine

Pan Fish (SHA) Ltd.
Products: Salmon Eggs, Frozen Mackerel, Frozen Mackerel Fillet, Live Oyster, Blue Mussel Frozen IQF, Lobster

Shanghai Dah Chong Hong Food Industries Ltd.
Products: Canadian pork & Beef, Canadian Green Whole Beans and Corn.

Shanghai Dalue Industrial and Trading Co., Ltd.
Products: DALUE Ginseng, DARE Cookies & Biscuits, KERR Candies, Confectionary Products, Flavoured coffee, Juices, Wine, Icewine, Seafood Products

Shanghai Ginpar International Trading Co., Ltd.
Products: Canada ADM flour and flour products, premixes

Shanghai Golden Shine International Trade Co., Ltd.
Product: Chocolate, Biscuit, Drinks, Bubble Gum

Shanghai Jonya Marine Biological Engineering Co., Ltd.
Products: Harp Seal Oil Health Products

Shanghai Lei Yun Shang Pharmaceutical Co., Ltd. Shen Xiang Ginseng and Pilose- Antler Ltd Branch
Product: Ontario Ginseng

Shanghai Michaelin International Consultant Co., Ltd
Product: Health Products

Shanghai San Chang Marketing Service Co., Ltd.
Product: Maple Syrup

Shanghai Star International Trading Co., Ltd.
Product: Canadian Hydroponic Vegetable, Organic Vegetables and Fruit

Shanghai Sinoble Trading Co., Ltd. Shanghai Pan Creation International Co., Ltd.
Products: Apple Sauce, Whey Powder, Milk Powder, Cheese, Casein

Shanghai Tong Han Chun Tang Chain Store Co., Ltd.
Product: Canadian Ginseng

Sun Fine Industry Co., Ltd.
Products: Canola Harvest Margarine

Shanghai Wu Xin Jie Trading Co, Ltd.
Product: Unibroue Beer

D. Key Contacts for the Yangzi Delta

CHINA

Shanghai Import Food Enterprise Association
Provides assistance for the application and approval of labels for imported foods
Address: Room 1702, Hero Building
2669 Xie Tu Road
Shanghai 200030
Tel: 86-21-64398189
Fax: 86-21-64398191

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
Internet: www.shcus.gov.cn
Language: Chinese

Shanghai Entry-Exit Inspection and Quarantine of People's Republic of China
Responsible for the inspection of imported and exported goods in Shanghai
Address: 1208 Minsheng Road, Pudong
Shanghai 200135
Tel: 86-21-68563030
Fax: 86-21-68565939
Internet: www.shciq.gov.cn
National Office: www.aqsiq.gov.cn
Language: Chinese

Internet Resources

Ministry of Agriculture
Responsible for the development and safety of the Chinese agriculture sector.
Internet: www.agri.gov.cn
Language: Chinese

Minister of Health
Resonsible for the health and welfare of Chinese citizens.
Internet: www.moh.gov.cn
Language: Chinese

CANADA

Canadian Consulate General in Shanghai
Offers basic market information, promotes Canadian business in the Yangtze Delta and facilitates market access.
#604-1376 Nanjing West Road
Shanghai, 200040
Contact: Mr. Henry Deng, Commercial Officer
Tel: (86-21) 6279-8400
Fax: (86-21) 6279-7456
E-mail: henry.deng@dfait-maeci.gc.ca
Internet: www.shanghai.gc.ca

Internet Resources

Agri-Food Trade Services (ATS), Agriculture and Agri-Food Canada
The ATS provides simplified market information, trade counselling and export support activities.
Tel: 1-888-811-1119
Internet: www.ats.agr.ca

Canadian Business Service Centre
Provincial offices assist Canadian small to medium size business. They provide access to a huge array of printed and electronic market/business information and government programs. Assists new exporters perform market research, and prepare business plans.
Internet: www.cbsc.org

Canadian Customs and Revenue Agency
Administers taxes, customs services and international trade legislation. Provides assistance on HS classification and procedures on importing/exporting.
Business Enquiries and Registrations: 1-800-959-5525
Automated Customs Information Service (ACIS): 1-800-461-9999
Internet: www.ccra-adrc.gc.ca

Canadian Embassy in Beijing
Official Canadian embassy site. Contains information on different programs and activities in Beijing and the surrounding area. Provides relevant trade information for China.
E-mail: Beijing-td@dfait-meaci.gc.ca
Internet: www.canada.org.cn/beijing/index.htm

Export Development Canada (EDC)
Provides Canadian exporters with financing, insurance and bonding services as well as foreign market expertise.
E-mail: export@edc.ca
Internet: www.edc.ca

Exportsource, Team Canada
Team Canada project providing Canadian exporters with a wide range of exporting topics from preparing to export to entering the market. Good source for basic information.
Toll Free: 1-888-811-1119
Internet: www.exportsource.ca

Industry Canada
Provides a variety of programs for small business, industries, exporters and start-up companies. Provides fact sheets on different sectors on Canadian and international markets.
Internet : www.ic.gc.ca

Info Export, Department of Foreign Affairs and International Trade
Canadian trade commissioner site providing country and industrial sectors reports. Allows user to access a customized virtual trade commissioner site tailoring relevant contacts, appropriate trade shows and information to their exporting needs.
Internet: www.infoexport.gc.ca

Strategis, Industry Canada
Provides international market information and up-dated trade statistics on Canada's trading activities.
Internet: strategis.ic.gc.ca

BIBLIOGRAPHY

GENERAL

Shanghai Statistical Yearbook 2002, Shanghai Municipal Statistics Bureau, China Statistics Press

China Statistical Yearbook 2002, National Bureau of Statistics of China, China Statistics Press

World Trade Statistics, Global Trade Information Services Inc. Nov 2002 Internet Version 4.2a

Agriculture and Agrifood Canada and Statistics Canada

Various Private Interviews and Corporate Profiles

IMPORTATION

Getting things in and out of China, Luncheon Seminar organised by the Canada China Business Council (CCBC) June 26th, 2003 Four Seasons Hotel

Nation to cut Import Tariffs, December 23, 2002 China Daily www1.chinadaily.com.cn. Last Accessed: January 2003

China's accession to WTO and Import Management Seminar, State Administration for Entry- Exit Inspection and Quarantine of P.R. China, November 19, 2003

China, People's Republic of Food and Agricultural Import Regulations and Standard, importexport Labelling Management Regulation 2001, USDA, June 24, 2002

Schedule CLFF- Most Favoured Nation's Tariff People's Republic of China Bawa, Meera The Effects of WTO and its impact on the import of Canadian goods into

Shanghai, Department of Foreign Affairs and International Trade, Canadian Consulate General in Shanghai August 2002

DISTRIBUTION

Trade Secrets, The Export Answer Book, Chapter 6- Agents and Distributors export.2rad.net Last Accessed: July 7, 2003

Food Distribution Systems in the Yangzi Delta Region, Department of Foreign Affairs and International Trade, Canadian Consulate General in Shanghai 1997

Incorporation in China, NCO Training, March 12, 2003

Distribution in China FHC 2002 Briefing Session, September 3, 2002

DISTRIBUTION CHALLENGES

Protecting Your Intellectual Property Rights (IPR) in China, US Department of Commerce, International Trade Administration. Last Accessed: July 5, 2003 www.mac.doc.gov

Logistics Issues in the PRC China Briefing, Dezan Shira and Associates April 2001 www.china-briefing.com Last Accessed: July 5, 2003

Bawa, Meera Dispute Resolution in Shanghai: Challenges and Future Outlook, Department of Foreign Affairs and International Trade, Canadian Consulate in Shanghai August 2002

Brabet, Therese Pursuing Litigation Against your China Partner, Hunt & Hunt China Briefing, Dezan Shira and Associates June 2003

PAYMENT

When Seeing is Believing, Credit Management, CFO Asia www.cfoasia.com Last accessed: July 9, 2003

Accounts Unreceivable, Asian Business 2: Finance Far Eastern Economic Review July 6, 2000 Experts Call for Open, Sound Credit Mechanism, China Daily, January 18, 2003 Last accessed: June 20, 2003 www3.chinadaily.com

Credit Culture Comes to China, China Daily April 28, 2001 Last accessed: June 20, 2003 www3.chinadaily.com.cn/en/doc/2001-04/28/content_52373.htm Export Letter of Credit, Bank of China Last accessed: July 9, 2003 www.bank-of-china.com

TRANSPORTATION INFRASTRUCTURE AND LOGISTICS

Dolven, Ben The Perils of Delivering Goods in China, The Far Eastern Economic Review June 25, 2002 p 28-31

Key Data- China, Canadian Transportation & Logistics, Last accessed: June 6, 2003 www.ctl.ca

Shanghai Government Expo Presentation, 2003

Putzger, Ian Diagnosing China Trade, Air Cargo World Online Last accessed: June 23, 2003 www.aircargoworld.com

Transportation Systems facing Changes, China Gate, compliments of China Daily February 25, 2000 Last Accessed: June 23, 2003 http://211.147.20.14/chinagate

Gilmour, Brad & Gales, Fred Transportation and Distribution: Will Bottlenecks be eliminated? China's Food and Agriculture: Issues for the 21st Century/ AIB-775 Economic Research Service, USDA

FOOD MERCHANDISING

Imported Food in the market FHC 2002 Briefing Session, September 3, 2002

South China Retail Food Market Report, Canadian Consulate General Guangzhou, Department of Foreign Affairs and International Trade, March 2002

Supermarket chain seeks to raise 1 billion yuan in IPO, China Economic Information Network June 22, 2002 Downloaded from ce.cei.gov.cn on December 12, 2002

Convenience and Selection Helps win Customers, China Daily July 31, 2001 Downloaded from www1.chinadaily.com on December 13, 2002

Moustakerski, Peter China, Peoples Republic of Retail Food Sector Report 2001 US Consulate General, Shanghai USDA Foreign Agriculture Service GAIN Report February 2001 www.fas.usda.gov 2002 FMCG Guide, Business Information of Shanghai, January 2003

This study is written by Janelle Whitley, Commercial Advisor in consultation with Henry Deng, Senior Commercial Officer

1 All monetary amounts are expressed in Canadian dollars, unless otherwise indicated. The conversion rate to Canadian dollars is based on the Bank of Canada rate of 1 CAD = 5.3937 CNY January 2003