Market Overview – China

Country profile

Income and expenditure

With China's economy reopening, consumer spending and income growth are expected to accelerate. In 2022, China's average gross income of all individuals aged 15+ years was equivalent to US$10,345.1, whereby per capita gross income is forecast to increase by 27% in real terms (2022 to 2027). Over the period to 2027, the lower middle socioeconomic class D (avg. gross income between 50% and 100%) is set to experience the fastest expansion, while the lowest income social class E (<US$5,172.6) will remain the largest segment of the population in China. Although, the gender pay gap persists, and wealth remains concentrated among a few with income inequality predicted to increase and remain extremely high by global standards over the long term; individuals aged 30-34 years are forecast to remain the highest earners per capita, while the 45-49 years aged middle youth group will be prevalent in the top-income bracket (Class A: >US$31,035.3).

In 2022, the median disposable income per household was equivalent to US$14,085.2. The Guangdong region is anticipated to remain the largest consumer market in China by 2027, accounting for 11.2% of total consumer expenditure in that year. Housing is forecast to be the largest consumer spending category by 2027, while health goods and medical services will record the fastest growth over 2022 to 2027. By 2030, China is projected to rank 22nd out of 84 countries (rise by one position) in terms of Euromonitor International's Wealth Index.^{Footnote 1}

Demographics

China's population is expected to reach 1.405 billion in 2027, representing a decline of approximately 7 million people (−0.5%) from 1.412 billion in 2022. After peaking in 2022, China's population is expected to decline every year up to 2040, as death rates overtake birth rates (7.4 vs 6.8 per '000 population) starting in 2022. Despite the median age being only 39.6 years (69% aged 15-64) and the grouping aged 65+ representing 14.1% of the total population in 2022, by 2040 China's population will move to being the second biggest in the world - overtaken by India in 2026.^{Footnote 2}

With the 65+ age group rising to account for 26.1% of the Chinese population and working-age population (under 50's) shrinking by 2040, the old-age dependency ratio will soar, resulting in big changes in consumer lifestyle and spending habits. This will put increasing pressure on state financial resources such as pensions, social care and healthcare in the future. Live births will plunge from 16.9% of the total population in 2022 to 11.3% by 2040. Albeit, demand for child and baby related products should rise as many parents are prepared to prioritize spending and investing towards their children's future.^{Footnote 2}

Influenced by improvements in living standards and healthcare in China, life expectancy at birth is set to climb by another three years by 2040 from 78.2 years old in 2021. However, health issues such as obesity and diabetes will prevail due to issues including pollution, more sedentary lifestyles, increased consumption of convenience food, as well as, high male smoking habits. The main causes of death consist of circulatory disease and cancer. Nevertheless, the Chinese population is becoming more health conscious in the wake of the COVID-19 pandemic.^{Footnote 2}

Immigration to China has been rising rapidly in the last decades, apart from slowdowns resulting from strict COVID restrictions. Chinese emigrants numbered in excess of 10 million (<1% of total population), while immigrants made up less than 0.1% in 2020. The southern province of Guangdong, the country's manufacturing hub is home to approximately a third of immigrants. Overall, the most popular destinations for immigrants are the United States, South Korea, the Philippines and Brazil.^{Footnote 2}

Urbanisation will strengthen as the urban population is expected to increase from 61.5% in 2021 to 72.2% by 2040. The main driver will be due to internal migration as many people leave rural areas for better opportunities in cities, not to mention that rural areas are starting to be reclassified as urban cities as boundaries are expanding outwards. With China having at least 15 megacities, 8 out of 10 cities will expand further with Dongguan experiencing the fastest growth rate, while Shanghai (20.4 million) and Beijing (18.6 million) are set to shrink due to government policies that aim to cap the size of these largest megacities (2021 to 2040).^{Footnote 2}

Consumers

According to Euromonitor International's Voice of the Consumer: Lifestyles 2023 survey, 39% of Chinese consumers look for healthy ingredients in the food they eat. These consumers say that they enjoy spending their money rather than saving it (55%) and they feel that more of their everyday activities will shift to online platforms (27%). Nevertheless, 64% of Chinese consumers are concerned that the costs of everyday items they buy are going up.^{Footnote 3}

Chinese consumers seek out new products and services that are tailored to their tastes: Higher than global averages, these consumers like to try new products and services (69%), want G&Ss uniquely tailored to them (66%), prefer branded goods to non-branded alternatives (64%), want to influence product innovation (64%), only buy from companies/brands that they trust completely (63%), complete extensive research on products and services they consume (63%), like to be actively engaged with brands - especially younger generations (62%), and prefer to spend their money on experiences, rather than things (55%). Although, consumers are price-conscious and like to find bargains or shop where loyalty cards/memberships exist, they are still focused on quality, niche, branded products, while all generations still enjoy shopping locally and visiting malls.^{Footnote 3}

Consumers in China prefer home-cooked food, but lack of time is one of the biggest barriers: At least weekly, cook or bake (60%), reheat or prepare a ready meal (50%) - highest amongst younger cohorts like Generation X and Millennials. However, foodservice demand is strong: At least weekly, consumers order food for home delivery (56%), eat at a restaurant (55%), order food for takeaway or pick-up ready-made food to eat at home (51%) - highest amongst Millennials. Seeking food and drinks with health benefits is of high importance to all generations. To a lesser extent than global percentages (from 32-58%), Chinese consumers are actively working towards greener and more sustainable practices: reduce food waste and plastics use (29%), reduce carbon emissions (28%), recycle items (23%), use less water (16%).^{Footnote 3}

In 2022, the majority of the total population at 81.6% was represented by people aged 11 to 68 years (including Generation Z, Millennials, Generation and Baby Boomers) total consumer expenditure per household on food and non-alcoholic beverages in China was US$2,509.7, on housing (US$2,964.7) and miscellaneous goods and services (US$443.8). Couples with children (31.6%), single person (24.8%), couple without children (20.9%) were the prominent type of household in China, followed by single-parent families (5.3%) and other household types (17.3%) in 2022. Out of 543.7 million houses in China, 62.5% of dwellings were apartments and 37.4% were houses with 88.8% families being a home owner, while 9.7% of these houses were rented.

Production

Maize (corn) was China's primary domestic crop, with production volumes of 272.8 million tonnes in 2021, representing an increase in compound annual growth rate (CAGR) of 1.3% from 259.3 million tonnes in 2017. Cucumbers and gherkins attained the highest CAGR of 3.8%, while sweet potatoes and watermelon experienced declines with CAGR's of −1.9% and −0.9% respectively, during the same historical period.

Swine or pigs were China's largest livestock raised for production with volumes of 454.8 million live animals in 2021, with a slight CAGR of 0.4% from 447.1 million in 2017. Sheep were China's second largest livestock animal, that also had the highest growth that increased by a CAGR of 3.2% from volumes of 164.1 million in 2017 to 186.4 million in 2021. Goats and cattle were China's 3rd and 4th largest livestock that declined respectively by CAGRs of 0.9% and 0.6%, followed by buffalo (CAGR: 0.5%).

Meat of pig with the bone in (fresh or chilled) was China's primary meat, producing 53.9 million tonnes in 2021 representing a decline in CAGR of 0.7% from 55.5 million tonnes in 2017. Production of fresh or chilled meat of geese (4.3 million tonnes) and meat of duck (4.9 million tonnes) in 2021, experienced the highest growth of CAGRs of 12.6% and 12.0%, respectively between 2017 and 2021.

Trade

Through the first six months of 2023, the General Administration of Chinese Customs (GACC) trade data has shown an 8.3% increase in the total import value of agricultural commodities compared to the same period last year, which in return has shown relatively flat exports over the same period. As monthly economic data is showing that post-COVID recovery has slowed, there have been significant increases in import volumes of vegetable oils and soybeans with modest increases in meats and grains, and lower volumes of cotton, and dried fruits and nuts (USDA Foreign Agricultural Service, August 2023).

China has experienced alarming levels of farmland loss and deterioration in recent years with the major cause being its land-intensive industrialization and urbanization over the past three decades. The most recent land use survey showed that China's total arable land has seen a loss of more than 5% in just six years, decreasing from 334 million acres in 2013 to 316 million acres in 2019. Preserving farmland has been more on the radar recently as the situation worsens due to factors of over-cultivation and excess use of fertilizers, as well. Food security is a major priority in China, which has been further aggravated by disruptions in the food supply and lockdown-induced food shortages amid the COVID pandemic.^{Footnote 4}

To meet high demand, China is a net importer of agri-food and seafood products. In 2022, China's agri-food and seafood trade deficit was US$137.4 billion with imports valued at US$235.9 billion, and exports at US$98.5 billion. Brazil was China's primary agri-food and seafood supplier at an import value of US$52.5 billion at a market share of 22.3%, followed by the United States at US$42.0 billion (17.8%), Thailand at US$12.6 billion (5.3%), New Zealand at US$11.9 billion, and Australia at US$11.4 billion (4.8%) in 2022.

China's agri-food and seafood imports have increased by a CAGR of 14.7% from US$136.3 billion in 2018. In 2022, top agri-food and seafood imports from the world were soya bean, excluding seed at a value of US$61.2 billion at a market share of 26% (main suppliers: Brazil, United States, Thailand); frozen boneless meat of bovine at US$15.6 billion or 6.6% (Brazil, Argentina, Uruguay); maize, excluding seed at US$7.1 billion or 3% (US, Ukraine, Myanmar); palm oil and its fractions, excluding chemically modified and crude at US$5.8 billion or 2.5% (Indonesia, Malaysia, Philippines); and frozen shrimps and prawns, even smoked at US$5.7 billion or 2.4% (Ecuador, India, Vietnam).

Canada in comparison (as reported by China), was China's 8th largest supplier of agri-food and seafood products at an import value of US$7.6 billion (market share: 3.2%) in 2022. Top imports from Canada over the year were canola seeds, low erucic acid at US$1.5 billion (19.8%), canola meal at US$821.5 million (10.8%), non-durum wheat (excluding seed) at US$790.0 million (10.4%), dried, shelled peas at US$733.5 million (9.7%), and barley, excluding seed at US$637.9 million (8.4%).

China's processed food and beverage imports were valued at US$114.3 billion in 2022, with Canada as the 15th largest supplier, accounting for US$2.6 billion at a market share of 2.3%. China's value-added imports increased by 14.9% from US$65.6 billion in 2018. In 2022, China's top imports of these products from the world were frozen boneless meat of bovine animals (13.6%), palm oil and its fractions, excluding chemically modified and crude (5.1%), frozen shrimps and prawns, even smoked (5%), food preparations, nowhere else specified (4.1%), and food preparations for infant use, put up for retail sale (4%). Top suppling countries to China were Brazil, the United States, New Zealand, Indonesia, and Thailand accounting for 42% of the processed food and drink market in 2022.

In 2022, China exported US$98.5 billion of agri-food and seafood to global markets, which registered a CAGR of 5.6% from US$479.3 billion in 2018. Top agri-food and seafood exports were food preparations, nowhere else specified, frozen cuttle fish and squid, edible animal or vegetable fats and oils and their fractions, prepared/preserved cuttlefish and squid (excluding smoked), and preparations for sauces, mixed condiments and seasonings. Top export markets were Hong Kong, Japan, US, Korea, and Vietnam. Canada was China's 16th largest export market for agri-food and seafood at a value of US$1.7 billion at a market share of 1.7% in 2022.

Canada's performance

As reported by Canada, the country exported US$7.2 billion of agri-food and seafood products to China in 2022. Each Canadian province supplying agri-food and seafood to China were Saskatchewan at a value of US$2.5 billion (market share: 34.7%), followed by Alberta at US$1.9 billion (26.8%), Manitoba at US$947.9 million (13.1%), Nova Scotia at US$502.2 million (6.9%), Ontario at US$419.7 million (5.8%), Québec at US$345.7 million (4.8%), British Columbia at US$306.1 million (4.2%), Newfoundland and Labrador at US$161.7 million (2.2%), New Brunswick at US$82.4 million (1.1%), and Prince Edward Island at US$20.2 million (0.3%) in 2022.

Amongst the leading provinces exporting to China, Saskatchewan's top commodities supplied were canola seeds (US$784.2 million), dried and shelled peas (US$530.3 million), barley (US$322.7 million), non-durum wheat (US$302.3 million), and canola meal (US$283.1 million) in 2022. As the 2nd largest provincial supplier to China, Alberta's top exports were canola seeds (US$558.7 million), canola meal (US$411.1 million), non-durum wheat (US$280.9), barley (US$241 million), and crude canola oil (US$136.9 million). Following in 2022, was Manitoba with top commodities to China being soya beans (US$365.4 million), canola seeds (US$294.3 million), non-durum wheat (US$163.2 million), frozen boneless meat of swine (US$82.4 million), and barley (US$26.4 million).

Retail sales

The Chinese packaged food market has seen slow retail growth in 2020 due to severe store closures and restrictions on public movement, which had an adverse effect on sales across most packaged food categories in China. Also, since the COVID-19 outbreak was ongoing during the Chinese New Year celebrations, without social gatherings, this dampened sales further during a period that normally generates significant sales within a number of packaged food categories. Food categories in China hit the most were savoury snacks, milk and hot cereals. Albeit, during the height of the outbreak, there was an increase in at-home food consumption, notably boosting sales of products for home cooking, especially in staple items with a long shelf life such as rice, edible oils and noodles. Another category that benefited from the outbreak, that usually struggles to overcome Chinese consumers' strong preference for fresh products, was the frozen processed meat and seafood category. Stockpiling did see a few product shortages, mainly for imported milk formula that globally was affected by disruptions to imports. To this affect, the development of domestic brands have benefited and consumers have stuck to choosing leading players with strong brand recognition that could be trusted.^{Footnote 5}

In 2022, the packaged food market in China was valued at US$324.1 billion, which experienced a marginal increase in a CAGR of 4.5% from US$260.0 billion in 2017. The market is forecast to remain stable and increase at a CAGR of 3.4% to attain US$384.0 billion by 2027.

In 2022, the top packaged food categories in China with the largest retail value sales were dairy (US$57.4 billion), rice, pasta and noodles (US$42.8 billion), savoury snacks (US$38.4 billion), baked goods (US$34.5 billion), and processed meat, seafood and alternatives (US$28.9 billion). The packaged food categories with the highest growth were meals and soups (CAGR: 10.4%), rice, pasta and noodles (7.5%), sauces, dips and condiments (7.2%), processed fruit and vegetables (7.2%), and breakfast cereals (7%) between 2017 and 2022. Confectionery (−2.1%) and plant-based dairy (−2%) experienced a decline during this period.

Packaged food started to show signs of growth in 2021. Retail consumption remains strong, while foodservice has seen gradual recovery in 2020 and almost a full recovery in 2021. The economic impact of COVID-19 is likely to endure for some time, though demand for higher-value products is likely to return as economic conditions recover. Foremost amongst the key trends supporting an upmarket shift in demand will be the rise in consumer health-consciousness.^{Footnote 5}

Health and wellness packaged food

In 2022, the health and wellness (HW) sector of packaged food and drink products totaled approximately US$153.5 billion in China. The top HW food claims in China with the largest value sales were low/no added/sugar free (US$12.8 billion), probiotic (US$11.6 billion), low/no fat (US$10.4 billion), organic (US$6.5 billion), and high in protein (US$6.3 billion) in 2022. Leading HW drink claims were low/no added/sugar free (US$22.6 billion), good source of vitamins or minerals US$14 billion), energy boosting (US$9.8 billion), natural (US$7.1 billion), and immune support (US$6.6 billion) in 2022. Growing claims between 2019 and 2022, were food claims such as weight management (CAGR: 119.2%), low/no salt (31.8%), plant-based (26%), hypoallergenic, no allergens (24.9%), gluten free (20.6%), and high in protein (16.7%). Between this period, the highest declining claims were digestive health in hot drinks (−46%) and digestive food claims (−30%); high fibre in soft drinks (−25.5%) and high fibre food (−13.3%); and brain health and memory drinks (−16.4%) and such food claims (−1.8%).

Although, weight management cooking ingredients and meals and staple foods have increased by 119.2% from US$10 million in 2019 to US$105.2 million in 2022, these food claims did decline by 26.5% over 2022 down from reaching US$143.1 million in 2021. Health concerns remain a key factor for the decline in weight management and wellbeing packaged food products in China. Instead lingering health concerns and illness have led to an increased focus on health and immunity (high in drink claims). Even though overall weight management and wellbeing was not expected to exhibit growth as seen prior to the pandemic, sales with these claims did register growth to reach US$137 million in 2023 and is now forecast to grow at a CAGR of 17.6% to reach US$236.7 million by 2027. Supplement nutrition drinks is the best performing category in 2023, with retail value sales rising by 24% in current terms to US$259.7 million.^{Footnote 6}

Herbalife (China) Health Products Ltd. is the leading player in 2023, with a retail value share of 12%. E-commerce is the cornerstone of sales in weight management and wellbeing in China, accounting for approaching two thirds of value sales at the end of 2023. The digital landscape has altered the dynamics of consumer engagement, whereby digital platforms, applications, and wearable devices are assuming a substantial role in streamlining fitness monitoring, crafting tailored dietary regimens, and offering virtual fitness sessions. With Chinese consumers increasingly gravitating towards adopting healthier and more natural lifestyles through more mindful dietary choices, meal replacement solutions act as a realistic answer to fit the busy schedules of young consumers. Brands are focusing on enhancing their offerings with added vitamins and dietary supplements, or by positioning their products as advocates of gut health, reflecting the growing awareness of holistic wellbeing.^{Footnote 6}

Foodservice

The pandemic devastated consumer foodservice in China in 2022, particularly in the first half of the year, which was marked with prolonged lockdowns in major cities such as Shanghai and Beijing. With lockdowns, foodservice establishments were forced to close or adjust to increase their delivery and takeaway services. Consumer confidence was at an all-time low, driven by the slowdown in economic growth and a rising unemployment rate. As more Chinese consumers reduced dining out and spent more time cooking at home, many foodservice players lowered menu prices and/or introduced promotional deals via e-commerce platforms to encourage repeat sales and reward customer loyalty.^{Footnote 7}

Consumer foodservice in China tried best to only maintain sales at a small CAGR of 0.5% from value sales of US$663.2 billion in 2017 to US$679.3 billion in 2022 (−16.7% from US$755.5 billion in 2019 to US$629.0 billion in 2020). Foodservice sales in China increased in 2021 by 18% over the previous year, only to decline again by 8.5% in 2022. Nevertheless, foodservice sales has began to pick back up beyond pre-pandemic values in 2023 and is expected to increase by a CAGR of 9.2% (2022-2027).

In China in 2022, independent consumer foodservice registered the highest value sales at US$556.3 billion (market share: 81.9%) declining at a CAGR of 0.5% versus sales of US$123.0 billion (18.1%) increasing at a CAGR of 6.1% in the chained consumer foodservice outlets (2017-2022). Full-service restaurants (FSRs) at US$483.2 billion and limited-service restaurants (LSRs) at US$136.9 billion were the largest foodservice types. However, street stalls or kiosks (6.9%) and cafés/bars (6.2%) registered the highest compound growth, while FSRs (−0.1%), LSRs (0.5%) and self-service cafeterias (0.0%) experienced little to none or negative growth over the historical period (2017-2022).

The standalone (freestanding) foodservice establishments format was by far, the largest consumer foodservice by location with value sales of US$497.2 billion (market share: 73.2%), followed by retail outlets at a value of US$163.8 billion (24.1%) and travel foodservice locations at US$7.7 billion (1.1%) in 2022. However, leisure foodservice outlets experienced the highest growth at a CAGR of 2.6%, while standalone (0.6%) and retail (0.4%) showed little growth, and travel (−2.4%) and lodging (−1.9%) declined during the historical period (2017-2022).

Consumer foodservice in China is expected to recover swiftly over the forecast period (2022-2027), as the government unveiled new measures to optimise pandemic control to reduce the negative toll on the service industries. Following the release of "new 10 measures", the regulators lifted all pandemic-related restrictions on foodservice operations, such as 48-hour negative COVID-19 test result upon entering, health code check, and social distancing mandate. In a reopening regime, the government no longer locks down buildings and districts where cases rise, as long as the healthcare system is under control. Nonetheless, the recovery of foodservice may be slower than most Western markets, where dine-in activity came back almost immediately after restrictions were lifted.^{Footnote 7}

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Market Overview – China
Global Analysis Report

Prepared by: Erin-Ann Chauvin, Senior International Market Research Analyst

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