Last updated: 08:58 / Tuesday, 16 December 2014
Column by Matthews Asia

China Balances New Appetites with Food Safety

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China Balances New Appetites with Food Safety

Over the last decade, China’s disposable income per capita increased more than threefold at a compound annual growth rate of 12.3%. With rising consumption power, China’s population is spending more on food and beverages, not only in greater quantities but also on higher quality products.

That’s generally good news for food and beverage firms focused on China. Unfortunately, also on the rise has been the number of food safety issues in the country. This has affected items ranging from sausages to watermelon to baby formula, to name a few cases. Most recently, recycled oil from restaurant waste in Taiwan entered into the supply chain of hundreds of food manufacturers there, tainting several prominent brands that export products to China. Such cases have reinforced general consumer mistrust, even in well-established brands. Thus, people feel that they need to better self-regulate and avoid or limit most processed foods to minimize their exposure to potentially harmful chemicals and preservatives. By way of comparison, the average Chinese already consumes only a quarter of the amount of processed foods that the average American consumes.

Highlighting food safety as a priority, China has taken steps to improve nutrition and food manufacturing—efforts that were outlined for the first time in its last Five Year Plan (2011–2015). Furthermore, in 2013 China’s Ministry of Health mandated that processed food manufacturers disclose the nutritional value of their products using a standardized labeling format. As a result, consumers now have more data with which to make better-informed choices.

Some local businesses are addressing the issue of trust head on by proactively disclosing the source of their ingredients. During my recent research trip to Guangzhou, I ate at a popular Sichuan restaurant that promotes the memorable tagline “oil is used only once.” I decided to visit this restaurant after reading about its philosophy of using only the freshest ingredients. Its success was evident as there was a wait of more than two hours for a table.

Gaining, and especially rebuilding, consumer trust in China’s food and beverage industry will take time. There will inevitably be more scandals related to food safety. However, with each visit to China, I am encouraged to see progress being made toward a safer tomorrow, unleashing the strong underlying consumer demand and driving long-term sustainable growth in the food and beverage sector.

Column by Hayley Chan, Matthews Asia

The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change.  It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquid­ity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.

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