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Competition warms up.

The transformation of state-run organizations into semi-private companies continues in China's new "socialist market economy." Step by step, it seems, China moves toward a market economy from a planned economy.

This privatization sweeping China reached the tea industry in the late 1980's at a much slower, pragmatic pace. "Tea is still a centralized commodity," said Li "Charlie" Jiazhi, managing director China Tea Import Export Corp. (CITITEC) in Beijing. "[The Chinese government] decentralized 99% of businesses; tea is among the 1% that remains a special commodity."

Centralized products like tea remain restricted by government-issued export licenses. The Beijing CITITEC processes applications made by provincial tea organizations and forwards them to the Ministry of Foreign Trade (MOFAD). In this way, the government keeps a check on specialized commodity prices. "If an export request comes in at a price too different than normal, it will probably be rejected," said Li.

Domestically, retail stores set market prices, and competition is high. "We try to reduce costs to reduce prices to retailers," said an industry insider. "But often, [the retailers] maintain old prices and just pocket the profits." The answer lies in producing own brands and distributing through owned stores, as CITITEC began doing a few years ago.

Until the 1980's, tea was 100% state-run, from planting to manufacturing to exporting. Today, the Ministry of Agriculture issues policies and advice in production; formerly it maintained full reign over designating planted areas, cultivation, and management. The Ministry of Commerce today handles policies in purchasing, but not concrete business deals; formerly the agency was the sole authorized buyer from the state-run companies. MOFAD today sources tea from producers directly, in competition with local tea branches; formerly it was the sole authorized export body for tea. And CITITEC, formerly the head administrative office for the entire tea industry, now acts more like a consultant; an experienced overseer and voice giving advise to branch families and providing a liaison with government bodies.

"In the past, [the provincial tea corporations] were virtually subsidies under the Ministry of Foreign Trade," said Li. "Now, as long as we pay 33% of our sales to the government in taxes, we are independent."

Tea's fall from preeminence in China's total export picture has been dramatic. In the 1960's tea accounted for a major share, and today its place has fallen behind minerals, petroleum, garments, textiles, and telecommunications equipment. By naming tea a special commodity, the government seeks to protect an estimated 18 million Chinese who still depend on tea for their livelihood.

Provincial tea corporations source tea from the producing areas of the southeast and southwest (roughly the area south and just north of the Yangtze River) to manufacture tea products for both home and export markets. Prior to liberalization, the law limited provincial companies to operating in their own jurisdictions. Even the Beijing headquarters traded only in Beijing and the surrounding provincial area.

Competition a Mixed Blessing

Competition between the tea branches is a mixed blessing. Some branches do well, such as Shanghai, Yunnan, and Beijing; others verge on bankruptcy. While CITITEC gave up its Eastern European/Russian trade monopoly, it can now trade throughout the world and China. "We have so many friends in the former Soviet Union," said Li, "that we are still the leading exporters. But other companies are encroaching."

Finding exact export figures from China recently became more difficult. In order to maintain its import trade with Eastern Europe and Russia, the Chinese government enabled non-state companies to trade tea in this area. Total exports from China in 1993 were 204,000 MT, including the adjustment for non-governmental tea trading.

China's 5,000 year history in tea creates a wealth of experience and types of tea. In general, tea divides into three types: green tea, 50% of production; black tea, 20% of production; and special or gourmet teas, taking the balance.

CITITEC exports mainly black and special teas. Black teas include congou or leaf tea for bulk exports, and broken graded teas to meet foreign demand for teabags. Special teas include semi-fermented oolong; scented teas, especially jasmine, magnolia, and litchi flowers; and pu'er tea, a type of molded tea introduced only 10 years ago and gaining popularity. Japan's demand for canned tea products keeps oolong flowing east. Other special teas find markets among overseas Chinese, especially in the U.S.

Harder to quantify is domestic tea consumption. According to Li, people in producing areas source tea from the fields, rather than buy it at stores. Actual sale figures in producing areas are low, but "actually," said Li, "southern China is a high consumption area. Overall he estimated Chinese consumption at 100 grams per capita.

"They don't like scented teas," said Li of the southern tea areas. Consumers there like special teas, such as oolong and pu'er. In the north, tea drinkers prefer green and scented teas, especially jasmine. In the northwest, such as Tibet and Mongolia, consumers prefer brick teas; green and black tea compressed into a brick making it easy to carry for these nomadic peoples.

Shanghai Maintains Export Outlook

Shanghai Tea Import & Export Corp., founded as an export company in the 1960's, continues its outward view. Exports account for 99% of the company's tea volume; a small local subsidiary handles domestic sales. And while Shanghai accounts for a great portion of the overall tea profit of the tea association, it will soon be entirely separate from Beijing.

"From the 1950's to 1980's, Shanghai accounted for 70% of all Chinese tea exports ... mostly is small packs," said Huang Han Qing, president and general manager, Shanghai Tea Import and Export Corp. Then, small package teas took 80% of total exports; bulk took 20%.

From the mid-1980's to today, Shanghai's share of Chinese tea exports dropped to only 30%. Small package teas now represent only 10% of Shanghai's export volume; 90% is in bulk. Although small package exports takes only 10% of volume, the segment represents 30% in value. Shanghai's major tea exports include black, green, and special teas.

In black tea, Shanghai produces Keemun, favorite of Queen Elizabeth of England, sourced from the Yunnan province. There is also Tian Hong - a kind of Chinese black tea that is more pungent and goes very well with milk. Shanghai also produces other Chinese black teas, mixtures of Sichuan and Jianxi province leaf.

Green tea is also one of Shanghai's major exports. Temple of Heaven and Evergreen are its most famous branded products in export markets, especially in Africa and the Middle East. Shanghai source most of its green tea from Anhui, Zhe Jiang, Jiang Xi, and Sichuan provinces.

Another Shanghai product: special teas in 100% branded formal. Special teas include jasmine, oolong, and Chinese famous green tea, hand-manufactured from tender leaves.

Due to the new competition. Shanghai's production is down sharply. Huang plans to counter this trend by building new brands names, updating tea drinks, and developing packaging designs for tea as gifts. "We must look toward branding and development of tea markets dramatically," said Huang. "We can promote tea's benefits in reducing body fat, blood fat, cholesterol, and as an aid in digestion."

Since Huang's installment as president and general manager three years ago. much has changed "We modified our goals. In the past, our overwhelming volume was in tea, with non-tea items making up a very small part of revenue." Since then, Shanghai diversified into other products, and tea went from 90% of Shanghai's income to 40%.
Year Production Exports


1989 534,900 MT 201,400 MT
1990 541,000 MT 198,700 MT
1991 541,600 MT 188,400 MT
1992 559,800 MT 176,400 MT
1993 599,800 MT 204,000 MT
1994 NA 179,679 MT


Total exports from China reached 204,000 MT in 1993. Since 1992,
completely reliable statistics are hard to determine when the
government opened by trade by some private companies to the former
Soviet Union. While 1993 total exports are adjusted for this amount,
the 1922 figures are probably a little higher, as they do not
include tea traded by non-governmental agencies - possibly 5-10,000
MT more according to Li Jiazhi, managing director, CITETEC.


Personnel went down from 3,000 only three years ago, to around 1,800 today in an effort to make operations more efficient. Shanghai set up joint ventures with other businesses. One short term plan is a joint venture with a Japanese tea company for tea drinks in cans.

Huang also oversaw consolidation of three tea factories in one. The five-story Shanghai Tea Factory #1 is China's largest with production capacity of 50,000 tons annually.

Black and green tea production at Shanghai Tea Factory #1 reach 10,000 MT apiece; the warehouse stores 30,000 MT, along with 10,000 MT of packaging material. Five years ago, Shanghai produced around 27,000 MT of black and 40,000 MT of green.

The Hometown of Tea

The China Tuhsu Yunnan Tea Import & Export Corp. is China's fifth largest tea province in production area (60,000 MT) and exports (10,000 MT). Aid to this area, from the United Nations Development Project (UNDP) and international banks, stimulated growth in tea over the past several years. Among other projects, the poor people of this remote mountainous region farmers received assistance to develop their farms.

"These teas are now on the market," said Wei Ming Huang, general manager, China Tuhsu Yunnan in Kunming. China's rich history in tea actually originated in Yunnan province close to the Burmese and Laotian borders. Wei notes that Yunnan is known as "the home-town of tea."

"One third of the people in Yunnan Province are involved in tea - around 10 million people," said Wei. Most of the production is on small farms, and recently 50 large plantations broke up into 200 smaller plantations. Yet, even with international assistance, technology is very backward, contributing to low production. A side effect: Yunnan teas are natural due to low fertilizers usage.

Two types of Yunnan black tea are orthodox (or traditional black tea) and CTC . Yunnan produces 25,000 MT of black teas, or 15-20% of China's total. A growing export from Yunnan is tuocha tea (in both green and pu'er), although only 150 MT were exported last year.

Yunnan produces many famous green teas, especially health teas. Two years ago, the tea company introduced 16 herbal products, mostly for export to Japan. The products also find a growing market with overseas Chinese, especially in the U.S.

China Tuhsu Yunnan produces both big and small leaf teas and is most famous for its black teas and special teas, such as pu'er. In pu'er tea, a fungus becomes active upon heating and drying in a special fermentation process. In black tea, a naturally occurring enzyme ferments in a natural process before heating. Pu'er tea is said to have slimming properties.

Production of tea is broken down as follows: black tea, 1/3 of crop, but can produce more depending on market demands; special and pu'er teas, about 25% of production; tuocha, 150 tons; and green tea, around 10,000 MT. Overall, Yunnan sees a production increase of 5-7% a year.

Total exports in the past few years total 10,000 MT yearly, including: 6,000 MT black tea, major markets - Poland, U.K., New Zealand, Europe); 3,000 MT pu'er tea, major markets - Japan, Hong Kong, SE Asia, Macao); 150 MT tuocha tea, main market - France).

The Tea Blending Factory of China Tuhsu Yunnan, just outside Kunming is just one of three factories in the provinces. It blends 5,000 MT tea blended per year, including 3,000 black tea (500 in small packages (tea bags, tea tins); 1,500 green tea (with a small amount of small packages) and 500 MT pu'er. Most of the equipment in this 20-year-old factory is newer than 10 years old, with much newer equipment installed three years ago.

Tea Quota Release?

Some sources indicate that tea quotas may be released in 1995," said an industry observer. "This would open up Chinese tea production, consumption and exports to market demands. But this comes from unofficial channels."

Wei of China Tuhsu Yunnan expresses confidence in the province's ability to excel in the new competitive environment in China. Overseas markets prefer Yunnan's black tea, which commands a higher price over other provinces, e.g. Guangdong black tea dust US$ 0.70 cents/kilo (orthodox), Yunnan tea dust $1.20 kilo (orthodox).

"There are policies to stimulate more farms, and new tea plantations are planned," said Wei. "We have extra processing capacity, and we have the advantage of lots of plantations and superior quality."
COPYRIGHT 1995 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1995 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:China Tea Report; China's tea industry
Author:John, Glenn A.
Publication:Tea & Coffee Trade Journal
Article Type:Industry Overview
Date:Apr 1, 1995
Words:2100
Previous Article:Many things to many people.
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