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China Briefings: Xiaomi posts record high quarterly revenue of CNY 72.2 billion in Q3 2020

26 Nov 2020

Chinese smartphone maker Xiaomi (HKG:1810) has posted a record high quarterly revenue of CNY 72.2 billion in Q3 2020, according to unaudited financial results.  Xiaomi’s smartphone business posted strong growth during the quarter with revenue jumping 47.5% year-on-year (YoY) to CNY 47.6 billion, driven by smartphone shipments which grew 45.3% to 46.6 million units.

Strong smartphone shipments helped Xiaomi emerge as the third biggest smartphone company in Q3 2020 according research firm Canalys.

Huawei sells budget phone brand Honor amid US sanctions

17 Nov 2020

Huawei Technologies Co Ltd announced that it is selling its budget smartphone brand – Honor – to a consortium of over 30 agents and dealers, in a move aimed at ensuring its survival, as well the survival of its supply chain. Huawei will not hold any shares in the new Honor company – Shenzhen Zhixin New Information Technology Co., Ltd, or be involved in any decision-making after the sale. Financial terms were not disclosed.

Founded in 2013, the Honor brand focused on the youth market with phones targeted at the low to mid-end price range. The budget phone brand ships over 70 million units annually according to Huawei.

Tencent Q3 2020 net profit jumps 89% YoY

13 Nov 2020

Chinese tech giant Tencent reported an 89% year-on-year (YoY) jump in Q3 2020 net profit to CNY 38.54 billion, while revenues rose 29% YoY CNY 125.5 billion.  Tencent’s biggest segment by revenue – Value Added Services (VAS) (which includes its highly successful gaming unit) reported a 37.8% YoY growth in revenue to CNY 69.8 billion. Fintech and Business Services which includes revenues from its mobile wallet WeChat Pay – Tencent’s second biggest segment by  revenue – reported a 24% YoY increase in revenue which reached USD 21.35 billion during the quarter. The company’s Online Advertising segment which includes revenues from online advertisements and Mini Program advertisements rose 16% YoY to CNY 21.35 billion.

Alibaba and Richemont invest a combined USD 1.1 billion into Farfetch

06 Nov 2020

Chinese e-commerce giant Alibaba (NYSE:BABA) (HKG:9988) along with luxury goods holding company Richemont (SWX:CFR) are investing a combined USD 1.1 billion into UK-based online luxury and fashion retailer Farfetch (NYSE:FTCH). Alibaba and Richemont will each invest USD 300 million into private convertible notes issued by Farfetch. They will also invest an additional USD 250 million each into Farfetch China – a new joint venture – in return for a 25% stake.

As part of the deal, Farfetch will launch luxury shopping channels on Alibaba’s e-commerce including Tmall Luxury Pavilion, Luxury Soho, and Tmall Global.

Pinduoduo signs MOU with Denmark to promote Danish products to Chinese shoppers

06 Nov 2020

Pinduoduo (NASDAQ:PDD) has signed a memorandum of understanding with the Royal Danish  Consulate General in Shanghai to introduce high-quality Danish products to Chinese shoppers, and at the same time introduce Pinduoduo’s merchant platform to  Danish businesses.

Tencent Games partners with British fashion house Burberry

05 Nov 2020

Tencent Games, the gaming business of Chinese tech giant Tencent Holdings (HKG:0700), has partnered with British luxury fashion house Burberry (LON:BRBY) to integrate and promote Burberry products in Tencent Games’ popular mobile game Honor of Kings. Financial terms of the deal were not disclosed. Tencent and Burberry said that they were targeting China’s “fashion-forward, digital-first customers” with this new effort.

VC firm Bits x Bites raises USD 30 million for foodtech fund

05 Nov 2020

Chinese venture capital firm Bits x Bites has raised USD 30 million in the first close of its USD 70 million foodtech fund. Investors who participated in the round include Singapore investment firm Temasek,  Nissin CEO Henry Soesanto, and other unnamed conglomerates and family offices.

Bits x Bites  is targeting early stage Chinese and international business in the agrifood technology space. Areas of focus include precision agriculture, crop and animal health, alternative proteins, and nutrition.

Alibaba-owned food delivery startup Ele.me teams up with Beijing Daxing International Airport

05 Nov 2020

Alibaba-owned food delivery startup Ele.me has forged a partnership with one-year old airport, Beijing Daxing International Airport, to offer passengers the ability to have their food delivered to the departure gate.

Hong Kong PE firm Alta Capital seeking to raise USD 50 million for hospitality fund

04 Nov 2020

Hong Kong private equity firm Alta Capital is looking to raise USD 50 million from global investors for its first hospitality fund – the Alta Hospitality Fund Asia – which promises to deliver a return of between 15% and 25% over six years. The opportunistic fund aims to raise all the capital by October next year, with the first round closing by the end of January 2021. The funds will be used to acquire hotel assets in Asia Pacific which are showing signs of distress as a result of the Covid pandemic which has devastated the travel and tourism sectors worldwide. Countries of interest include Thailand, Vietnam, Indonesia, Sri Lanka, Malaysia, South Korea, and Japan.

Alta Capital has already identified a couple of assets namely a prime hilltop greenfield development in Galle, Sri Lanka, and a 2.5-star, 90-room boutique hotel in Bali.

Tencent’s Honor of Kings crosses 100 million daily users

02 Nov 2020

Chinese tech giant Tencent’s (HKG:0700) mobile game Honor of Kings has crossed 100 million daily active users, a new world record according to the company.

China Q3 smartphone shipments down 8% QoQ

30 Oct 2020

Smartphone shipments in China, the world’s biggest smartphone market fell 8% quarter-on-quarter (QoQ), and 15% year-on-year (YoY) according to data from Canalys. The decline was led by homegrown smartphone giant Huawei which was forced to curtail smartphone shipments following US sanctions imposed on August 17. Huawei fell 18% YoY in Mainland China, while Vivo and Oppo fell 13% and 18% respectively. Xiaomi rose 19% YoY.

Chinese biotech startup Genecast raises USD 149 million Series E funding

27 Oct 2020

Chinese biotech startup Genecast Biotechnology has raised USD 149 million in its Series E funding round led by China Structural Reform Fund. Taikang Asset Management, CCB Private Equity Investment Management, Hillhouse Capital’s venture capital unit GL Ventures and China Renaissance, participated. The fresh capital will be used to develop new diagnostics products for tumors, accelerate development of in vitro diagnostic devices as well as for market expansion.

Chinese robotic startup Fourier Intelligence raises CNY 100 million Series C

26 Oct 2020

Chinese robotic startup Fourier Intelligence has raised CNY 100 million in its Series C funding round from Vision Plus Capital, and existing investor Qianhai Fund of Funds.

Chinese electronics startup VanTop raises CNY 300 million Series A from Sequoia China

26 Oct 2020

Chinese consumer electronics startup VanTop has raised CNY 300 million from Sequoia China in Series A funding. Founded in 2017, VanTop designs, and develops consumer electronics such as dash cameras, action cameras and smart home devices.

E-sports startup VSPN raises USD 100 million Series B led by Tencent Holdings

26 Oct 2020

Chinese e-sports solutions provider Versus Programming Network (VSPN) has raised USD 100 million in its Series B funding round led by Chinese tech giant Tencent Holdings (HKG: 0700). Video-sharing startup Kuaishou, Shenzhen-headquartered venture capital firm Tiantu Capital, and Susquehanna International Group (SIG) participated in the round. The new funds will be used to further develop its e-sports products and for market expansion. 

“We look forward to building an esports research institute, an esports culture park, and further expanding globally

VSPN CEO Dino Ying

There has been growing Investor interest in e-sports amid the pandemic with expectations the sector will continue growing in the foreseeable future. Canadian e-sports startup GoodGamer raised USD 2.5 million in seed funding last week. About a fortnight ago (mid October), Singaporean e-sports startup EVOS raised USD 12 million in Series B funding, led by Korea Investment Partners. Just last month German e-sports data provider Bayes Holding raised USD 6 million and Indian e-sports platform Mobile Premier League raised USD 90 million in Series C funding.

Wealth management startup Magnum Research closes USD 30 million financing round

23 Oct 2020

Wealth management startup Magnum Research, the owner and operator of digital wealth management app Aqumon, has raised USD 30 million in a follow-on of its pre-Series B round. The round was lead by Zheng He Capital Management while Lenovo Capital, Alibaba Hong Kong Entrepreneurs Fund, Wing Lung Family Office, and government-backed Cyberport participated. 

The fresh capital will be used for market expansion, and for R&D into areas such as software engineering and AI. Magnum Research is licensed by the Securities and Futures Commission (SFC) of Hong Kong.

Aqumon has grown 300% YoY in 2020 amid the pandemic, thanks o a spike in demand for is digital wealth management solutions as the pandemic inflicted demand drops in the offline businesses of insurance companies, banks, and security houses. In addition, financial institutions are increasingly warming up to cloud-based solutions to an effort to reduce costs. Aqumon has partnered with more than 70 financial institutions across the region, covering more than 10 million end users. Major institutional clients include CMB Wing Lung Bank, AIA Hong Kong, Bank of China International, Gaungzhou Rural Commercial Bank, China Resources Bank, and ChinaAMC.

Ayumon offers access to low cost exchange-traded funds (ETFs).

Chinese on-demand drug-delivery startup Dingdang Kuaiyao raises CNY 1 billion Series B+ funding

21 Oct 2020

Chinese on-demand drug-delivery startup Dingdang Kuaiyao has raised CNY 1 billion Series B+ funding from a clutch of investors including Taikang Asset, Haier Biomedical, and Beijing Zhongguancun Longmen Investment Company Limited, SB China Capital (SoftBank’s VC unit in China), and CMB International (China Merchants Bank’s investment vehicle).
The startup operates its own chain of pharmacies, was one of the earliest players to offer drug delivery within 28 minutes, helping it gain popularity among users who often needed urgent drugs at night when traditional pharmacies were closed. Currently serving millions of users in around 10 big cities, the company intends to use the fresh funds to expand to another 10 cities in China by the end of the year, as part of a bigger plan to open 10,000 new pharmacies in 1,000 cities including smaller cities.

Chinese search engine giant Baidu launches in-app shopping channel

20 Oct 2020

Chinese search engine giant Baidu has launched an in-app shopping channel, a strategic move to carve its own share of China’s blossoming e-commerce market. The shopping channel enables its 204 million daily active users to search for products and make purchases directly in its Baidu app. Baidu’s move is somewhat akin to Google’s Google Shopping channel in that a search term for a certain product will reveal product search results from shopping platforms and websites such as Alibaba, JD.com, or other independent brand websites.

Indonesian government launches national online store on e-commerce platform Pinduoduo

19 Oct 2020

The Indonesian government has launched a national online store on rising e-commerce platform Pinduoduo (NASDAQ:PDD) in a move aimed at boosting trade with China.

The Consul General of the Republic of Indonesia in Shanghai, Deny W. Kurnia, livestreamed on Pinduoduo on Saturday, promoting various products including packaged food, bird’s nest supplements, and cotton and silk garments known as Indonesian batik, according to Chinese media outlet huanqiu.com. The livestreaming session lasted from 5:00 p.m. Beijing time to 10:00 p.m. and attracted 450,000 viewers in total, and saw more than 10,000 Indomie Mi goreng instant noodles sold. The store stocks 500 products made by different companies, with over 100,000 items sold since the launch two days ago, data from the Pinduoduo app shows.

BBC Studios signs strategic agreement with Chinese video platform Bilibili

19 Oct 2020

BBC Studios and Chinese online video platform Bilibili (NASDAQ:BILI) have signed a strategic cooperation agreement to generate more China-inspired content and bring more BBC premium shows to China. The BBC-Bilibili partnership will also give Bilibili greater access to BBC Studios’ premium content.

Nasdaq-listed Bilibili, which competes against  online video behemoths Tencent Video (HKG:0700) and iQiyi (NASDAQ:IQ) has been on a tear, recording a 70% YoY growth in monthly active users (MAUs) which reached 172 million in the first quarter of 2020.  By comparison Tencent Video had a MAU of 112 million while iQiyi had nearly 119 million. Unlike its two rivals however, Bilibi is largely reliant on user generated content similar to that of Youtube (NASDAQ:GOOGL), whereas Tencent Video and iQiyi offer video collections of professionally-produced content, similar to that of Netflix (NASDAQ:NFLX). Bilibili however does appear to be making moves towards building its library of professionally-produced content and the partnership looks to be a step in that direction. Bilibili’s content library currently contains more than 3,000 documentaries, including titles it produced and others it co-produced.

Bilibili, which is backed by Chinese tech giants Alibaba (HKG:9988), and Tencent, is hugely popular among “Generation Z” which reportedly accounts for 80% of its users according to QuestMobile.

Tencent and Burberry team up to launch interactive WeChat store

26 Aug 2020

Chinese tech giant Tencent (HKG:0700) has partnered with British luxury fashion house Burberry to launch Burberry’s first social retail store in Shenzhen. The interactive, social retail store uses Tencent’s WeChat app (China’s most popular social media app) to enable shoppers to interact and engage with the Burberry store, for instance by interacting with the window display, book fitting rooms, pre-select the clothes to try on, and play their own music in the fitting rooms while trying on those clothes.

TikTok parent ByteDance sets up new e-commerce division

18 Jun 2020

Video sharing platform TikTok’s parent company ByteDance has set up a new e-commerce division signaling intent to develop its own e-commerce business. ByteDance’s revenues currently are mainly from advertising. ByteDance is unlikely to challenge domestic e-commerce leader Alibaba who is one of key advertisers among e-commerce platforms that make up a key portion of TikTok’s core ad revenue. However, there is potential to tap into e-commerce markets overseas, which leverages on TikTok’s strength as a highly popular video sharing platform worldwide. The number of international TikTok users have surged in recent years. TikTok was downloaded 104 million times from the global App Store and Google Play store in January 2020, making it the world’s most downloaded mobile app according to Sensor Tower.

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The Technology Trends Powering China’s Agrifood Sector

Column chart showing crop yields in China vs United States for selected crops during crop year 2018/19. During crop year 2018/19, coarse grain yields in the United States stood at 10.44 metric tons per hectare compared with 5.95 metric tons per hectare in China. Wheat yields were 3.2 metric tons per hectare in the United States and 5.42 metric tons per hectare in China. Corn yields were 6.11 metric tons per hectare in China and 11.07 metric tons per hectare in the United States. Barley yields were 3.64 metric tons per hectare in China and 4.17 metric tons per hectare in the United States. Oats yields were 1.15 metric tons per hectare in China and 2.33 metric tons per hectare in the United States. Sorghum yields were 4.79 metric tons per hectare in China and 4.53 metric tons per hectare in the United States. Rice yields were 7.03 metric tons per hectare in China and 8.62 metric tons per hectare in the United States. Soybean yields were 1.9 metric tons per hectare in China and 3.4 metric tons per hectare in the United States. Cottonseed yields were 3.11 metric tons per hectare in China and 1.26 metric tons per hectare in the United States. Peanut yields were 3.75 metric tons per hectare in China and 4.48 metric tons per hectare in the United States. Sunflower seed yields were 2.71 metric tons per hectare in China and 1.94 metric tons per hectare in the United States. Rapeseed yields were 2.03 metric tons per hectare in China and 2.09 metric tons per hectare in the United States.

China is one of the world’s largest food producers. With the country’s middle class expanding along with growing incomes, food demand in China has been on a steady growth path. China is the world’s largest wheat consumer, largest fruit consumer, largest egg consumer, and largest meat consumer. China is the world’s biggest importer of soybeans, is the world’s largest tea market, and is the world’s largest market for alternative meat. China is expected to be the world’s largest dairy market by 2022, and the country is expected to overtake the United States to become the world’s largest grocery market as well.

With Chinese per capita incomes standing at less than one-third of the United States, there is tremendous potential for growth in China’s agrifood sector as per capita food consumption grows along with rising prosperity opening interesting opportunities. While China has attracted much attention due to some high profile outbound agri-food acquisitions such as ChemChina’s of Swiss seed giant Syngenta, and China Mengniu Dairy’s (HKG:2319) acquisition of Australian dairy company Bellamy’s Australia, business optimism is strong on the domestic front as well. Listed agrifood companies such as New Hope Liuhe Co Ltd (SHE:00876), and Muyuan Foods Co Ltd (SHE:002714) have seen share prices jump over the past five years; Muyuan Foods Co Ltd saw its share price jump more than ten-fold during the five years until August 2020 while New Hope Liuhe’s share price quintupled during the same period. Hong Kong-listed China Mengniu Dairy’s share price also quintupled during the same period. On the startup front, China remains the world’s second largest market for agrifood tech startup investing by total deal number and amount invested after the US according to AgFunder.

Much of investor attention is currently on China’s booming eGrocery market, which raked in 60% of agrifood startup investment in 2019 according to data from Agfunder. However, there are numerous other sectors worth watching particularly in agri-tech which has strong government support. This year, the Chinese government released the “Digital Agriculture and Rural Area Development Plan 2019-2025” which aims to have digital agriculture account for 15% of China’s agricultural value-add.

Precision farming

Precision farming is a growth industry and the opportunity is no different in China, one of the world’s largest agricultural producers. China is upgrading is agriculture infrastructure to precision farming. The vast majority of China’s farms are small scale farms with basic machinery. Agriculture 4.0 technologies such as precision and smart farming accounts for just 1% of the nation’s total agricultural production. For instance according to a 2018 article by a Chinese economist HE Fan, agricultural drone penetration is about 65% in the U.S. but just 2% in China. Innovation and advancement in areas such as AI, IoT, remote sensing, and 5G will spur greater adoption.

The regulatory environment is favorable too, with the Chinese government stepping up efforts to boost domestic agricultural yields and production in an effort to reduce reliance on food imports from the U.S.

Column chart showing crop yields in China vs United States for selected crops during crop year 2018/19. During crop year 2018/19, coarse grain yields in the United States stood at 10.44 metric tons per hectare compared with 5.95 metric tons per hectare in China. Wheat yields were 3.2 metric tons per hectare in the United States and 5.42 metric tons per hectare in China. Corn yields were 6.11 metric tons per hectare in China and 11.07 metric tons per hectare in the United States. Barley yields were 3.64 metric tons per hectare in China and 4.17 metric tons per hectare in the United States. Oats yields were 1.15 metric tons per hectare in China and 2.33 metric tons per hectare in the United States. Sorghum yields were 4.79 metric tons per hectare in China and 4.53 metric tons per hectare in the United States. Rice yields were 7.03 metric tons per hectare in China and 8.62 metric tons per hectare in the United States. Soybean yields were 1.9 metric tons per hectare in China and 3.4 metric tons per hectare in the United States. Cottonseed yields were 3.11 metric tons per hectare in China and 1.26 metric tons per hectare in the United States. Peanut yields were 3.75 metric tons per hectare in China and 4.48 metric tons per hectare in the United States. Sunflower seed yields were 2.71 metric tons per hectare in China and 1.94 metric tons per hectare in the United States. Rapeseed yields were 2.03 metric tons per hectare in China and 2.09 metric tons per hectare in the United States.

One such area where precision farming holds tremendous potential in China is pesticide use. China feeds about 19% of the world’s population with just 7% of the world’s arable land. While this is commendable, the country also uses about 47% of the world’s pesticides, making it the world’s largest user of agricultural chemicals. China’s heavy pesticide use despite the country’s relatively minute cropland share, is a national concern. In an effort to improve food safety, and minimize environmental damage caused by pesticide overuse and thereby improve the sustainability of Chinese agriculture, the Chinese government has been phasing out highly toxic pesticides from use over the past few years.

Chinese agritech drone startups such as XAG, and McFly are well placed to emerge as solution providers to tackle China’s pesticide issue. XAG is a leader in China’s smart agriculture field, with more than 40,000 of its agricultural drones operating in China. Baidu-backed McFly, which raised US$ 14 million in 2019 is a relatively new player. Both develop AI-powered remote sensing agriculture-focused aviation equipment to help farmers reduce farm pesticide use. For instance McFly’s precision pesticide spray is able to detect with 97% accuracy the presence of pests on specific areas of a farm land and spray pesticide accordingly.

This precise use of pesticides eliminates the need for the current practice of completely spraying an entire farmland with pesticide since more often than not, pest distribution occurs in parts of the farm, not throughout the farm. The benefits are clear; consumers have safer food while farmers benefit from reduced farm input costs.

The growth story is just beginning. Farmers need large sized farms to justify the investment in expensive agricultural drones. In McFly’s case for instance, farmers need reportedly a little more than 13 hectares to justify the investment in McFly’s commercial services. However, unlike in the United States, very few Chinese farmers have farmland of that size. McFly worked around this limitation by offering a group-buying model to make the services more affordable, which has been successful. However, McFly’s bottom margins may be better off dealing with large-scale individual customers as opposed to millions of small scale users. This will likely materialize in the years ahead. 

For centuries, millions of small-scale farms have been dominating China’s rural areas, and these are often managed by farming families themselves. Apart from the cost disadvantage of small scale farming due to their inability to benefit from of economies of scale, it has also been found that agricultural chemicals are often used inefficiently on small farms according to a research study conducted a team of researchers from the Universities of Melbourne, Zhejiang, Fudan, Wuhan and Stanford.

The inefficiencies of small-scale farming along with China’s growing problem of ageing farmers has prompted the Chinese government to clear the path for private investment in large-scale commercial farming, through rural land reform which will allow family farmland owners to collectively rent out their land to large-scale farmers to cultivate the land on a large scale.  Much like the gradual disappearance of America’s small family farms in the in the mid 20th century, China too appears to be on the path towards farm consolidation where small family farms will gradually give way to modernized, large scale commercial farms which suggests good for McFly.

Agricultural e-commerce

According to government data, e-commerce sales of agricultural produce reached CNY 554.2 billion in 2018, representing 9.8% of total agricultural sales. There is still ample room for growth. Under China’s “Digital Agriculture and Rural Area Development Plan 2019-2025” the Chinese government is aiming to boost the proportion of agricultural products sold online to reach 15% by 2025 which suggests bright prospects for agri-marketplaces in China. The competitor landscape however is crowded with players. Pinduoduo (NASDAQ:PDD) is perhaps one of the biggest names in the game having shot up to becoming China’s third largest marketplace after Alibaba and JD.com, by capitalizing on the growth of rural e-commerce. Their strategy was largely based on agriculture e-commerce and their popularity as a platform for rural farmers to sell their wares to city folk hungry to buy fresh agricultural produce straight from farmers continues to this day. Pinduoduo’s group-buying model enabled shoppers to team up with other interested buyers to collectively make a purchase of farm produce. Shoppers earn discounts for the relatively large purchase while farmers get to sell their produce at higher prices (since there is no middleman involved) and in relatively large order sizes thus saving them the hassle of fulfilling a large number of small orders.

Valued at US$ 7 billion,  agri-marketplace unicorn Meicai took a different route, connecting farmers with restaurants and hotel chains instead who also make relatively large purchases (for instance, the minimum order quantity is 5kilograms for vegetables). Meicai started off as an online retailer, directly sourcing and selling the fresh produce themselves. Starting 2017 however, the platform was opened to third party merchants as well.

The company in-house cold chain logistics network which was built with an investment of more than RMB 2 billion. This supply chain advantage is a significant competitive strength, with the company boasting more than 74 cold storage centers scattered in 52 cities with a warehouse area of approximately 800,000 square meters. Meicai has a fleet of more than 17,000 delivery vehicles and the company has a daily parcel handling capacity of more than 5.2 million. Meicai’s sales are expected to exceed RMB 14 billion in 2019 and although the company is currently loss-making, it is cash flow positive and is expected to turn in a profit by 2020.

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China’s Centuries-Old Plant Based Meat Industry Set For Growth

Bar chart showing the top five vegetarian markets in the world by vegetarian population. India was the biggest with a vegetarian population of 390 million followed by Indonesia with 66.9 million vegetarians, Nigeria with 58.1 million vegetarians, China with 51.9 million vegetarians, and Pakistan with 33.2 million vegetarians.

According to Euromonitor China’s “free from meat” market which includes plant-based meat products has grown 33.5% since 2014 to reach US$ 9.7 billion in 2019. The industry is forecast to reach US$ 11.9 billion by 2023. Already the world’s largest market for alternative meats, the Covid pandemic could serve as a catalyst to encourage greater numbers of non-vegetarian Chinese to adopt alternative meats as consumers, wary of potential sickness from animal protein increasingly turn to plant-based proteins such as plant-based meat and plant-based eggs. For instance, Just Egg, a plant-based egg alternative reportedly saw sales jump 30% on e-commerce platforms JD.com (HKG:9618) (NASDAQ:JD) and Alibaba’s Tmall since the Covid outbreak.

The potential is enormous; protein demand in China is on a structural uptrend, driven by a growing middle class, rising incomes, and living standards. China is the world’s largest meat consumer, the world’s largest meat importer, the world’s largest meat producer, and the world’s largest soybean importer (demand for which is largely driven by its livestock industry which uses soybean meal as animal food). China’s soybean imports by value are more than 10 times bigger than second-placed European Union.

Bar chart showing top five soybean imports by volume, 2018. China was the world’s largest soybean importer having imported 85.47 million metric tonnes in 2018, followed by the EU-27 + UK with imports of 17.29 million metric tonnes, Argentina with 6.78 million metric tonnes, Mexico with 5.15 million metric tonnes, and Egypt with 3.51 million metric tonnes. Data from UN Trade Data.

Yet, there is still room for growth. Although China has caught up with Asian neighbors such as South Korea in terms of average protein supply, China still falls short when compared with Western countries such as the United States and Germany.

Column chart showing average protein supply (in grams per capita per day) (three year average) in China, South Korea, United States, and Germany. In 2008-2010, average protein supply was 91.7 in South Korea, 92.4 in China, 101.3 in Germany, 110.7 in the United States. In 2009-2011, average protein supply was 93 in South Korea, 93.7 in China, 102 in Germany, 109.3 in the United States. In 2010-2012, average protein supply was 94.3 in South Korea, 95.3 in China, 101.7 in Germany, 109 in the United States. In 2011-2013, average protein supply was 96 in South Korea, 96.7 in China, 101.7 in Germany, 108.7 in the United States. Data from the Food and Agriculture Organization of the United Nations.

However, satisfying this expected protein demand may prove an uphill challenge due to scarce resources; home to 19% of the world’s population but owning just 7% of the world’s arable land, China has very limited arable land. At just 0.086 hectares per person, China’s arable land per capita is lower than India, the United States, the European Union, and Russia.

Bar chart showing arable land per capita for selected countries as a 2016. In 2016, arable land per capita reached 1.904 hectares per person in Australia, 0.853 hectares per person in Russia, 0.471 hectares per person in the United States, 0.2 to 3 hectares per person in the European Union, 0.118 hectares per person in India, and 0.086 hectares per person in China. Data from the World Bank.

And with the livestock industry producing just 18% of the world’s calories and 37% of total protein despite occupying 77% of the world’s agricultural land according to figures from Our World in Data, it is clear that animal protein is far more resource intensive than plant-based protein, and so China, already the world’s largest meat producer, likely has very little room for further land expansion for livestock which makes the case for plant-based meats in China is very compelling.

Furthermore, the industry is bound to benefit from support from the Chinese government which reportedly aims to cut down meat consumption by 50% to reduce greenhouse gas emissions. Plant-based meats are an answer to this and the climate-friendly narrative of plant-based meats is a major draw factor, particularly among China’s sustainability-conscious millennial generation. China has about 400 million millenials, compared with about 80 million in the United States.

The opportunity has not gone unnoticed. Global alternative protein players such as Beyond Meat (NASDAQ:BYND), and Impossible Foods have stepped up marketing efforts in China while food and beverage players such as Starbucks, and Yum! Brands’ (NYSE:YUM) KFC, Pizza Hut and Taco Bell have launched plant-based menus. KFC’s plant-based chicken will be supplied by agri-business giant Cargill, while Stabucks’ plant-based menu will see faux meats supplied by Beyond Meat.

Beyond Meat also partnered with Alibaba’s (HKG:9988) (NYSE:BABA) grocery retailer Hema to bring its plant-based packaged meat to supermarket shelves in China.

Competitive landscape: China’s mock meat industry is centuries old, and the country’s has well established players offering a wide variety of plant-based meat products

Imitation meat originated in China, and restaurants in Buddhist temples throughout the country have been serving fake meat as far back as the Song dynasty which lasted until the 13th century. A key pillar of Buddhist principles is respect for all life i.e., all living creatures and hence vegetarianism is commonly practiced among Buddhists. To accommodate the diets of patrons and guests, these temple kitchens mastered the art of preparing mock meats, a tradition which continues to this day in numerous Chinese Buddhist temples not only throughout China but also around the world from Malaysia, to the United States. Over the centuries, restaurants sprung up throughout the Middle Kingdom offering faux meat menus to cater to vegetarian Buddhists. According to China Daily there are more than 300 restaurants offering fake meat in Beijing alone.

Chinese entrepreneurs and merchants brought their expertise with them during their overseas travels and hence countries with a significant ethnic Chinese population such as Malaysia, also have their share of mock meat restaurants and mock meat manufacturers. Notable Malaysian players such as Ahimsa (which literally means “non-violence” in Sanskrit) for instance have been in the business for decades. X% of Malaysian vegetarian meat companies in the LD Investments database are more than 10 years old.

Thus, China has a very long history of manufacturing plant-based protein and the country has several players producing mock meat products out of a variety of plant-based foods such as tofu skin (known as yuba), soybeans, wheat gluten (sometimes called seitan), mushrooms, peanuts, and vegetables such as potatoes and carrots.

These well established players offer much more than just burghers and sausages, with their product range covering a wide breadth of faux meat and seafood products from ordinary staples such as beef, pork, lamb, chicken, crab meat, roast duck, and cuttlefish, to exotic meats such as eels, puffer fish, shark’s fin, and abalone.

It has been noted however that a number of these companies’ products are targeted at China’s vegetarian population, and the products often do not mimic the taste, texture, and color of authentic meat very well. Hence, while they satisfactorily serve the needs of China’s vegetarian population, the products may need some tinkering before China’s mammoth non-vegetarian population will be sufficiently persuaded to make the switch and consume plant-based meats on a regular basis. Impossible Foods’ burgher for instance uses a patent-protected lab-grown heme which makes its vegetarian burgher look, taste, and “bleed” like the real thing, and thereby differentiates itself from competing burghers.

This probably explains why despite having a centuries-old and well-established mock meat industry, Chinese still favor animal meat over plant-based options and animal meat’s popularity has only grown along with the country’s affluence-driven protein demand. China’s vegetarian population is just about 3.8% of the total population.

Bar chart showing vegetarians as a percentage of the population for selected countries. With vegetarians accounting for 29.8% of the country’s population, India’s vegetarian population had the highest percentage, followed by Indonesia where vegetarians accounted for 25.4% of the country’s population, and Pakistan at 16.8%. China’s vegetarian population made up just 3.8% of the country’ s total population.

And in absolute terms, China’s vegetarian population is dwarfed by Asian neighbors India, and Indonesia.

Bar chart showing the top five vegetarian markets in the world by vegetarian population. India was the biggest with a vegetarian population of 390 million followed by Indonesia with 66.9 million vegetarians, Nigeria with 58.1 million vegetarians, China with 51.9 million vegetarians, and Pakistan with 33.2 million vegetarians.

Nevertheless, these established players will seek to expand beyond their traditional target market of vegetarian Buddhists, which suggests competition will be fierce.

Overseas players will be up against local upstarts and established domestic players

Overseas companies Beyond Meat, JUST, and Impossible Foods will be up against local upstarts such as Zhenmeat (often touted as China’s answer to Beyond Meat), and OmniPork who are also beefing up their businesses to carve out their slice of the market.

While Beyond Meat and Impossible Foods’ product offering is heavily skewed towards the western palate with products such as burghers and sausages, China’s domestic players are heavily focused on Chinese taste buds with a focus on pork rather than beef (given that pork is China’s most popular meat) and with a product range covering local delicacies such as dumplings, mooncakes, and meatballs.

Zhenmeat for instance offers local delicacies such as plant-based meat mooncakes, and konjac-based crayfish. Hong Kong-based OmniPork offers a line of pork products tailored to Chinese taste buds such as pork buns and pork strips. Pork makes up 80% of China’s meat market, and China is the world’s largest pork consumer accounting for nearly half of global pork consumption.

Pie chart showing pork consumption by country in 2018. Accounting for 49.3% of global pork consumption, China was the world’s biggest pork consumer followed by the European Union with 19%, and the United States at 8.7%. Other countries accounted for the balance 23.1%. Data from the United States Department of Agriculture, Foreign Agricultural Service, and LD Investments analysis.

With domestic demand outstripping domestic supply, China has also held the position as the world’s largest pork importer for a few years, before being overtaken by Japan in 2018 but expected to regain the leading position in 2019 according to data from the United States Department of Agriculture (USDA) as the African Swine Fever (ASF) disease reduced China’s domestic pig herd by at least 40%, leading to a spike in imported pork from all China; China’s pork imports by dollar value jumped 117.4% in 2019.

The ASSF outbreak has also pushed up meat prices such as pork helping further push interest towards plant-based pork. The current conditions prevailing in China’s pork market suggest apt timing for OmniPork to capture its share of China’s alternative protein market.

Established domestic mock meat players to watch include Whole Perfect Food and Godly. Founded in 1993, Whole Perfect Food has been in the industry for decades selling faux meat to Chinese consumers shunning meat for religious reasons. Now they are looking to expand that market and the company could emerge as a strong contender armed with a product range of more than 300 vegetarian/plant-based meat and meat product alternatives including vegetarian versions of oyster sauce, tailored to the Chinese palate.

Founded in 1922, Godly 功德林is considered to be one of the pioneers of plant-based meats. And like Whole Perfect Food offers a plethora of faux meat products from mock meat chicken, duck, ham and traditional meats such as vegetarian dried intestines, to local delicacies such as mock meat buns, dumplings, traditional Chinese cakes, and mooncakes. Their official store on JD.com has over 200 reviews, most of which are positive.