Targeting China’s consumers
Among the indulgences corrupt Chinese officials were found to enjoy in the latest crackdown on corruption was drinking Korean milk every day, according to a report from China. Milk is processed differently in China. Korean milk is pasteurized at low heat to keep the beneficial bacteria alive and to maintain the vitamins and minerals our bodies need. It must be kept in a cooler, and its shelf life is restricted to a week. Most Chinese drink sterilized milk. Milk is pasteurized at temperatures above 135 degrees Celsius (275 degrees Fahrenheit), which destroys enzymes and can denature proteins. It can be kept at room temperature for more than six months. It is cheaper than fresh milk. But once one gets used to fresh milk, it’s not easy to go back.
There is much hype about our exports sagging because of reduced demand in China. China has been endeavoring to improve its industrial capacity to localize products instead of relying on imports. Under government patronage, the proportion of Chinese materials and parts was raised and imports scaled back. Korean exports, which primarily revolved around intermediary goods, were bound to reach a limit, and they probably have.
But consumer trends are changing fast in China. The income per capita of residents in Beijing, Shanghai and Tianjin already hovers above $20,000. They can afford to be picky in their grocery shopping. The changes are reflected in some of our export data. Shipments to China of consumer products like beauty and skin care and infant products is on an upward spiral. While China-bound exports by large companies fell 11 percent last year, those of smaller companies increased 3.2 percent. High-end consumer products have emerged as the savior of our trade with China.
Korea’s baby products industry has been in a slump for a very concrete reason: our own low birthrates. Producers of baby products either went bankrupt or were sold to Chinese companies. Boryung Medience, however, remained strong. The producer of baby skin care, nursing and hygiene products has seen its stock price jump tenfold thanks to its boom in trade with China. The Chinese are also suspicious of food processing and safety standards in local products, especially of what their children consume following a milk scandal in 2008 in which four infants died and 54,000 babies were treated for kidney damage. The milk and infant formula they ate was adulterated with melamine.
Since the scandal, Chinese mothers have shunned local baby formula, and imports now make up 70 percent of the market. Boryung, which established a reputation for safety and quality in its products under the B&B brand, became hugely popular among young mothers in China. B&B products are best-sellers in Chinese online shopping malls.
Korean-made sanitary pads have become popular in China for similar reasons. The sanitary napkin market is estimated at 10 trillion won ($8.4 billion) in China. Global brand P&G has been dominant in the high end of the market. Chinese girls and women became wary of locally produced sanitary pads or tampons after some were discovered in 2014 to contain whitening agents that can be harmful to the body. Crates of a local feminine hygiene brand bound for the United States were found to have over 35 times the proper levels of radioactivity when scanned at an airport in Lebanon last year.
Chinese women turned to Korean sanitary pads. The share price of Monalisa, a maker of sanitary napkins for women and baby products, has soared.
The success stories of Boryung and Monalisa indicate where our economy should be heading. China is retooling its economy to depend more on domestic demand and private consumption instead of exports and investment. Chinese consumers have become fastidious. We cannot compete with European companies in the luxury segment. But we have a chance at the lower end of the market. But will be challenging, as Chinese companies are quickly improving their standards.
The Beijing government could suddenly change its foreign exchange policy to curb overseas shopping. But China’s middle class is highly suspicious of anything made in China. They do not trust foreign brands if they are produced on the mainland. They check the labels to make sure things were made in Korea and ensure they’re not counterfeits.
Premium consumer brands are where Korean small and midsize companies can excel, as they can easily be bought through online shopping. The government should support the industry by establishing Korean distribution and logistics centers in large Chinese cities to sell Korean-made products ranging from sanitary goods to fresh food.
JoongAng Ilbo, March 14, Page 34
The author is a senior editorial writer of the JoongAng Ilbo.
by Lee Chul-ho