Appendix B LEADING TRADE PROSPECTS FOR U.S. BUSINESSES Best Commercial Prospects -- FY 1994-95 Rank Code Description Page 1 AIR Aircraft and Parts 1 2 ELP Electric Power System 2 3 CPT Computers and Peripherals 3 4 TEL Telecommunications Equipment 4 5 APS Automotive Parts and Service Equipment 5 6 AGC Agricultural Chemicals 6 7 ICH Industrial Chemicals 7 8 PMR Plastic Material and Resins 8 9 CHM Chemical Production Machinery 9 10 BLD Building Products 10 11 PVC Pumps, Valves, and Compressors 11 12 ELC Electronics Components 12 13 MTL Machine Tool Equipment 13 14 OGM Oil & Gas Field Machinery Service 14 15 MED Medical Equipment 15 16 LAB Laboratory Scientific Instruments 16 17 EIP Electronics Production and Test Equipment 17 18 MIN Mining Industry Equipment 18 19 CON Construction Equipment 19 20 PCI Process Controls - Industrial 20 21 INS Insurance 21 22 PUL Pulp\Paper & Paper Machinery 22 23 POL Pollution Control 23 24 CSF Computer Software 24 25 FPP Food Processing/Packaging 25 26 DRG Pharmaceutical 26 27 AGM Agricultural Machinery 27 28 TLS Telecommunication Services 28 Best Agricultural Prospects -- FY 1994-95 Rank PS&D Description Page 1 0410000 Wheat 29 2 2631000 Cotton 30 3 N/A Logs 31 4 2111000 Hides and Skins 32 5 0114000 Poultry Meat 33 6 0577907 Tree Nuts (Pistachios) 34 7 0575200 Dried Fruits (Raisins) 35 8 N/A Snack Foods 36 Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 1 B. Name of Sector: Aircraft and Parts C. ITA or PS&D Code: AIR 1993 1994 1995 D. Total Market Size 4,350 5,105 5,993 E. Total Local Production 2,600 3,120 3,744 F. Total Exports 550 660 792 G. Total Imports 2,300 2,645 3,041 H. Total Imports from U.S. 2,100 2,415 2,777 I. Exchange Rate 8.6 8.6 Comments: US aircraft are preferred by Chinese airlines, but the US faces competition from soft loans. Aircraft sales are also subject to political conditions, and bilateral tensions between China and European countries, or pressure from the governments of these countries, has been known to affect Chinese purchasing decisions. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 2 B. Name of Sector: Electric Power Systems C. ITA or PS&D Code: ELP 1993 1994 1995 D. Total Market Size 23,104 40,989 73,136 E. Total Local Production 22,320 40,176 72,316 F. Total Exports 1,806 2,167 2,600 G. Total Imports 2,592 2,980 3,420 H. Total Imports from U.S. 864 989 1,186 I. Exchange Rate 8.6 8.6 Comments: These numbers for total market size are deceptive. The vast bulk of the market is denominated in local currency. Imports are possible only for that portion of the market which is denominated in foreign exchange, about US$ 6-8 billion per year. U.S. exports are highly competitive. The major local competitors are Harbin Power Plant Equipment Corporation, the Dongfang Power Plant Equipment Corporation, and Shanghai United Electric Corporation China is planning to increase its power production capacity by 15,000 MW per year through the early 21st century. Imports of technology and equipment are actively being sought. Most promising subsectors include: - Steam/Gas turbine generators - Boilers - Control and Communication Equipment Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 3 B. Name of Sector: Computers and Peripherals C. ITA or PS&D Code: CPT 1993 1994 1995 D. Total Market Size 1,180 1,443 1,763 E. Total Local Production 212 254 305 F. Total Exports 22 24 27 G. Total Imports 990 1,213 1,485 H. Total Imports from U.S. 687 842 1,031 I. Exchange Rate 8.6 8.6 Comments: U.S. exports are highly competitive in both price and quality, and are preferred by Chinese end users. Major competitors in PC's are Taiwanese, while both Japanese and Taiwanese firms are important in peripherals. Local firms are quickly losing market share and are being forced to tie in with foreign firms to survive. Promising subsectors: -- PC's, -- Laptops, -- Workstations -- Peripherals. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 4 B. Name of Sector: Telecommunications Equipment C. ITA or PS&D Code: TEL 1993 1994 1995 D. Total Market Size 4,500 5,900 7,500 E. Total Local Production 1,350 1,800 2,400 F. Total Exports - 100 150 G. Total Imports 3,150 4,200 5,250 H. Total Imports from U.S. 560 700 875 I. Exchange Rate 8.6 8.6 Comments: This sector is of high priority and is heavily invested by the government. It is infected by politics because of the high value of equipment sales and because of the ministerial level competition with hte Ministry of Posts and Telecommunications for industry control. There is significant use of loans from sources such as Japan's OECF, the IMF, the ADB, and the World Bank. Technology transfer is increasingly being required for the completion of sales contracts. Joint ventures are becoming more common in this sector. Many Chinese firms are exploring CATV markets, especially emphasizing future integration of CATV on ISDN networks. Best subsector prospects within this subsector include: -- Central Office Switches -- Private Branch Exchange (PBX) -- Paging Networks -- 10 million subscribers -- Cellular Networks -- 1.2 million subscribers -- Network Computer equipment -- CATV equipment Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 5 B. Name of Sector: Automobile, Parts and Service Equipment C. ITA or PS&D Code: APS 1993 1994 1995 D. Total Market Size 9,300 10,170 11,080 E. Total Local Production 5,000 5,500 6,000 F. Total Exports 1,200 1,380 1,587 G. Total Imports 5,500 6,050 6,655 H. Total Imports from U.S. 670 737 810 I. Exchange Rate 8.6 8.6 Comments: Competition in the automotive market will be fierce in 1994-1995 against Japanese, German, and Korean firms. Parts and after-sales service are the most promising subsectors. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 6 B. Name of Sector: Agricultural Chemicals C. ITA or PS&D Code: AGC 1993 1994 1995 D. Total Market Size 7,717 8,180 8,670 E. Total Local Production 4,920 5,526 6,223 F. Total Exports 121 136 153 G. Total Imports 2,918 2,790 2,600 H. Total Imports from U.S. 762 754 748 I. Exchange Rate 8.6 8.6 Comments: Sales of pirated versions of U.S. products is a major barrier to growth. Most promising subsectors within the sector: -- High grade (urea) nitrogen fertilizer -- Potassium and phosphate fertilizer -- Selective pesticides Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 7 B. Name of Sector: Industrial Chemicals C. ITA or PS&D Code: ICH 1993 1994 1995 D. Total Market Size 13,200 14,520 16,117 E. Total Local Production 11,791 12,832 14,343 F. Total Exports 1,533 1,762 2,026 G. Total Imports 2,942 3,450 3,800 H. Total Imports from U.S. 432 470 510 I. Exchange Rate 8.6 8.6 Comments: Drive for self-sufficiency in basic intermediates and coolness towards direct foreign investment have meant declining imports and limited investment opportunity Primary opportunity is in Process Technology Licensing, especially in petrochemicals and plant construction Most promising subsectors: - Specialty, fine, proprietary - Cigarette filter tow Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 8 B. Name of Sector: Plastic Material and Resins C. ITA or PS&D Code: PMR 1993 1994 1995 D. Total Market Size 5,500 5,650 5,700 E. Total Local Production 1,607 1,768 1,944 F. Total Exports 196 202 208 G. Total Imports 4,089 4,084 3,964 H. Total Imports from U.S. 451 433 424 I. Exchange Rate 8.6 8.6 Comments: Large investment in petrochemical intermediates and in polymer production reflect drive toward self sufficiency. The industry is heavily protected. Most imports in 1992 may come from low cost Korean suppliers. Best U.S. prospects lie in high end technology sales. Most promising subsectors: - Engineered plastics/composites, consumer and industrial goods - Very specialized plastics Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 9 B. Name of Sector: Chemical Production Machinery C. ITA or PS&D Code: CHM 1993 1994 1995 D. Total Market Size 3,079 3,417 3,783 E. Total Local Production 1,561 1,766 1,963 F. Total Exports 22 19 17 G. Total Imports 1,540 1,670 1,837 H. Total Imports from U.S. 330 388 419 I. Exchange Rate 8.6 8.6 Comments: China is pushing for self-sufficiency in chemical intermediates, especially petrochemicals. US strength in this market are in process technology and engineering. China's emphasis on high grade and compound fertilizers as well as on fine and specialty chemicals also favors US technical strengths. Most promising subsectors include: - Process technology (petrochemical & other) - Petrochemical plants Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 10 B. Name of Sector: Building Products C. ITA or PS&D Code: BLD 1993 1994 1995 D. Total Market Size 8,524 10,210 12,541 E. Total Local Production 10,080 12,000 14,400 F. Total Exports 3,300 3,795 4,364 G. Total Imports 1,744 2,005 2,505 H. Total Imports from U.S. 295 339 389 I. Exchange Rate 8.6 8.6 Comments: US exports are very competitive. Major competitors are Japanese, German, and Korean. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 11 B. Name of Sector: Pumps, Valves and Compressors C. ITA or PS&D Code: PVC 1993 1994 1995 D. Total Market Size E. Total Local Production F. Total Exports 796 915 1,052 G. Total Imports 1,300 1,495 1,719 H. Total Imports from U.S. 260 299 343 I. Exchange Rate 8.6 8.6 Comments: US exports are competitive in the pump and valve market. Foreign competitors are from Sweden, Germany and Japan. Italy, Japan, Germany and Korea are the major compressor exporters to China. The U.S. holds virtually no share in this sector. China's Eighth "Five-Year Plan" emphasizes energy and chemical production. Promising subsectors include: - Chemical Plants - Petrochemical Plants - Power Plants - Oil and Gas Refineries Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 12 B. Name of Sector: Electronic Components C. ITA or PS&D Code: ELC 1993 1994 1995 D. Total Market Size 1,600 1,840 2,117 E. Total Local Production 1,350 1,548 1,780 F. Total Exports 300 340 390 G. Total Imports 550 632 727 H. Total Imports from U.S. 280 320 370 I. Exchange Rate 8.6 8.6 Comments: U.S. exports are highly competitive in price and quality and are preferred by Chinese end users. Major competitors in this market are Japanese, Germany and other major players in telecommunications field. Local firms are trying to reclaim high-tech market share by setting up more joint ventures. Promising subsectors: - Microprocessors (General purpose and function specific), - Microcontrollers (General purpose and function specific), - Other high-end semiconductors (memory, advanced logic, programmable logic, and advanced linear products). Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 13 B. Name of Sector: Machine Tools/Metalworking Equipment C. ITA or PS&D Code: MTL 1993 1994 1995 D. Total Market Size 2,590 3,560 4,214 E. Total Local Production 900 1,300 1,550 F. Total Exports 210 240 280 G. Total Imports 1,900 2,500 2,944 H. Total Imports from U.S. 210 270 345 I. Exchange Rate 8.6 8.6 Comments: U.S. products are considered to be of consistently high quality, but most analysts admit privately that German, Swiss, and Japanese high end products are just as good. Taiwan products at the lower end are regarded favorably too. U.S. products have suffered from lack of exposure in the market. In contrast Taiwanese, German, Japanese, and Italian firms have actively marketed their products. German and Italian training facilities have long been established in Tianjin and Beijing respectively. Taiwanese firms reportedly won the largest foreign market share because of extensive personal connections in the mainland. Major competitors in this market are Taiwanese (22%), Japanese (21.5), and Germany (18%). Mainland and Taiwanese products are mostly cheap, low-end products and do not compete with high-technology tools produced by U.S. and other foreign exporters. Many Chinese machine tool factories were originally designed through Soviet, Czechoslovakian, or Bulgarian partnerships. These now wholly Chinese owned factories are looking to improve their very low levels of technology through foreign cooperation. U.S. firms are hindered by the unavailability of soft loans that are commonly provided to other foreign firms. U.S. products are also generally more expensive that Japanese goods of similar quality, and US export license review seems to be more stringent and lengthy than those of other nations. Best subsector prospects within this sector include Automotive, aircraft and aerospace, natural resource extraction and exploitation, communications, and electronics production. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 14 B. Name of Sector: Oil & Gas Field Machinery Service C. ITA or PS&D Code: OGM 1993 1994 1995 D. Total Market Size 5,500 6,050 6,655 E. Total Local Production 5,200 5,700 6,270 F. Total Exports 450 495 540 G. Total Imports 750 820 990 H. Total Imports form U.S. 250 275 305 I. Exchange Rate 8.6 8.6 Comments: Offshore and Tarim Basin discoveries will bring future investment in production and pipeline facilities. Energy is among the highest development priorities and US technology and equipment are widely admired. The opening of the East China Sea and onshore areas to foreign exploration and production represents and expanding market. Also, some evidence shows that foreign risk-sharing investment in northern and western on-shore exploration may be expanded. Most promising subsectors within the sector: -- Onshore platform equipment and services -- Offshore production equipment and services -- Major pipeling projects -- Geophysical instruments and secondary recovery equipment Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 15 B. Name of Sector: Medical Equipment C. ITA or PS&D Code: MED 1993 1994 1995 D. Total Market Size 730 850 1,000 E. Total Local Production 340 350 370 F. Total Exports 10 0 0 G. Total Imports 400 500 630 H. Total Imports from U.S. 164 185 230 I. Exchange Rate 8.6 8.6 Comments: US Exports are very competitive. In the area of high- tech equipment, the largest competitors are from Japan, Germany and other European companies; in lower-tech subsectors, competition in strongest from Taiwanese and local producers. Higher quotas allowed for high level equipment, and better financing now provided to hospitals. Most promising subsectors: - MRI, Cat Scanners, - Ultrasonic Devices, - Monitoring Equipment. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 16 B. Name of Sector: Laboratory Scientific Equipment C. ITA or PS&D Code: LAB 1993 1994 1995 D. Total Market Size 450 550 660 E. Total Local Production 200 250 300 F. Total Exports - - - G. Total Imports 250 300 360 H. Total Imports from U.S. 150 180 207 I. Exchange Rate 8.6 8.6 Comments: Major foreign competitors are Advantest and Anritsu (Japan), R&S, Marconi, and Siemens (Germany). In many cases Japanese equipment, technically comparable to U.S. products, is significantly cheaper in China. There are many small Chinese manufacturers who produce low-end goods. Many of the factories are located in Shenzhen and other parts of Guangdong. U.S. products pose minor difficulties for end-users because of different electrical standards in China. Japanese and German products, in comparison, are not hindered by conversion difficulties. Best subsector prospects: - Electronics Industry - Medical - Analytical Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 17 B. Name of Sector: Electronics Production and Test Equipment C. ITA or PS&D Code: EIP 1993 1994 1995 D. Total Market Size 550 630 725 E. Total Local Production 190 215 245 F. Total Exports - 9 10 G. Total Imports 360 424 490 H. Total Imports from U.S. 150 173 200 I. Exchange Rate 8.6 8.6 Comments: U.S. high-end products are very competitive in the market. Major U.S. foreign competitors are: NEC, Thompson, Philips, Siemens, and the government owned Ministry of Electronics. Chinese companies are focusing efforts on technology acquisition. Some of the technology transfers are occurring through joint ventures, although some technology has been illegally copied from foreign companies. Moneys allocated by the central government in this industry area is given in priority order to the military, government owned industry, and then to private industries. Best subsector prospects within this sector include: - Semiconductor manufacturing - Semiconductor testing - Automotive equipment - Aviation - Telecommunications manufacturing Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 18 B. Name of Sector: Mining Industry Equipment C. ITA or PS&D Code: MIN 1993 1994 1995 D. Total Market Size 1,362 1,867 2,598 E. Total Local Production 1,120 1,344 1,613 F. Total Exports 423 465 511 G. Total Imports 665 997 1,496 H. Total Imports from U.S. 136 156 180 I. Exchange Rate 8.6 8.6 Comments: The US is known for the high quality of its equipment and services. U.S. vendors are developing greater familiarity with this market There is a strong emphasis by the Chinese government on mining, especially for coal, in Eighth Five Year Plan Demand for more energy in China translates into greater demand for coal and the equipment to mine it Most promising subsectors within the sector: -- Open-pit mining equipment (trucks, power shovels, etc.) -- Boring and sinking machinery -- Parts for boring and sinking machinery -- Arts for derricks Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 19 B. Name of Sector: Construction Equipment C. ITA or PS&D Code: CON 1993 1994 1995 D. Total Market Size 1,419 1,994 2,824 E. Total Local Production 610 732 880 F. Total Exports 121 133 146 G. Total Imports 930 1,395 2,090 H. Total Imports from U.S. 84 94 103 I. Exchange Rate 8.6 8.6 Comments: There is a strong emphasis on construction and large scale civil engineering projects in the current five year plan. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 20 B. Name of Sector: Process Controls C. ITA or PS&D Code: PCI 1993 1994 1995 D. Total Market Size 1,445 1,332 2,305 E. Total Local Production 1,323 1,190 2,142 F. Total Exports 101 116 133 G. Total Imports 223 258 296 H. Total Imports from U.S. 56 63 72 I. Exchange Rate 8.6 8.6 Comments: US exports are very competitive. Fifteen per cent of instrument sales are transferred as part of finished products/structures like power plant, chemical plant, etc. China's Eighth "Five-Year Plan" emphasizes energy and chemical production. Best prospects in this subsector include: - Chemical Plants - Petrochemical Plants - Power Plants - Oil and Gas Refineries Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 21 B. Name of Sector: Insurance C. ITA or PS&D Code: INS 1993 1994 1995 D. Total Sales 9,107 11,839 15,391 E. Total Local Sales 8,867 11,539 15,016 F. Sales by Local Firms - - - G. Sales by Foreign Firms* 240 300 375 H. Sales by US-Owned Firms 48 60 75 I. Exchange Rate 8.6 8.6 * Note: Consists of local premiums by foreign insurance company branch plus re-insurance with foreign companies. Comments: China is gradually seeking to open the insurance sector to foreign participation. At present, only two foreign insurance companies, American International Assurance (American International Group) and Tokyo Marine, have been granted licenses to sell insurance, and these are restricted to the Shanghai area. While the market remains substantially closed, many U.S. insurance companies have established representative offices in 1994, and several are pressing hard to be allowed to open branch offices in the near future. Insurance is high on the list of service sectors the U.S. government is actively seeking to open in China. U.S. insurance companies have a high reputation, but face strong competition from Japanese, European, and Canadian competitors. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 22 B. Name of Sector: Pulp\Paper & Paper Machinery C. ITA or PS&D Code: PUL 1993 1994 1995 D. Total Market Size 4,857 5,299 5,837 E. Total Local Production 5,200 5,700 6,300 F. Total Exports 670 737 810 G. Total Imports 327 336 347 H. Total Imports from U.S. 58 59 60 I. Exchange Rate 8.6 8.6 Comments: Companies from Canada, Finland, and Northern Europe hold the largest foreign market share because their governments provide loans for China. US exports prices are undercut by competitors. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 23 B. Name of Sector: Pollution Control C. ITA or PS&D Code: POL 1993 1994 1995 D. Total Market Size 508 577 658 E. Total Local Production 280 336 403 F. Total Exports 2 2.1 2.2 G. Total Imports 230 243 257 H. Total Imports from U.S. 47 50 53 I. Exchange Rate 8.6 8.6 Comments: China has a major problem with acid rain. China has become increasingly concerned with the pollution problem. one of the world's largest air and water pollutors, China has, following the Rio Convention in 1993, embarked on a pollution control program called Agenda 21. This will generate imports. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 24 B. Name of Sector: Computer Software C. ITA or PS&D Code: CSF 1993 1994 1995 D. Total Market Size 340 446 580 E. Total Local Production 330 424 551 F. Total Exports 18 23 30 G. Total Imports 28 45 59 H. Total Imports from U.S. 27 43 56 I. Exchange Rate 8.6 8.6 Comments: Piracy of software remains a serious problem. Recently, PRC authorities have begun to enforce software protection laws, but the actual impact seems to have been minimal. U.S. exports are highly competitive. Major competitors are the Germans and Japanese in manufacturing software and the French in telecommunications software. Statistics are difficult because of piracy. Data from the Business Software Alliance, published in the May 1994 China Economic Review reported that over 90% of available software is pirated, available at about RMB 15 per disk (US $1.70). Analysts agree that one important key to the China market is the ability to manufacture a Chinese version your program. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 25 B. Name of Sector: Food Processing/Packaging C. ITA or PS&D Code: FPP 1993 1994 1995 D. Total Market Size 1,419 1,619 1,851 E. Total Local Production 867 953 1,048 F. Total Exports 39 42.9 47.1 G. Total Imports 591 709 850 H. Total Imports from U.S. 41 45 50 I. Exchange Rate 8.6 8.6 Comments: US exports are moderately competitive with those from Japan, Germany, and Italy. The most promising subsector is food packaging machinery. Parts and after-sales service markets also offer potential for growth. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 26 B. Name of Sector: Pharmaceutical C. ITA or PS&D Code: DRG 1993 1994 1995 D. Total Market Size 6,640 8,100 8,250 E. Total Local Production 7,000 8,500 9,000 F. Total Exports 860 980 1,180 G. Total Imports 500 580 700 H. Total Imports from U.S. 28 32 40 I. Exchange Rate 8.6 8.6 Comments: US Exports are very competitive. IPR problems remain. Most promising subsectors: - Cardiovascular Drugs, Drugs for Respiratory - Diseases, Cancer drugs Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 27 B. Name of Sector: Agricultural Machinery C. ITA or PS&D Code: AGM 1993 1994 1995 D. Total Market Size 8,999 9,854 10,791 E. Total Local Production 7,800 8,580 9,438 F. Total Exports 272 285 299 G. Total Imports 1,471 1,559 1,652 H. Total Imports from U.S. 30 31.8 33.7 I. Exchange Rate 8.6 8.6 Comments: US exports are very competitive. Major competition comes from Japan because of the soft loans provided by the Japanese Government. Small-size tractors are the most promising sales prospects. Appendix B BEST PROSPECT SECTORS FOR U.S. COMMERCIAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) A. Rank: 28 B. Name of Sector: Telecommunication Services C. ITA or PS&D Code: TLS 1993 1994 1995 D. Total Sales 4,137 6,619 10,590 E. Total Local Sales 4,137 6,619 - F. Sales by Local Firms - - - G. Sales by Foreign Firms - - - H. Sales by US-Owned Firms - - - I. Exchange Rate 8.6 8.6 Comments: Current China regulations expressly forbid foreign service providers to operate inside the country. Some foreign companies, however, have found ways to circumvent these regulations. Several existing domestic networks are capable of linking with foreign networks. Some of these projects necessarily need foreign technology and foreign service connections. Foreign firms have been allowed to cooperatively provide some degree of service for: - Long distance voice communications terminating outside of China - Paging networks - Cellular networks - Data services where host computer is located outside of China Best prospects for entering the telecommunications service industry in China are: - Technology transfer sales leading to joint venture operation of systems. - Paging systems (cooperating with Chinese partner at provincial and local levels) - Cellular systems (also on provincial/local levels) - Hong Kong based operations, which will become mainland based operations in 1997. - CATV (long term prospect) Appendix B BEST PROSPECT SECTORS FOR U.S. AGRICULTURAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) Agriculture: Wheat PS&D: 0410000 1993 1994 1995 Total Market Size 109.0 111.0 110.0 Total Local Production 101.6 105.0 98.0 Total Exports 0.0 0.0 0.0 Total Imports 6.6 5.0 10.0 Total Imports from U.S. 2.3 2.0 4.0 Unit: Million Metric tons Comments: China remains a major importer of U.S. wheat, despite the recent decline in purchases. The underlying demand factors, i.e.: limited land, increasing population, wider variety of wheat, and basic food products, indicate that China will continue to be a major consumer and importer of wheat. Imports continue to be controlled by the central government and purchases are handled by a grain monopoly. Note: the above table does not account for wheat held as stocks. Appendix B BEST PROSPECT SECTORS FOR U.S. AGRICULTURAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) Agriculture: Cotton PS&D Code: 2631000 1993 1994 1995 Total Market Size 4,684 4,500 4,700 Total Local Production 4,508 3,500 4,200 Total Exports 140 140 140 Total Imports 53 250 300 Total Imports from U.S. 31 200 250 Unit: 1,000 metric tons Comments: China's fast growing domestic and export demand for cotton fabric has finally pushed China into a perpetual deficit situation. Currently, the expansion of the textile industry is constrained by lack of resources. Chinese cotton production is limited by insect infestations, and is highly susceptible to weather anomalies. Therefore, China will continue to be a buyer of cotton for the foreseeable future. Note: the above table does not account for cotton held as stocks. Appendix B BEST PROSPECT SECTORS FOR U.S. AGRICULTURAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) Agriculture: Logs PS&D Code: N/A 1993 1994 1995 Total Market Size 55,050 57,000 58,000 Total Local Production 52,000 53,000 53,500 Total Exports 100 100 100 Total Imports 3,150 3,900 4,400 Total Imports from U.S. 1,316 2,000 2,200 Unit: 1,000 metric tons Comments: China is perpetually in short supply of wood. This shortage is becoming especially acute in light of China's unprecedented building boom. Wood is required for use in both housing and infrastructure development.. Therefore, exports of logs to China will always be a major opportunity for the United States. U.S. softwood logs have come under heavy competition from cheaper tropical hardwood from south-east Asia. However, that trend is now reversing itself as many south-east Asia countries recognize the value of preserving their rain forests, and China must once again look north for wood supplies. Recent competition is coming from Russia, But fortunately Chinese buyers are familiar with U.S. wood, and are willing to pay a premium for it due to its superior quality. In addition to logs, the market for hardwoods and panel products is also bright in China, but so far these market are not as well developed as the market for logs. Appendix B BEST PROSPECT SECTORS FOR U.S. AGRICULTURAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) Agriculture: Hides and Skins PS&D Code: 2111000 1993 1994 1995 Total Market Size n/a n/a n/a Total Local Production n/a n/a n/a Total Exports 1,396 10,000 12,000 Total Imports 4,645 20,000 25,000 Total Imports from U.S. 1,549 5,000 10,000 Unit: 1,000 pieces Comments: There are no reliable statistics on China's production and thus total market size of cattle hides and skins. Unofficial estimates indicate that about 10 million cattle hides are produced each year. The rapid growth of China's leather manufacturing industry, fueled largely by investors from Taiwan, Hong Kong, and more recently, South Korea, are generating the demand for raw hides and skins. While U.S. product quality is highly regarded, Australia is an effective price competitor. The rapid increase in both exports and imports in 1994 and 1995 is reflected in first quarter trade data. U.S. trade data also shows U.S. exports in the first two months of 1994 at an eight-fold increase over the same period in 1993. Appendix B BEST PROSPECT SECTORS FOR U.S. AGRICULTURAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) Agriculture: Poultry Meat PS&D Code: 0114000 1993 1994 1995 Total Market Size 5,224 6,005 6,705 Total Local Production 5,300 6,100 6,800 Total Exports 175 220 240 Total Imports 100 125 145 Total Imports from U.S. 69 87 101 Unit: 1,000 metric tons Comments: China is a net exporter of poultry meat, but because its export and import markets are disjointed, imports are expected to exhibit double-digit growth through the end of the century. Exports are dominated by live bird exports to Hong Kong and chicken pieces to Japan. The import sector consists primarily of 'moving parts', i.e.: paws, wings, wing tips, and legs. Rapid rise of the fast food industry in China, both domestic and foreign, bodes will for continued strong demand for imported poultry meat. Appendix B BEST PROSPECT SECTORS FOR U.S. AGRICULTURAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) Agriculture: Tree Nuts (Pistachios) PS&D Code: 0577907 1993 1994 1995 Total Market Size 3,300 4,200 5,000 Total Local Production none none none Total Exports 3,661 3,800 4,000 Total Imports 6,899 8,000 9,000 Total Imports from U.S. 6,270 7,300 8,200 Comments: Pistachio imports grew by 28 percent in 1993. First quarter imports in 1994 suggest some slackening of growth. Snack sized packaging with U.S. logos are proving to be very popular, although use of lower quality non-U.S. origin nuts in some cases may retard growth. U.S. almonds are also popular, with total trade at about one-tenth the level of pistachios. Most local 'almonds' are actually apricot kernels. Pistachio exports are re-exports following splitting of shells or other processing. An import duty of 50 percent on pistachios continues to act as a constraint on increased imports. Appendix B BEST PROSPECT SECTORS FOR U.S. AGRICULTURAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) Agriculture: Dried Fruits (Raisins) PS&D Code: 0575200 1993 1994 1995 Total Market Size n/a n/a n/a Total Local Production n/a n/a n/a Total Exports 1,749 2,000 2,400 Total Imports 2,820 3,500 4,000 Total Imports from U.S. 1,330 1,800 2,500 Unit; Metric tons Comments: Raisin data is presented here as representative of the dried fruit area. Although there are no official statistics on China's raisin production, domestic production is likely to exceed 100,000 metric tons (total grape production in 1993 was 1.36 million metric tons). Imports in 1993 surged by 49 percent, with U.S. market share increasing from 28 percent in 1992 to 47 percent. Other dried fruits, especially prunes, are showing similar growth. Market research indicates that California raisins are widely recognized for their high quality an value. Appendix B BEST PROSPECT SECTORS FOR U.S. AGRICULTURAL EXPORTERS TO CHINA (US$ millions, unless otherwise noted) Agriculture: Snack Foods PS&D Code: 1993 1994 1995 Total Market Size n/a n/a n/a Total Local Production n/a n/a n/a Total Exports n/a n/a n/a Total Imports n/a n/a n/a Total Imports from U.S. $2,956 $4,000 $6,000 Unit: $1,000 Comments: Reliable statistics are not yet available on China's consumption, production, or trade of snack foods, but U.S. trade data clearly reflects the increasing demand for this high-value product. In the 1990-1993 period, U.S. exports of snack foods to China increased at an annual rate of 160 percent. Rising living standards and income, when combined with consumers interest in convenience and quality, are generating the demand for imported snack foods. Hong Kong remains an important conduit for these products, and it is likely that the above figures underestimate the actual sales of U.S. snack foods in China.