The specific nature of Chinese market - Lydia Liu
A conversation about the Chinese tea market, the differences in consuming tea between China and the West, and the actions that the government is taking to boost the industry with Lydia Liu, renown tea buyer from China.
China has historically been a large producer and consumer of tea. How would you describe the state of the tea industry at the moment and has it yet felt the effects of the global economic slowdown?
China is indeed a large tea producer and consumer of tea. Chinese teas are famous in China and overseas. There are many Chinese people like to spend money on high quality traditional Chinese teas such as Ti Kuan Yin, Mao Feng, Long Jing, Jasmime tea and Pu Erh tea. Higher grade and early spring teas can be sold at a very expensive level which is double or treble that of a foreign price. Most Chinese people enjoy the pleasant taste of teas with beautiful tea sets. People also like to use nicely packaged teas as presents during festivals. So tea is very important for Chinese daily life. As a result, the production is large to meet the huge demand of tea drinkers that has been around for so many years.
At the moment due to the economic slowdown, Chinese market is quiet. There are less people that go out to eat and consume. So the tea market is difficult to maintian. Many people have scaled back on the quality of tea they drink. Some have abandoned tea entirely and drink water instead. On the other hand, lots of people in China have lost jobs and new graduates cannot find work as well, which makes the situation worse. So generally speaking, Chinese tea has been effected by the present economic slowdown.
The Chinese market is hard to penetrate for foreign tea companies. What differences exist in local preferences of tea compared to the Western world and what are some of the major trends in the market right now?
1.Chinese people prefer traditional Chinese teas such as Ti Kuan Yin, early spring Long Jing and green tea, jasmine tea etc. All these teas are natural teas without any added flavor. Some good Ti Kuan Yin can be brewed for more than ten rounds. These teas are popular everywhere in China. Western people also like certain high quality traditional Chinese teas such as Ti Kuan Yin and Long Lung, but they pay more attention to the appearance while Chinese like the endosarc.
2.Chinese people do not like white tea. As they think it is too light. Western people like white tea with beautiful appearance such as Flowery Pekoe and Pai Mu Tan.
3. Chinese people do not like flavored teas, while the western people like different kinds of flavor teas with various essences and flower notes.
4.Chinese people seldom drink tea from teabags, as local tea lovers use tea sets to enjoy tea, whereas people in the West prefer the convenience of teabags.
5.Chinese people sedlom drink black teas while the Westerners love different kinds of black tea with milk.
Due to the aforementioned differences in tea taste, I think this is why foreign teas have found it difficult to come to China. At the moment only Lipton brand is widely present Chinese supermarkets, as they have spent a lot of money on advertisement and shelf space in supermarkets.
The trend driving the tea market now is the Chinese young people, who are ready to accept foreign teas such as flowery teas, black teas and bottled teas. Maybe after some time these teas will become popular in China, given that the economic situation improves as well. But I still believe that most of Chinese people will keep on drinking traditional Chinese teas such as Ti Kuan Yin and Long Jing. Unlike Western people, Chinese are rather conservative and traditional.
Consumers seem to be tightening their belts in China as well. How has this affected tea producers across the country and how do they cope with a falling demand of their produce? Will the negative influence be felt more in domestic demand or on exports?
This situation has affected the tea producers. In early April this year I went to visit some tea gardens and factories. During my trip, we heard lots of stories about factories being closed or in bankruptcy. In Zhejiang, I also saw a famous factory which was empty, with many morden machines not operating any more. April is normally the busiest month to produce teas. I was so surprised to see the effects of the recession in tea factory. I don't think many factories have plans to face the falling demand for tea. Some are just waiting to see if things can be changed or if the government can give some assistance. Some have to switch the tea factory to other uses or rent the sapce out for others. Some cannot afford the cost and have to close.
Exports will be more hurt than the domestic market. Of course there are many reasons. First, Chinese import and export regulations ase always very strict and complicated. Only the import and export companies can import and export goods. An local foreign company office cannot import or export - they must trade through another company. Also, the procedure of importing and exporting is very complicated. Secondly, exported teas require to be inspected by local authorities in the tea factory. The factory must be in line with the strict rules. New guidelines were introduced last year for producing factories, so many had to shut their doors because they couldn't comply with them. This means that not every tea factory can apply for inspection for export. Finally, in the past two years, the US dollar exchange rate has been low compared to other foreign currencies, which made the cost in Chinese Yuan high and foreign payment low.
You mention Lipton as the only major Western player to have penetrated the Chinese market. What are the some of the local brands that are encountering success in the marketplace and what distinguishes them from the rest?
Lipton has penetrated the Chinese market successfully after many years of hard promotion and advertising activity. In China the most famours brand is Tian Fu. They have opened multiple tea shops across the country and sell teas only through the shops. In fact, Chinese tea names are more popular than brand names. For example, if a person wants to buy a Ti Kuan Yin, he won't care about the brand, but he will try to taste the teas before he buys. This is the most popular way selling tea in China
The government plays a central role in defining business policies of many Chinese industries. Is it aware of the current malaise in the tea industry and what plans does it have to support tea producers and businesses during this difficult period?
The government has been aware, these past two years, of big drop in exports and of the recent recession. They are trying to implement many policies recently, with the aim of encouraging consumption inside China. If the percentage of consumption becomes greater than the savings rate, the economy will recover. So many policies such as reducing the interest rate and stabilizing the stock market are based on this, because China doesn't rely on exports to bolster its economy. From this point of view, it is also something that can impact the tea industry, even though there is no tea-specific policy, as many industries are facing the same problems as tea growers. So at the moment it is not simple to ease the difficult situation of tea producers. It will take time to recover.
As a tea buyer, you have the unique advantage of being in touch with many producers and brokers across the country. How would you describe the current sentiment in the marketplace and what do insiders expect for the year ahead?
I had many chances to talk to tea producers and brokers. The business is now not doing well, which is quite upsetting to them. The tea markets are very quiet. Many people lost jobs or receive no salary due to a reduction in business and income. Most of them are waiting. I hope next year will be better. The future is difficult to predict, but the government is doing the best it can to stimulate the economy. So I think maybe in middle of this year things will be recovered and start improving. We should not be too gloomy.
Lydia is a tea lover from China and has dealt with Chinese tea exports for 15 years. She has a thorough knowledge for various kinds of Chinese teas and her favourite tea is Chinese Lung Jing.