In the past year a series of food safety problems, including a number of deaths related to unsafe or 'fake' food, have cut many Chinese consumers' confidence in the safety of the food supply.
As a result, imported products and those branded products produced by foreign joint ventures tend to have a better reputation for higher quality and food safety, report economists at the US' Foreign Agricultural Service (FAS).
"The food industry is adjusting to market forces and is getting ready for a higher level of development. Improvement of the production facilities will create demand for imported better quality food ingredients and raw materials," said the FAS.
Driving the growth are the marked opportunities in the processing industry, with the economists highlighting that currently only about 25 per cent of Chinese food production is processed, compared to about 80 per cent in developed countries.
"Many foreign companies are taking advantage of the increased demand for high quality processed food products," said the economists.
In the past 50 years, China has transformed itself into one of the world's fastest growing economies to become the 10th largest trading nation in the world with a 2 per cent slice of world trade. And in parallel, higher disposable incomes have meant a stronger demand for high quality processed foods by Chinese consumers.
"To meet this demand China's food processing industry continues to grow at double digit rates in excess of 10 per cent," reports the FAS.
"To become more competitive, food producers and processors should try to improve the quality of their food products, adjust the tastes of their products to meet the preferences of Chinese consumers," advised the economists.
But an obstacle to growth is the largely unsophisticated food industry sector. Currently the industry is being held back and cannot advance further until all of its sub-sectors reach a more sophisticated level of manufacturing and produce products of higher quality.
"Only then will it be able to enter the worldwide market as a key player," said the FAS.
Total retail sales of food, beverage and catering - valued at 629.96 RMB (€61bn) in 2002 - at 16.1 per cent between 2001 and 2002 is almost double that of the annual growth rate of retail sales of all consumer goods during the same period which came in at 8.8 per cent.
Among raw materials and food ingredients, imported food products account for an increasingly large percentage of ingredients for the food processing industry. Products with the most potential include tree nuts, dried fruits, bakery ingredients, French fries, sweetcorn, juices and concentrates, infant formula milk powder and confectionery.
"As the urban population demands higher quality and more variety of products, ingredients that enhance nutrition and appearance of products will be in great demand," reports the FAS.
According to the report, with increasing incomes and higher quality food products, the use of imported wheat will continue to grow. People living in cities tend to buy bakery products with known brand names out of concern for food safety.
China, a key importer of global wheat and contributing to a drawdown in global stocks, imported some 424,180 million tons of wheat in 2003, in fact a drop on the year before of 604,570 million tons. The country is producing more wheat and in 2003 exported 2.23 million tons, a significant rise from 687,620 in 2002.
The FAS reports that most of the imported wheat is used for blending with other varieties of local wheat for specific gluten and protein content. For example, higher quality bread flour will use imported hard wheat with a protein content of around 13 to 14.5 per cent, while biscuit flour may use imported soft wheat flour with protein content of about 7 to 9 per cent.
"With increasing demand from consumers, we expect wheat imports to continue growing in the coming years," said the FAS.
As a boost to quality and safety, the FAS said that the central government is implementing the Fangxinshipin (safety guaranteed foods) policy, under which only foods from designated processing facilities are allowed for retail sales.