Pet project in China's dog meal market

Pets used to be kept by retired men, not children

China implements new globally agreed trade policies from 1 January 2002. But will they open China to smaller firms, helping to loosen the grip of giants like Motorola, Volkswagen and Nestle? In the last of three reports, BBC News Online's Mary Hennock explores an unusual luxury market.

As China becomes wealthier, pets are getting bigger.

Dogs were banned from cities in the Maoist era as wasteful but they are now increasingly parading the streets as pets.

Tiny lap dogs which used to peep from inside the coats of the nouveau riche are being replaced by bigger, more brazen breeds such as labradors, dalmatians and sheep dogs.

But prices have plunged more than 90% in a decade as dogs are no longer the playthings of the super-wealthy but of a growing middle-class too.

Top pedigree animals that cost as much as $3,500 in the early 1990s can now be bought for as little as $200.

Dogged approach

Giant US food group Mars dominates China's pet food market with its Pedigree Chum and Whiskas brands.

Eye-catching bilingual packaging

However, a small London-based firm has gone into partnership with Tongwei Group, one of China's biggest private companies, to develop a local challenger.

After an initial investment of $5m, packs of Care - or 'good owner' in Chinese - began rolling off Tongwei's production lines last summer.

Elm Lane International Holdings has a 25% stake in a joint venture with Tongwei, an animal feed firm started by a former peasant, Liu Hanyuan.

Care pet meal is being marketed in Chengdu, the capital of the western province of Sichuan and one of China's most dog-loving cities, according to Alice Childs, co-owner of ELI Holdings.

New wealth

ELI Holdings, run by husband and wife team Alice Childs and Wang Jian, has made something of a speciality of introducing new styles in leisure to West China.

It acts as an agent for UK brewers Scottish & Newcastle, which set up the first pub in Chengdu to sell Newcastle Brown ale.

The bureaucratic processes may be clearer but there's more of them - and there's no way of getting around them

Alice Childs

ELI's partner is a text-book example of the wealth creation processes that have produced China's new dog-owning classes over the last two decades.

Mr Liu invented a fish breeding process in the 1980s, patented it and opened fish food factories at a time when farmers were being given new freedom to decide what produce to grow.

As farmers switched into fresh produce for cash sale, the Maoist collective responsibility system crumbled.

Fish farming and animal husbandry proved popular sidelines and by 1995 Mr Liu was boss of China's second biggest private firm.

Sceptical

With more than 15 years' experience in China, Ms Childs is sceptical about the benefits of the China's entry into the World Trade Organisation (WTO).

The commonest pets....

"The bureaucratic processes may be clearer but there's more of them - and there's no way of getting around them," she says.

"In Shanghai, it's become far more regulated but that doesn't mean it's easier for foreigners to do business there."

Doing business in a less developed area like Sichuan can actually be easier if you know how, she reckons.

"In Sichuan, 'guanxi' (connections)... is still a very useful tool whereas in Shanghai, it's not so much."

....are still tiny.

There, potential business partners may have "maybe a dozen people fighting over a piece of land".

Ms Childs and her husband, who trained as a violinist, went into business "by accident".

Their first brush with the pet food business came about when a Chinese friend shipped dog chews to a UK customer who failed to pay.

"All our business has come about because my husband or I have had an idea," says Ms Childs.

People not planning

China's free-wheeling business style readily gives rise to firms with skeins of disparate interests as companies expand through contacts rather than business plans.

ELI's eclectic portfolio is no exception.

Largely a consultancy, its activities embrace brewing, battery factories, a tooth whitening product, and finding guardians for the children of wealthy Chinese at English boarding schools.

"A lot of stuff we do has only occurred because he (Wang Jian) is Chinese and has been able to make things happen," she says.

The ability to "make things happen" has been at a premium in China because the planned economy failed to provide and contacts offered the only solution to dozens of everyday problems.

Hard times ahead?

The pet food venture is ELI's first move into manufacturing, and Tongwei is big enough to absorb the difficulties of a start-up.

But it may not be the best time to bet on luxuries moving into the mainstream.

Although China's 7% growth rate in 2001 was three times that of most major industrialised countries, the economy is slower than in recent years.

Joblessness is rising as the fear of foreign competition brings a new seriousness to state enterprise reform.

In Chengdu, people are reluctant to spend and prices are falling - "everything is discounted in the stores," according to one Chinese sociologist.

At 8.8 yuan ($1) a kilo, only time will tell if one-time luxuries such as pet food can find a wider market.