In the past decade, China's GDP has achieved steady growth. A series of favorable policies such as a 4-trillion yuan stimulus package and ten key industrial revitalization plans have promoted China's GDP from 9.15 trillion yuan in 2018 to 11.97 trillion yuan in 2022, with an annual compound growth rate of 6.9%. Due to the impact of the pandemic, China's GDP growth rate declined in 2020, with a growth rate of 2.2% from 2019 to 2020. However, among the world's major economies, China is the only one that achieved growth in 2020. During the pandemic recovery period, China's GDP increased from 9.84 trillion yuan in 2019 to 11.39 trillion yuan in 2021, with an annual compound growth rate of 7.6%.

China is the world's largest pork consumer and also has the world's largest live hog breeding market. For a long time, pork has been the main source of meat protein for the Chinese people, steadily accounting for half of total meat consumption. Pork is usually sold in the following forms: (i) fresh pork, including hot fresh pork, cold fresh pork, and frozen pork; (ii) processed pork products. Although hot fresh pork remains the largest category of pork consumption in China at present, the consumption growth rate of cold fresh meat and high-nutrition processed pork products is expected to be faster as consumers' awareness of food safety and quality increases.

Due to the outbreak of African swine fever in China at the end of 2018, pork production has plummeted. In 2019, China's pork production decreased by more than 20%, to 42.6 million tons, and in 2020, it hit a historic low of 41.1 million tons. African swine fever has significantly affected China's pig farming industry and caused pork prices to rise. However, thanks to the gradual control of the epidemic, as well as a strong recovery in slaughter volume and inventory replenishment, the decline in pork supply in 2021 bottomed out and rebounded. In 2021, China's pork production reached 53 million tons, nearly a 30% increase from 2020. In 2022, China's pork production continued to grow, reaching 55.4 million tons.

Due to the outbreak of African swine fever, there was a shortage of pork supply, leading to a surge in pork imports in 2019. In 2020, pork imports almost quadrupled compared to the pre-African swine fever level, reaching about 5.3 million tons, accounting for more than 12% of the total pork production. Between 2017 and 2020, pork imports increased from 1.5 million tons to about 5.3 million tons, with an annual compound growth rate exceeding 50%.

However, since 2021, the increase in pork production and the steady recovery from the impact of African swine fever have led to a decrease in imports by about 17% compared to 2020. In 2021, pork imports reached approximately 4.3 million tons, accounting for about 8% of China's total pork production. In 2022, pork imports further decreased to about 2.1 million tons. With the continuous development of the entire pork industry value chain and strong government support for pork production, it is expected that there will be further room for a decline in pork import levels in the future, which will remain relatively stable.

The supply shock caused by African swine fever led to a significant increase in global live hog exports in 2019 and 2020. Compared with 2018, global pork exports increased by 34.2% in 2020, reaching approximately 12.6 million tons. In 2021, global pork exports dropped to about 12.2 million tons, mainly due to China's recovery from the impact of African swine fever. In 2022, global pork exports further declined to about 11 million tons.

China has imported a large amount of pork, but its pork exports account for only a very small share globally, especially in 2020, accounting for less than 1%. An important factor limiting China's pork exports is that the supply of pork in developed regions often exceeds demand. Therefore, the main destinations for China's pork exports are developing regions in Asia, as well as neighboring areas such as Singapore, Russia, and Hong Kong. In the future, with major Chinese pork breeding companies capturing more market share and continuing to reduce production costs, exports are expected to increase.

The pig breeding process includes five main steps: selection, gestation (pregnancy), farrowing and lactation, piglet care, and fattening of pigs. The entire process takes 10-11 months. Piglets need to be raised for about 70 days until they reach 7 kilograms before they can be sold. Finished pigs need to be raised for about 180 days until they reach 110 kilograms before they can be sold.

Pigs require various essential nutrients to meet their growth, reproduction, and lactation needs. Specifically, pigs' demand for protein is mainly for amino acids. Therefore, when the needs for essential amino acids and total nitrogen are met, the crude protein content in feed can be reduced. Pig feed is mainly composed of corn, soybean meal, wheat, and other raw materials, and the market price of pig feed is mainly affected by fluctuations in the prices of these raw materials. The market prices of corn and soybean meal are influenced by supply and demand dynamics, government policies, weather conditions, pests, and many other factors. From 2018 to 2019, the market price of pig feed was relatively stable. Due to global supply and demand dynamics and changes in the global macroeconomy, the raw materials for pig feed, such as soybean meal, have been rising since 2020. As a result, the price of pig feed increased to 3.7 yuan per kilogram in 2022. In addition, in terms of the market price of raw materials, the average market price of corn rose from 2.0 yuan per kilogram in 2018 to 3.0 yuan per kilogram in 2022. The average market price of soybean meal was relatively stable between 2018 and 2020, but it soared sharply from 3.3 yuan per kilogram in 2020 to 4.7 yuan per kilogram in 2022. From 2018 to 2021, the average market price of wheat remained relatively stable at 2.5 yuan per kilogram, but it surged sharply to 3.1 yuan per kilogram in 2022.

Chinese pig farmers currently use soybean meal in large quantities in their pig feed. Low-protein feed combined with wheat, barley, sorghum, cassava, and other ingredients can greatly reduce the dependence on soybean meal and corn. By partially replacing soybean meal with amino acid supplements, pig farmers can reduce their reliance on imported raw materials, lower costs, and reduce emissions. Therefore, adopting low-protein feed brings practical economic advantages to enterprises, benefiting the entire industry.

In response to the call of the Ministry of Agriculture and Rural Affairs in August 2021 to promote the application of low-protein feed, the Chinese government will continue to expand the nutritional database of feed raw materials, implement more favorable policies to support amino acid production, promote the use of low-protein feed, further reduce the use of soybean meal in animal breeding, and facilitate the high-quality development of the livestock industry.

As China's demand for live pigs tends to stabilize, fluctuations in supply are the main factors affecting live pig prices and consumption numbers. China's live pig supply is usually affected by various factors such as outbreaks of diseases and government policies. Since the outbreak of African swine fever at the end of 2018, China's live pig slaughter volume has decreased from about 700 million heads in 2018 to about 500 million heads in 2020. As the impact of African swine fever gradually subsides, China's live pig slaughter volume recovered to about 700 million heads in 2022, and it is expected that more pig farms will expand their scale in the future.

Fluctuations in domestic pork supply are the main factor affecting pork prices. For example, the outbreak of African swine fever in 2018 led to a significant decline in pork production and a shortage in pork supply, causing pork prices to soar. Pork prices rose from 13.1 yuan per kilogram in January 2019 to 33.6 yuan per kilogram in December 2020.

However, with the rapid recovery of China's pork production capacity in 2021 and 2022, domestic pork prices have been negatively affected. At the beginning of 2023, the cyclical increase in pork supply along with weak post-holiday consumption led to a recent decline in pork prices. Looking ahead, it is expected that China's pork demand will remain relatively stable. With the weakening impact of African swine fever, the supply and price of pork are expected to return to normal levels.

The industrial chain of China's live pig breeding industry mainly includes raw material suppliers, live pig producers, and pork suppliers. Live pig producers are at the core of the live pig breeding value chain. Depending on their business model, live pig breeding companies may play one or more roles in the value chain.

• Economic growth consolidates pork demand stability

For thousands of years, live pigs have been an important part of Chinese agriculture and culture, and pork has long been the most popular meat protein in China. In 2022, China was the world's largest consumer of pork. Compared to cattle and sheep, live pigs are more efficient feeders, making pork a cheaper and more environmentally friendly protein product. With the profound impact of China's reform and opening up (after 1978) on industrialization and modernization, China's per capita pork consumption has surged. Due to the unique pig cycle in China, pork consumption tends to fluctuate but maintains an overall upward trend. In 2022, China's per capita pork consumption had already exceeded that of the European Union, becoming one of the world's leading countries. However, compared with regions such as Hong Kong, China's overall per capita pork consumption is still significantly lower. With further economic development and the continuous advancement of urbanization, China's pork consumption is expected to increase further, thereby promoting the development of the live pig breeding industry.

• Operational efficiency improvement and technological innovation

Chinese pig farms are optimizing their business processes by adopting modern management practices and advanced technologies, significantly improving operational efficiency. These technologies include intelligent environmental control systems, intelligent feeding systems, intelligent pig farming systems, intelligent health management, and intelligent slaughter equipment. The transformation of China's pig industry is manifested in the disappearance of small-scale farms and the dominance of medium and large-scale farms, which has also promoted the improvement of economies of scale and overall operational efficiency.

• The supply of local breeding pigs has increased

China's live pig breeding industry currently relies heavily on imported purebred pigs to supplement and enhance its gene pool, especially for the breeding of breeding sows. However, the cost of imported purebred pigs fluctuates significantly and there is uncertainty about their quantity, so relying on imported purebred pigs carries certain risks. The Chinese government strongly supports domestic pig farming enterprises in improving the performance of local breeding stock and gradually reducing their dependence on imported purebred pigs to maintain stable economic benefits. Although the number of professional live pig breeding enterprises and breeding stock enterprises in China is currently relatively limited, it is expected that leading companies within the industry will continue to increase investment in research and development and provide more high-quality breeding stock to the market in the future.

• Policy encouragement

The Chinese government has played an important role in promoting the growth and healthy development of the pig farming industry. The state has introduced a number of industrial policies and subsidy policies to stabilize pig production capacity, reduce cyclical fluctuations, guide the stable upgrading of the pig industry, and support its sustained and healthy development. Due to strong policy support, financial subsidies for breeding enterprises have increased, and there is no systemic policy risk in the pig farming industry expected. Since the outbreak of African swine fever in 2018, the Chinese government has introduced a series of policies aimed at stabilizing pork production and supporting the widespread application of advanced pig farming technologies. For example, the State Council issued the "Opinions on Stabilizing Pig Production and Promoting Transformation and Upgrading," requiring that by 2025, large-scale pig producers will account for more than 65% of the total output, and the domestic consumption proportion of pork will exceed 95%. Such favorable policies have laid a solid foundation for the long-term growth of China's pig farming industry.