China Securities Co., Ltd. released a research report indicating that China's tea market grew from RMB 288.9 billion in 2020 to RMB 325.8 billion in 2024, achieving a compound annual growth rate (CAGR) of 3%. Beyond traditional tea products, the derivative tea product market is also thriving. The tea market can be segmented into premium, mid-range, and mass-market categories based on price. Driven by consumption upgrades and rising health awareness, the premium tea segment has demonstrated the fastest growth, showcasing significant industry potential. By sales revenue, the premium tea market expanded from approximately RMB 89 billion to RMB 103.1 billion, with a CAGR of 3.7%.

Key insights from the report include: China's tea industry has a long history, with exports to Southeast Asia and other regions dating back to the Northern and Southern Dynasties. In 2024, domestic sales accounted for about 69% of total production, highlighting the industry's self-sustaining nature. The supply chain consists of upstream cultivation, midstream processing and branding, and downstream distribution. Companies like BAMA TEA (06980) and TENFU (06868), which are either listed or preparing for IPO, primarily focus on midstream and downstream operations, sourcing raw materials, processing them into products, and selling to distributors or consumers.

Beyond traditional tea, derivative products are gaining traction. Chinese tea is classified into six types by fermentation: green tea, white tea, yellow tea, oolong tea, black tea, and dark tea. Green tea dominates, representing over half of the market, followed by black tea (RMB 54.1 billion). Oolong and dark tea have similar market sizes (RMB 30-40 billion each), while white tea (RMB 10.4 billion) and yellow tea (RMB 2.9 billion) remain niche.

The tea market is further divided into premium, mid-range, and mass-market segments. Premium tea has grown the fastest, with sales rising from RMB 89 billion to RMB 103.1 billion (CAGR 3.7%). Similar to baijiu, tea sales emphasize experience, with offline and distributor channels dominating. In 2024, online sales accounted for 11% of the market, while offline channels made up 89%. Direct sales represented 27.8%, and distribution 72.2%.

China's tea market remains highly fragmented. BAMA TEA leads the premium segment with a 1.7% market share in 2024. By revenue, BAMA TEA (RMB 2.14 billion), TENFU (RMB 1.56 billion), and LANCANG TEA (06911) (RMB 360 million) collectively account for less than 2% of the total market (RMB 325.8 billion).

**Risk Analysis** **Supply Chain & Raw Material Risks**: Tea cultivation is highly dependent on natural conditions, making it vulnerable to extreme weather. For example, droughts in Yunnan reduced pu'er tea output by 15%, while typhoons in Fujian damaged oolong tea crops. From 2018 to 2022, climate-related losses averaged RMB 4.2 billion annually. Geographic concentration (62.3% of production comes from five provinces) and rising labor costs further strain supply.

**Market Competition & Demand Risks**: The industry's fragmentation intensifies competition, with only 5% of over 80,000 tea companies generating annual revenue exceeding RMB 100 million. The top five premium tea firms hold less than 6% market share, and price wars due to product homogeneity squeeze profits. Shifting consumer preferences pose challenges, as the Gen Z-driven new tea beverage market (RMB 120 billion in 2024) displaces traditional tea sales, with some premium brands seeing a 28% YoY decline in offline revenue.

**Quality & Brand Risks**: Food safety remains a critical concern, with 5%-12% of tea samples failing pesticide residue tests. Counterfeiting and false advertising (e.g., a black tea brand fined RMB 5 million for packaging infringement) undermine brand trust. Regional brands struggle with differentiation and weak pricing power. Negative publicity spreads rapidly on social media, amplifying reputational damage.

**Policy & International Risks**: Stricter domestic regulations, such as the "Tea Quality Development Outline," raise compliance costs. Exporters face barriers like the EU's new pesticide standards, geopolitical tensions, and currency fluctuations. Although tea exports exceeded USD 2.2 billion in 2024, external uncertainties constrain growth.