The determinants of Chinese Muslims' consumption of halal products: implications for Malaysia's halal export to China

Integrating aggregate and disaggregate analyses, this study examines the determinants of Malaysia's export of halal products to China at both macro and micro levels, with a view to developing policy implications that can assist in fostering Malaysia's halal exports to China. Export has been an essential source of income for economic growth and development throughout Malaysia's history, with manufactures exports accounting for the largest portion. However, during the last decade Malaysia has been losing its price competitiveness due to shortages in labour and natural resources, stagnation in upgrading manufacturing technology, and inadequate development in human resources. In this context, it is proposed that halal products will become the next export-oriented products of Malaysia, and non-Muslim countries will become the new, targeted markets. On the one hand, Malaysia has an acknowledged reputation in halal credibility and is expanding its export of halal products globally, while on the other hand, China has recently become the world's most eye-catching market for halal products. With a fast growing Muslim population and consumer income, the demand for halal products by Chinese Muslims is expected to grow into a sizeable market. Despite this potential, there is a lack of comprehensive research into the key determinants of Malaysia's halal exports to China. Also, the preferences of Chinese Muslims in purchasing halal products, particularly halal personal care products, have not been systematically studied. Rather, available studies on Malaysia's exports to China tend to focus largely on the macro factors, such as exchange rates, free trade agreements, and competitive advantages. This study fills these gaps. In more detail, at the macro level, this study examines the determinants of Malaysia's export to China with aggregate data from the UNComtrade. This aggregate study mainly focuses on the importance of diplomatic relationships in fostering Malaysia's exports to China, using an augmented gravity model. Through utility maximization, institutional aspects, such as diplomatic relationships, and halal related variables are incorporated into the gravity model, which is then estimated using data from Malaysia's exports to China. The estimation uses the fixed effect to capture unobserved commodity characteristics that may be correlated with the error term, and accommodates possible endogeneity, autocorrelation and heteroscedasticity issues. At the micro level, this study uses disaggregated data to examine the determinants of Chinese Muslims' consumption of halal personal care products. Two types of data are used. 1) Revealed preference data. This study identifies key determinants of Chinese Muslims' demand for halal personal care products, using a logit model. Revealed preference data were collected from five cities in Western China to estimate the signs and magnitude of the influence by each independent variable on consumers' intention to purchase. 2) Stated preference data. This study investigates Chinese Muslim's preferred halal attributes for halal toothpaste, using a stated preference choice model. Stated preference data were used because halal personal care products are not common in China. Using this method, the study captured desired attributes of halal toothpaste preferred by Chinese Muslims, even if they were not using it. Findings from the aggregate study reveal how diplomatic relationships boost Malaysia's exports to China. In addition, marketing events, such as international halal exhibitions, promote Malaysia's exports to China. While findings from the disaggregated data analysis suggest that apart from faithfulness, reliability of recommendations, product origin and product price, the two most important determinants in influencing the purchase of halal products by the Chinese Muslims are product availability and halal authenticity. The findings will assist policy makers, industry leaders, business consultants, exporters and importers of halal products in developing their export strategies and strategizing trade approaches with China. They will also benefit other similar economies that are seeking to improve on, or tap into, the China Muslim market. In addition to the policy implications, this study also contributes to the existing literature from two additional aspects. Firstly, this study contributes to existing literature of institutional aspect of trade, in particular on developing countries (Malaysia and China) that are less explored. Secondly, this study provides an in-depth analysis of the purchase behaviours of Chinese Muslims, contributing to the literature on consumption behaviour.