An Overview and Analysis of the Development of China’s Third-Party Testing Industry

The third-party testing market in Europe and North America has become relatively standardized and mature, giving rise to a number of companies that SGS, BV 、 Intertek Third-party testing organizations, exemplified by [specific examples], enjoy broad international recognition. China’s third-party testing industry started relatively late but has experienced rapid growth in recent years, with steadily expanding market demand. Notably, private-sector inspection and testing firms have grown swiftly, capturing market share through external acquisitions and other strategic moves, while state-owned testing institutions are advancing their market-oriented transformation, both of which will further drive the industry’s development.

1 I. Current Status of the Development of China’s Third-Party Testing Industry

—— Panoramic Analysis of the Industrial Chain

Third-party testing, also known as impartial inspection, refers to testing conducted by a third party that is independent of the interests of the buyer and seller. (For example, dedicated supervisory inspection agencies) conduct commodity inspection activities in a fair and authoritative capacity as impartial third parties, in accordance with applicable laws, standards, or contractual agreements. The upstream segment of the third-party testing industry primarily encompasses relevant inspection and testing hardware equipment as well as software services such as intelligent control systems; it also includes chemical reagents and consumables required for third-party testing. Third-party testing is widely applied across numerous sectors, including food manufacturing, pharmaceutical manufacturing, electrical appliance manufacturing, automotive manufacturing, and many others. Based on the differing characteristics of downstream demand areas, the sectors that drive demand for third-party testing include life sciences testing, consumer goods testing, industrial products testing, construction project testing, and inspection of import–export commodities.

—— China’s third-party testing sector started late, but the importance of its institutions is irreplaceable.

China’s third-party testing industry lags significantly behind that of developed countries in Europe and North America. In Europe and North America, At the dawn of the 15th century, third-party testing agencies began to emerge in order to ensure product quality. By the mid-19th century, the involvement of well-established third-party testing organizations in product inspection had become widespread and had evolved into a deliberate commercial practice. It was not until the promulgation of the Law of the People’s Republic of China on Inspection of Import and Export Commodities in 1989 that China’s third-party testing sector officially took off; during this period, state-owned institutions were the dominant players in the country’s inspection and testing industry. Following 2002, state-owned entities further ceded market share to third-party testing firms, and wholly foreign-owned testing laboratories were subsequently permitted to enter the Chinese market, fundamentally transforming the structure of China’s inspection and testing market. Since 2014, China’s inspection and testing industry, led by third-party testing agencies, has experienced rapid growth.

Because third-party testing organizations play the following crucial roles in the testing market, they cannot be replaced by other testing entities; these roles can be broadly categorized into three key aspects: 1) High level of expertise; 2) As an independent third party unaffiliated with the parties involved, it is more impartial and objective; 3) It helps to address the shortcomings of public-resource testing, while third-party testing agencies, offering lower costs and higher-quality services, have gained widespread market acceptance.

—— Market Size: Increasing Number of Testing Institutions and Internet-Driven Market Expansion

From 2015 to 2019, China’s testing industry continued to expand. According to statistics from the State Administration for Market Regulation, as of the end of 2019, there were a total of 44,007 inspection and testing service institutions within mainland China (excluding Hong Kong, Macao, and Taiwan), representing an increase of 11.49% compared with 2018.

From 2014 to 2019, the number of private quality inspection and testing institutions in China expanded rapidly. By the end of 2019, there were a total of 22,958 such institutions, accounting for 52.17% of the national total—an increase of 3.45 percentage points from 2018—indicating a continuous rise in the share of private enterprises. Looking ahead, as the Chinese government further liberalizes and supports the quality inspection and testing sector, more third-party private firms are expected to enter the industry.

In recent years, the market size of China’s third-party inspection and testing industry has shown a fluctuating upward trend. In 2015, the industry’s market size was RMB 72 billion; by 2019, it had grown to RMB 129 billion, and is estimated to reach RMB 141.9 billion in 2020, representing a five-year compound annual growth rate of 14.53%.

With the growing number of internet users, the online shopping market has flourished; meanwhile, the rise of new players such as internet-based healthcare and mobile healthcare has prompted China’s third-party testing institutions to embark on an internet-driven transformation. These institutions are actively leveraging big data to maximize resource utilization, enhance consumer awareness of the third-party testing industry, and thereby stimulate growth in downstream demand.

Driven by the favorable winds of the internet, downstream demand for China’s third-party testing industry has expanded, leading to a corresponding increase in the industry’s scale. According to statistics from the State Administration for Market Regulation, as of At the end of 2019, China’s inspection and testing institutions recorded total operating revenue of RMB 322.509 billion for the year. Among them, the third-party testing sector accounted for approximately 40% of the domestic testing market, with a market size of about RMB 129 billion in 2019.

Based on an analysis of the development models of established third-party testing companies, relatively large-scale testing firms can be broadly categorized into two types: comprehensive third-party testing companies and champions in specific niche segments. When benchmarked against the development trajectories of mature overseas testing firms, comprehensive third-party testing companies are more likely to evolve into industry giants, primarily because:

① The testing industry is highly fragmented, with limited market potential in most individual sub-segments;

② Comprehensive third-party testing companies can build brand awareness in more niche segments, thereby enhancing their credibility.

③ Certain sub-segments of the testing business can achieve a degree of synergy in terms of personnel, equipment, and other resources.

In recent years, leading single-track companies such as the National Inspection Group have begun to evolve into comprehensive third-party testing firms through external acquisitions and other means. For instance, the National Inspection Group, a leader in construction and building-materials testing, has expanded into environmental and food-testing sectors via mergers and acquisitions, thereby advancing its transformation into a diversified, full-service third-party testing provider.

—— The third-party testing industry in China as a whole still exhibits “ Small, scattered, and weak “ characteristics

Despite the growing number of quality-inspection enterprises in China, domestic testing institutions generally remain small in scale, geographically dispersed, and subject to numerous regulatory barriers, resulting in low market concentration and intense competition. Currently, the competitive landscape of the domestic inspection and testing industry is dominated by state-owned and foreign-invested firms, with private enterprises holding only a relatively small market share.

Based on an analysis of the size distribution of enterprises in China’s inspection and testing industry, China’s inspection and testing industry Ninety-six percent of organizations are small or micro-sized, reflecting the “small, fragmented, and weak” characteristics of China’s inspection and testing industry as a whole.

As of At the end of 2019, there were 100 listed companies in China’s inspection and testing services sector, representing a year-on-year increase of 3.1% compared with 2018; however, the growth rate has gradually slowed over the past two years. Of these, five are listed on the Main Board of the Shanghai Stock Exchange, five on the ChiNext Board of the Shenzhen Stock Exchange, three on the SME Board, 82 on the New Third Board, and five elsewhere, indicating that the number of listed companies remains relatively small.

2 1. Market Competition Landscape of China’s Third-Party Testing Industry

—— Corporate Structure Analysis: Increasing Share of Private Enterprises

Looking at the development trajectory of third-party testing in China, in the early stages of its evolution, the number of state-owned and state-controlled testing institutions exceeded that of private and foreign-invested enterprises. State-owned quality inspection and testing institutions—such as those under the Commodity Inspection System, the Quality Inspection System, national-level testing centers in various regions, and county-level testing stations—have long been the leaders in China’s quality inspection and testing market. According to the latest testing data released by the CNCA, In 2019, China had a total of 44,184 inspection and testing institutions, of which 19,444 were state-owned or state-controlled, accounting for 44.18% of the total—down 3 percentage points from the previous year; 749 were collectively owned or collectively controlled, representing 1.70% of the total—down 0.28 percentage points year on year; 22,958 were privately owned or privately controlled, making up 52.17% of the total—up 3.45 percentage points year on year; 415 were foreign-invested, accounting for 0.94% of the total—up 0.09 percentage points year on year; and 441 were other types of institutions, representing 1% of the total—down 0.27 percentage points year on year. In recent years, private inspection and testing institutions in China have grown rapidly, and in 2019 the share of private entities in the industry surpassed, for the first time, that of state-owned and state-controlled institutions as well as collectively owned or collectively controlled institutions, reflecting a fundamental shift in the industry’s market structure.

—— Analysis of the Competitive Landscape in the Industry: Foreign-Invested Firms Lead, While Huace Testing Takes the Lead Among Domestic Testing Institutions

Currently, the leading position in the third-party testing industry is held by the Chinese branches of major international testing firms, which comprise the first tier; the second tier consists of prominent domestic third-party testing institutions. In recent years, the competitiveness of domestic firms has improved, with CCT Testing taking the lead among China’s homegrown testing providers. In 2019, operating revenue reached RMB 3.183 billion.

—— Downstream Competitive Landscape Analysis: Widely Used in Construction, Environmental Protection, Automotive, Food, and Other Industries

From the perspective of downstream sectors in the third-party inspection and testing industry, In 2019, the sectors with the largest number of testing institutions were primarily motor vehicle inspection, environmental monitoring, construction, and food safety. In terms of revenue share across these sectors, construction project testing ranked first, accounting for 16.85% in 2019; environmental monitoring and building materials testing ranked second and third, with shares of 9.72% and 9.3%, respectively; followed by motor vehicle inspection, electronic and electrical appliance testing, food and food-contact materials testing, and special equipment testing.

3 1. Development Trends and Prospects of China’s Third-Party Testing Industry

—— Trend Analysis: Market-Oriented Transformation of State-Owned Institutions

State-owned public-service testing institutions in China Thirty-one provinces, municipalities, and autonomous regions, as well as their subordinate city- and county-level administrative areas, all have established testing institutions and representative offices. These entities are funded and overseen by government departments with diverse functions; they operate under the institutional staffing system and primarily undertake government-mandated, monopolistic testing services for domestically sold products. With the opening up of China’s quality-testing market, the marketization of state-owned testing institutions has become an inevitable trend. In the course of this marketization, state-owned third-party testing organizations must integrate their testing resources, define their development strategies, and explore independent corporate culture and management models.

—— Development Prospects Analysis: Steady Market Expansion

Over the next few years, as China’s testing market becomes increasingly market-oriented and driven by both foreign-invested and private testing institutions, the scale of the third-party testing market will expand rapidly, and its share of the overall testing market will also increase. According to forward-looking analysis and forecasts, with the further liberalization of China’s testing market to third-party testing providers and the growing demand within the inspection and testing industry itself, the size of China’s third-party testing market is expected to maintain With market growth exceeding 10%, the market size is projected to reach RMB 228.5 billion by 2025.

Source: Qianzhan Industry Research Institute, Inspection, Testing and Calibration