By Dezan Shira & Associates
Dietary and health supplements are an industry with huge growth potential in China, in particular for overseas companies. The market has almost doubled since 2008, and was worth approximately RMB 102 billion by the end of 2014. Surveys show that very close to half of urban Chinese consumers regularly buy vitamins and dietary supplements.
Social Factor Trends Influencing the Market
The size of the market is likely to grow over the foreseeable future due to a range of social and economic factors, namely:
- Economic growth: most obvious is the increase in incomes and the rise of China’s consumer class. This includes many cities aside from Beijing and Shanghai.
- An Ageing Society: mostly as a result of the previous One Child Policy, demographic trends in China show a society that will be heavily weighted towards older people. This has relevance both in increased demand for health products and the demand for specific health products.
- Health scares in China: a mixture of corruption in the industry and health scares associated with domestically produced food and health products has left a legacy of deep skepticism amongst Chinese consumers, creating an opening for foreign brands.
- E-Commerce: a set of highly developed e-commerce systems is especially useful for the marketing and distribution of products that are both specialized and easily delivered (like bottles of vitamin tablets).
Additionally, China has long promoted the proactive consumption of various products (herbs, liquids, tinctures, etc.) to maintain a healthy body. Specific health supplement products might be new to China, but the general concept behind them fits very well with existing Chinese culture.
Investment Opportunities and Market Access
Foreign investors looking to access China’s health supplement market may either set up a company and a manufacturing base in the country or export their locally produced healthcare products to China directly. According to the “Catalogue for the Guidance of Foreign Investment Industries (2015),” foreign investment is encouraged in the healthcare food manufacturing industry and investors may set up a 100 percent foreign-owned company to produce and sell health supplements in China.
Registration with the CFDA
Both imported and locally produced health supplements need to go through check and registration with the government. The China Food and Drug Administration (CFDA) is in charge of inspection and supervision of the safety of medicine, medical devices, cosmetics and supplements. Vitamins and supplements need to obtain an additional mark from the CFDA. The mark, normally referred to as “blue hat”, consists of the characters “保健食品 (supplements in Chinese)” written in a blue font with a standard code beginning with “国食健字J” for imported health supplements; “国食健字G” for health products made in China.
CFDA will test and ensure that the medical products are safe, effective and meet the quality standards before they issue the Registration Certificate, and can withdraw it if the supplement is found to cause adverse reactions or is harmful to the human body. Any health supplement without a Registration Certificate are prohibited from being manufactured, imported, sold, or used in China, and those that have been manufactured or imported should be destroyed or disposed under the supervision of local CFDA.
The application procedure takes over three months and can be expensive if any testing institution get involved to provide the required documents. For more detailed information and application process, investors are advised to directly read the information on the CFDA website or contact a professional directly at Dezan Shira & Associates.
Relevant legislation includes the 2015 Food Safety Law of the People’s Republic of China, the 1996 health food management process (保健食品管理办法) and the 2005 health food registration management process (保健食品注册管理办法).
Risks of Fake Health Food Products
A downside to health food supplements is that various pills and powders are extremely easy to fake. Companies should therefore have a two-pronged strategy: firstly, a proactive policy in defending the company’s brand name and IP from fakers.
Secondly, the company should try and distribute their product in a way that can more easily assure a Chinese consumer that they are not being sold a fake. Examples of this might be to promote the product in a trade show in direct cooperation with your relevant embassy, so representative buyers know that your product is legitimate.
(Photo by jypsygen via Flickr)
[box]This article was first published on China Briefing.
Since its establishment in 1992, Dezan Shira & Associates has been guiding American investors through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, including liaison offices in Boston and Waltham specifically established to support our American clients, we are your reliable partner for business expansion in Asia and beyond.
For inquiries, please email us at [email protected]. Further information about our firm and how we can support American investors in Asia, please visit our North American Desk. [/box]
