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Healthplex Expo 2018
Natural & Nutraceutical Products China 2018

20-22 June, 2018 SNIEC, Shanghai, China

Industry News

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Interview on China Supplement Industry by U.S. -China HPA

SHANGHAI, 2 March, 2017 / Healthplex Expo and Natural & Nutraceutical Products China 2017 (HNC), organized by CCCMHPIE and UBM Sinoexpo Ltd, will take place from June 20-22 2017 at the Shanghai New International Expo Centre (SNIEC) in Shanghai.

As the partner of HNC 2017, U.S.-China Health Products Association (USCHPA) will organize a conference featuring the international Omega-3 and probiotic industry insignts at HNC 2017 on 21 June. Jeff Crowther, Executive Director of USCHPA was interviewed by UBM Sinoexpo and Jeff expressed his opinions on how international companies enter the Chinese health and supplement market as well as share the China's supplement industry trends with us.


UBM Sinoexpo:
What is the current size of China’s supplements and health product market? Where is the potential for growth, and what is holding it back?


Jeff:
This is a difficult question to answer, as there is no agreement across any of the agencies collecting figures on the size of China’s supplement market. The main reason for this is many and includes the following facts that make it difficult to track:

a)     Lack of transparency

b)    Fragmented industry

c)     Many gray channels that are not tracked or reported

d)    No standard or legal definition for dietary supplements as the government is using the legal category of “Health Food Products”, which includes not only supplements but also yogurts, drinks, food products, some Chinese Medicine type products, Alcoholic beverages that have herbal ingredients added and any other product that has obtained health food registration from China’s Food and Drug Administration (CFDA). This fact expands and overlaps the industry with many other industries and over estimates the figures that most international companies are looking at, which is simply “dietary supplements”.


From various domestic and international sources the industry’s sales volume is all over the place any where from US$ 17 billion to over US$ 30 billion. The spread is to wide, but the association estimates it is probably somewhere in the middle around US$ 25 billion would be a safe guestimate.


The main cause that is holding back China’s supplement industry’s true potential is the overly strict regulatory system, which is mentioned in some of the answers below.

 

UBM Sinoexpo: How could recent developments in the US – specifically the Trump administration’s stance on China – impact the supplement market in the region?

 

Jeff: At this point nobody really knows what President Trump’s policy towards China will be in particular what will it do to the supplement industry. This is an important question to consider and keep an eye on because up to 70 percent of the industry’s ingredients are flowing out of China to the global supplement industry. Since the U.S. market is the largest, placing tariffs on Chinese ingredients would raise the price of finished products across the board. This of course would not be good for the industry as consumers would be the ones paying for it in the end.


A better solution would be to continue working with China to encourage them to move toward a more open and balanced regulatory system, which will allow the industry to develop without the heavy fees involved in registering products. Also lower the importation fees associated with supplements. For example, currently Chinese ingredients are exported to the U.S. with little to no import taxes from the U.S. government. However, China taxes imported supplements at 20 percent plus a 17 percent value added tax. This is neither balanced nor fair.


If China could reduce the tariffs and financial burden of registering products, I’m sure the Trump administration would not lean so heavy on China’s supplement related exports to the U.S. What the association and its members have been striving for on the regulatory front has always been balance and transparency. The association will continue to share information with both sides and encourage a more open environment.

 

UBM Sinoexpo: What are the biggest barriers for international companies looking to enter the Chinese market?

 

Jeff: The biggest hurdle for international supplement companies entering China is the product registration with CFDA. Legally all supplements have to be registered or beginning in May 2017 “recorded” with CFDA. The registration process costs in excess of US$100,000 and takes approximately 2 to 3 years to finalize. The recording system is new, but is rumored to cost US$10,000 or more per product and take about one year to finalize.


The recording system is only open for vitamin and minerals, which are outlined in CFDA’s “Health Food Raw Material List”. If the ingredients are other than vitamins or minerals and/or not included in the list, the product would have to go through registration procedures with CFDA.

 

UBM Sinoexpo: How can international companies make their businesses more attractive to Chinese customers?

 

Jeff: In general international products are already attractive to Chinese consumers. However, it is important to stand out and be proactive with the market. No longer can a company just be “international” and get sales. In the past many Chinese companies would create brands and have them produced overseas then exported to China. The products were never sold in the foreign market, they were produced strictly to take advantage of Chinese consumers desire to buy made in “foreign country” supplements. Chinese law now dictates that foreign products must have one year’s sales and marketing evidence in the producing market, so this a little be harder to do now.


Chinese consumers are now mostly buying international brands through cross border e-commerce, so one strategy is to have a strong presence in the home market. Consumers are Internet savvy and will search out the brand in its home market to see its level of fame. Also many consumers will travel to foreign markets for holiday or have relatives in said markets that can see first hand what are the big sellers. Consumers want famous well-established brands. 


Another suggestion is to have a team on the ground in China even if it’s only one person. This is essential as they can help assist with expos, finding new distribution partners, join industry conferences, network and hold marketing events. For example, sponsoring events like marathons etc… run social media platforms etc.


Social media is very important in China. The main two platforms are Weibo and WeChat. Over the last few years, WeChat has taken on a dominant position and is the platform most are focusing on now. It has close to one billion active users.

 

UBM Sinoexpo: What is your top piece of advice for international companies looking to break into the Chinese supplement and health product market?

 

Jeff: Engage with the market as mentioned above in question “four” have a team on the ground or at minimum a person in your company that is dedicated to China and is a native speaker of Chinese. China is an ever-changing market and the fact that its not transparent makes it difficult to gain proper regulatory information or market insights. Beyond having a dedicated team, joining the U.S.-China Health Products Association is a great move as it provides not only regulatory advocacy, but also consulting and a variety of business services to help the brand succeed in the market. The association works with each member differently based on their needs and market strategy. Membership with the association is like having your own team on the ground reading to assist.

 

UBM Sinoexpo: What are your predictions for the region’s supplement and health product market in the next 3-5 years?

 

Jeff: CFDA has passed a number of new regulations for the industry most of which took effect in 2016 and some will be in 2017. The two biggest points to keep an eye on is the new recording system for vitamin and mineral products and cross border e-commerce. Both will play a role in the direction of the overall supplement industry.


Cross border is big business and growing for many, but the government has been keen to guide its development with regulations that have had some traumatic effects. For example, they didn’t include many supplements on the approval list for conducting cross border activities through China’s Free Trade Zones, which is where most international companies were conducting their pick and pack as well as shipping direct to consumers. This move devastated many foreign brands overnight. However, the government has since withdrawn and sidelined this until the end of 2017. If the government reinstates the removal of supplements from the approval list, companies will have to move their cross border activities to outside the borders of China.


The recording system for vitamins and minerals has not yet begun, but it seems many international companies will be looking to take advantage of this new process to enter the market. This has the potential to increase the number of both domestic and international brands in the market, which is a good thing; the more players the more money available to invest in education and industry infrastructure.


Either way the above cross border and recording system play out; we’ll see the continued growth and development of China’s supplement industry over the next 3-5 years.


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