After China's New Food Safety Law: New Regulation Means New Opportunities

China Food Import Top Trumps

World Trade Organization data (2013) rank China as the worlds 3rd most financially important food market just behind the US and EU.
In the first half of 2015 the value of imported food was 22.23 billion USD,(down 10.8% on previous years due to readjustment of customs tariffs designed to stimulate increased importation)
China also boasts the highest year-on-year growth in the value of food imports globally.
The top ten imported food categories in order of descending value are oils and fats, dairy, aquatic products, meat, grain, alcoholic products, sugar beverages, other processed food and dried nuts.
During the first half of 2015 a total of 1255 batches of imported food valued at 14.52 million USD failed AQSIQ inspection at provincial ports. Inspection criteria were based on China’s national food safety standards and the requirements of relevant laws and regulations. EU had the highest number of CIQ inspection failures.

A Sea Change: New Regulatory Policies Mean New Opportunities

China's food industry has undergone a period of a rapid transformation in the last several years. Picking a single milestone as a reference point is a difficult task but looking back to March 2013, which saw the elevation of the SFDA to the ministerial level institution we know as today's CFDA, is probably a good line in the sand to help focus analysis. Looking at the events that have transpired after this key marker helps us place the concerted regulatory efforts of China's CFDA, AQSIQ, NHFPC in the context of China's broader economic goals and understand the rationale behind many of China's recent legislative and regulatory efforts. It also allows us to scan the horizon for new opportunities and the best routes to market available to would be investors. Our second marker is the Oct 1st promulgation of China's new food safety law and the heavy emphasis placed on regulating imported foods.

The Bigger Picture: Finding a Balance Between Trade Stimulus and Food Safety

A key goal as expounded in the sessions of China's National's Peoples Congress is to continue to shift China in the direction of a more consumption based economy, deregulate key industries and to allow market forces to have a stronger influence on government policy. The government has earmarked China's food industry (in particular food importation) as a key battleground, evidenced in recent data indicating 17.6% annual growth in the imported food sector (4 times domestic average - AQSIQ data).

3 Birds with One Stone: Food Safety, Market Forces and Increased Importation

The imported food supply chain with its clearly defined entry points is inherently more regulatable than China's domestic supply chain, meaning food safety can be more easily guaranteed. Combined with massive domestic demand for safe (read imported) foods and the overall plans to allow market forces to dictate policy, China's food industry reforms and the contents of China's new food safety law begin to make sense.

Unfortunately China faces a bit of a catch 22....deregulation in any key sector of the economy poses significant dangers. If China reduces regulatory compliance requirements for imports it invites disaster in the form of food safety scandals. On the other hand if it over-regulates importation of food it runs the risk of suffocating international investment, fueling importation through grey and black market channels and hamstringing its economic development plans.

Some Key China Food Industry Trends

Treading this precarious line between over-regulation at the expense of international investment and deregulation at the expense of food safety the majority of China's policies reflect an effort to find the stable middle ground.China is shifting its emphasis from supervision and inspection at ports which is already stretching the supervisory capacities of AQSIQ towards source control and post market inspection by CFDA with plans to phase-in onsite manufacturer inspection in country of origin using CNCA (similar to meat, dairy, aquatic products, birds nest), to all food commodities, more requirements for documentation and recording of foreign manufacturer credentials and incrementally stringent inspection and testing of food imports for traders with a history of compliance issues at port. China plans to stimulate importation by reducing customs tariffs and reducing customs clearance administrative red tape which will bring about a more affordable, streamlined administrative process complete with user friendly IT-based recordkeeping for foreign enterprise exporting to China.

China's best laid economic plans and attempts to control food trade balance through technical barriers to trade must cater to the massive demand for imported foods from Chinese consumers which due to the litany of food safety scandals is increasing every year. Import and sale of foods through unregulated channels known as "Haitao" is an extremely destabilizing force for China's economy and in recent years, developments in China's food industry particularly the development of crossborder ecommerce and associated food regulatory reforms have attempted to address this, echoed by Premier Li Keqiang's recent calls to give Chinese consumers greater access to foreign consumer goods.

Opportunities Abound for High Quality, Safe Foods

an unmatched consumer base composed of a burgeoning middle class with serious serious discretionary spending power
continued upward mobility of lower classes (more consumers)
safe food sells - traceability and authentication of foods
dissatisfaction and mistrust of domestically produced foods
government calls for increased access to foreign consumer goods
a switch from premarket inspection to postmarket supervision
deregulation of specific importation and trade channels e.g CBEC
an upcoming baby boom (change in 1 child policy)

Food Safety Law: Building on the Foundations

* Support Regulations, Administrative Measures, Guidance (see CL Food News on 11 Nov 2015)

With the food safety law published, as per standard Chinese legislative and regulatory operating procedures the details and practical implementation measures have recently or are currently being developed and implemented. In this article I took the chance to pick the brains of my colleagues at the Chemlinked Food Portal team to get an idea of any important China food safety law developments particularly anything associated with important new administrative measures, new or pending regulations, guidance documents or anything which affects market access for food enterprise exporting to China.

Daisy Suo-New Food Production/Operation Licensing

The “Administrative Measures for Food Operation License” and the “Administrative Measures for Food Production License” both came into force on the 1st of Oct 2015. As support regulations to the “Food Safety Law”, the two Measures are made as per the requirements laid down in the new FSL:

Article 35 China implements a licensing system for food production and trading. Any organization or individual shall obtain a food production and trading license before engaging in food production, circulation, and catering services.
Article 39 The State adopts a licensing system for the production of food additives

Licensing management has been streamlined under which one food operation/food production license will be issued to food operator/manufacturers henceforward, which is a great advance compared to the old system where multiple certificates would be issued to one manufacturer engaged in different food categories.

The cancellation of the QS mark is another significant change in the “Administrative Measures for Food Operation License”. The mark indicating “Quality Safe” will be removed and the production license number will be indicated with “SC” which stands for production in Chinese Pinyin.

Associated ChemLinked Food Portal news:

New Importer filing system

The upgraded filing management system for importers and exporters which was officially launched on 1 Oct 2015 has been subdivided into three individual platforms for overseas manufacturers, exporters and importers.

As articulated within the Food Safety Law (Article 98 Importers shall establish a food and food additive import and sale record; faithfully record information of food and food additives such as the product name, specification, quantity, production date, production or import batch number, shelf life, name, address and contact information of the exporter and buyer, and delivery date.) import and sales information of food products are required to be uploaded to the system.

Associated Chemlinked Food Portal News

Echo Cao - New Infant Formula Requirements

According to Chapter 4 "Special Foods" of the new FSL, infant formula is listed as one kind of special foods subject to stringent regulatory control. The biggest challenge for domestic infant formula manufacturers in China is to register formulations of IF products with CFDA. The applicant must provide R&D reports and other supporting documents as evidence of the scientific soundness and safety of the formula. In addition, it is prohibited to produce infant formula through sub-packaging or use one formula for multiple brands.

Later on the 2nd of Sep 2015, CFDA released the draft of “Administrative Measures for Registration of Infant Formula Registration”, which serves as the primary guidance for companies applying for registration.

The draft mainly specifies the following aspects:

Application scope?
Who is responsible for IF registration?
What are the principles to differentiate IF formulations? How many brands can a manufacturer have at a maximum?
What documents need to be submitted CFDA?
What is the general procedure of registration and how long will it take?

Please click here to see above answers.

The draft also emphasizes an IF product must be designed for sale on a national scale instead of being customized for regional sales. After the regulation is implemented, the number of IF brands on the Chinese market will be significantly reduced as a large percentage of current brands are customized for regional sale and show little difference in formulation.

Implications for imported IF products?

Although this draft is only applicable to domestic IF products, imported ones will also be subject to formula registration requirements as confirmed by an official from AQSIQ (see ChemLinked Food News). However the regulation is still being developed to taking into consideration the extreme importance of imported infant formula here in China.

Intensified Regulation of Foods Sold Online

Prior to the issuance of the new FSL , there was almost no regulatory requirements for foods sold on e-commerce platforms in China. With online/mobile shopping becoming the standard purchase mode in China the safety of foods sold online is of significant importance. Article 62 of the new FSL has addressed the problem stating that the operators of third-party e-commerce platforms should implement a real name registration system for online shop owners and examine their food trade license. In support of article 62, on 18 Aug 2015, CFDA released the draft ofAdministrative Measures for Supervision on Operation of Foods Sold on the Internet for public comments (see ChemLinked Food News). The pending measures will require all online food traders to obtain business licenses and product certificates identical to the requirements of bricks and mortar sellers.
Crossborder e-commerce (CBEC).... Products sold on CBEC platforms are also almost free from the compliance requirements outlined in China's food law, food regulations and national standards, registration requirements and AQSIQ inspection and testing . Chinese labels are also not required. See ChemLinked Report China's Cross-border E-commercefor more information. However, the draft of Detailed Rules for Supervision and Administration on Food Imported by Bonded Mode of Cross-Border E-commerce (see ChemLinked Food News) issued by China AQSIQ on 3rd of Oct 2015 is set to reverse the current lax regulatory environment . In short if the regulation takes effect, the regulatory requirements for imported foods through CBEC will be essentially identical to traditional import channels. All foods will then be required to comply with Chinese national standards, bear Chinese labels and be tested during CIQ inspection. .If passed successfully the draft will mean that infant formula imported through bonded areas should have Chinese labels which must be printed on the minimum sales packages before entry. Other foods should also have Chinese labels and instructions or alternatively the CBEC platform providers must provide an electronic version of the Chinese labels and instructions.

Rachel Shen - Health Food

2015 has seen great change in the regulation of health foods in China. In Article 75-79 of the new Food Safety Law, it stipulates the combination of health food registration and filing systems, and also the establishment of a health food raw material directory, which will only be applied to health foods rather than any other conventional foods.

Nutrient Supplements

In China, nutrient supplements are regulated as one category under the umbrella term health food, which refers to products whose purpose is to supplement nutrients such as vitamins and minerals rather than energy supply. Nutrient supplements are only required for filing under the new Food Safety Law.

Meanwhile, the new China Advertisement Law was formally implemented in Sep. 2015, which imposes strict requirements on health food advertisements, including the examination and approval of health food advertisements prior to the marketing activities.

New Requirements for Health Food Advertisement in China

Foods for special medical purpose (FSMPs)

In Article 80 of the new Food Safety Law, it stipulates that FSMPs should be categorized as one kind of special foods, which should be subject to specialized management requiring registration with CFDA prior to sale in the Chinese market. This change is a milestone in the development of China’s FSMP industry as in the past this kind of food could only be imported to China by being registered as a drug or health food.

Tiered management of imported foods at port

In Article 100 of the new Food Safety Law, it stipulates that AQSIQ shall carry out credit management for food importers, exporters, and export food producers, and shall tighten inspection and quarantine on importers, exporters, and export food producers that had bad credit records.

In the draft regulation of “Administrative Measures for Inspection and Supervision of Imported Foods at Port” released in Sep. 2015, it also stipulates the tiered management of imported foods based on risk evaluation.