The Chinese government has announced the introduction of a one-year grace period for Cross-border Ecommerce (CBEC), which includes imported infant formula and dairy products.
Until April 8, 2016, CBEC enjoyed a much more relaxed regulatory policy.
After April 8, dairy products including infant formula required compliance with stringent regulations such as CNCA (Certification and Accreditation Administration) plant registration, Chinese labelling, application documents for inspection, pre-market approval documents, and infant formula registration, all of which require a significant investment of time and capital.
However, on May 25, 2016, Chinese authorities released a notice specifying new supervision requirements for CBEC retail imports. Under the new one grace period announcement, CBEC stakeholders have been given a “green light” until May 11th, 2017 for their products.
Now, with this grace period, infant formula, dairy products, special foods (such as health food and food for special medical purposes) and cosmetics can now still be imported via CBEC without pre-market approval by the CFDA (China Food and Drug Administration).
New rules were significantly impacting exports
Immediately after April 8, the new rules had significantly impacted exporters and businesses distributing on China’s CBEC, such as those selling on Alibaba’s Tmall, JD Global etc., as they suddenly had to comply with new regulations and were limited by the “positive list” and “higher tax policy’s” which impacted sales. Only products that were listed on the positive list and compliant to Chinese regulations could pass China customs and clearance.
The hardest hit was taken by infant formula, dairy and dietary supplement businesses, for which regulatory requirements and barriers to entry are stringent.
CBEC bonded warehouse mode
For CBEC bonded warehouse mode, pilot cities (including Shanghai, Hangzhou, Ningbo, Zhengzhou, Guangzhou, Shenzhen, Chongqing, Tianjin, Fuzhou and Pingtan) will continue to supervise CBEC imports like before.
Unregistered CBEC cosmetic products, infant formula, medical device, health foods and medical foods can still enter China through the CBEC channel which means regulatory requirements such as Chinese labelling, registration, testing and others standards are not required. The 1 year grace period is a temporary but significant relief for businesses relying on CBEC trade.
CBEC direct shipping mode
For CBEC direct shipping mode, pre-market approvals for the above products falling under the registration system are not required.
Exporters urged to get local help
The news comes as a great relief for companies that now have more time to adjust product portfolios and prepare for next year’s upcoming restrictions.
However, for CBEC platforms with cosmetics, baby products (especially infant formula) and health foods as featured products, even one year may not be enough time to fulfill product registration and China regulatory compliance.
Exporters are highly recommended to find a Chinese consultant to provide professional advice to help them in product compliance.
Increased demand
Consumers now have the opportunity to access products from all around the world, and online selling makes it much easier to reach from farm to chopsticks…
The market size and consumer spending, especially from the middle class, is significantly increasing for imported food products, especially after the introduction of the two-child policy, which is making imported infant formula much more in demand.
Domestic production increasing
Chinese consumers are still very worried about food safety in the domestic market, especially after the infant formula scandal where melamine was added in the formula causing severe illness to babies. This has fuelled appetite for imported foods and products all around the world, especially relating to sensitive categories such as infant formula and baby & pregnancy category.
Despite the increased production domestically, this does not have too big of an impact on imported infant formula. However, after the grace period, it will significantly increase barriers to entry into this industry. The trend of the policies will continue to introduce and enforce policies to enhance food safety and build consumer trust.
A case study
I recently spoke to a business selling New Zealand products and they completely relied on CBEC ecommerce sales, with first year sales reaching £600k, and second-year figures of £2m sales, only from selling via CBEC.
This shows the popularity of consumer spending power online, but with the sudden change in CBEC regulations, it halted trading and they couldn’t sell as they had didn’t comply with Chinese regulations.
With the grace period, they are able to continue their business and prepare for registration and other China regulatory requirements.
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