By Dezan Shira & Associates
Editor: Kimberly Wright
China is updating its food safety law for the first time since 2009, in what is hailed as the harshest food safety regulation in China so far. The 2015 Food Safety Law will have a significant impact on both domestic and foreign firms involved in food business in China.
The new food safety law, which will take effect on October 1, 2015, signals that the Chinese government is finally cracking down on food scandals that have plagued the country in recent years, leading to social media uproar and poor consumer confidence in domestic products. These scandals have actually been a boon for foreign firms, as the growing Chinese middle class has turned to foreign imports, trusting these over local products. As a case in point, foreign brands currently account for 80 percent of market share of infant formula in China. Food safety disasters such as the infamous 2008 melamine scandal, in which tainted infant formula tragically left 6 infants dead and 300,000 severely ill, has driven this market preference for foreign imports.
Revisions to the food safety law, along with recent amendments to Administrative Measures on the Recall of Food, the Consumer Protection Law and the Advertising Law, indicate that the Chinese government is now considering food safety to be of high priority. By ensuring food safety, the government hopes to stimulate consumption of domestic products, especially in areas dominated by the foreign market such as infant formula. The new law grants regulatory bodies more authority, sets harsher penalties for violations, and introduces more guidelines for consumer product manufacturing and production.
The following are some key changes to the food safety law that foreign firms should be aware of when investing and conducting food business in China:
New Rules for Online Food Retailers
Online food retailers are required to carry out due diligence on their vendors and food distributors, making sure that they have obtained all relevant licenses. Online food retailers will be held liable if they cannot provide the real name, address and contact information of a food distributor to consumers.
Changes to Licensing Procedures for Food Business
No license is required for selling edible agricultural products (previously only applied to farmers selling self-produced agricultural products). However, investors that are engaged in food production, distribution and catering still need to obtain special licenses.
Comprehensive ‘Field to Table’ Product Regulation
Food producers will be required to create a food safety self-examination and traceability system and obtain food safety liability insurance. Foreign exporters must establish a system to verify products comply with food safety requirements in China. Online food retailers are not only required to procure the necessary food license, but they will now be held liable for food distributed on their online platforms.
Strict Supervision on Special Foods
Health products are now categorized as either requiring registration or report-filing with the CFDA, depending on the product’s ingredients and whether it has already been imported to China. In addition, the health food’s label, instructions, and advertisements must all clearly state that ‘this product cannot be a substitute for medicine.’
Infant Food Products
Stringent regulatory guidelines are set to ensure the safety of infant food products. Product recipes must be registered with the CFDA, infant formula cannot be repackaged or sub-contracted and sold under different brands, and domestic manufacturing facilities are required to file comprehensive quality control reports on each production batch with the local food and drug administration. Infant formula producers are now required to report to the provincial Food and Drug Administration with their raw materials, additives, labels and relevant information for record filing.
GMO (Genetically Modified Organism) foods must be clearly labelled as containing GMO products.
There are more requirements for food import labelling, with the product name, net content, ingredient list, names of any food additives, the shelf life, production date, storage conditions, directions for usage, product origin, exporter and buyer’s name and contact information, etc. to be listed in Chinese.
Increased Punitive Damages for Food Safety Violations
Under the Consumer Protection Law, consumers could claim punitive damages for up to 10 times the product or service price, or twice the total loss if the product resulted in death or severe damage to health. However, with the new food safety law, consumers can claim compensation from food manufacturers and distributers up to 3 times the loss incurred. Food imports will immediately be subject to recall.
Severe Fines for Food Additive Violations
Previously, the use of illegal food additives could result in fines of between 5 and 10 times the goods’ value, but under the new law, this amount will increase to between 15 to 30 times the goods’ value, or RMB 50,000 to 150,000 if the goods’ total value is less than RMB 10,000.
The law encourages whistle-blowing by emphasizing that the individual or group will be awarded for publicly revealing food safety violations.
While some have expressed concern that the new law does not clarify how the government will enforce the new guidelines, the new food safety law is sure to have an effect on food business practices in China. Foreign investors and firms should be more prudent than ever to ensure compliance with the new guidelines for food safety and sale in China to avoid the possibilities of food recall and subsequent loss in profit.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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