By Giulia Daverio
According to a 2016 study by the Hong Kong Trade Development Council (HKTDC), China’s health foods market is worth more than US$144.2 billion. As of June 2016, the China Food and Drug Administration (CFDA) had approved a total of 16,573 health food products, of which 15,822 were domestic and 751 were imported.
Due to its impressive growth and to the numerous food scandals which have played a key role in driving consumers towards imported products, this market presents enormous opportunities for foreign businesses. There are several factors, both social and economic, contributing to the industry’s rise:
Rising health awareness: the increasingly educated and internet savvy Chinese middle class is more health conscious. The general lack of trust in the quality of domestic food products, and concerns related to China’s air, soil and water pollution have galvanized Chinese consumers towards health products, like dietary supplements, as well as water and air filters.
Status symbol: increased consumption of organic and health foods has contributed to a growing trend of healthy lifestyle products. Health and organic foods are seen as luxury goods, available to those who are able to afford it.
Ageing population and tradition: China’s demographics are rapidly changing. It is estimated that more than 30 percent of the population will be age 60 or older by 2050, increasing expected health food consumption significantly. Additionally, in Chinese culture, meals are supposed to be nutritionally balanced and use natural ingredients, suggesting that health foods would be able to be marketed and assimilate well into local traditions.
E-commerce: popular online platforms are becoming more and more utilized by tech-savvy population, and online and mobile sales are growing every year. E-commerce will likely become one of the most popular outlets for selling health foods, and as online platforms grow, it will likely increase accessibility and decrease costs for the health food industry.
Regulatory Environment and Certifications
In China, food products can be labelled as a “health food” if it applies to one of two categories:
Food with specific health functions: suitable for consumption by specific groups of people with the aim of regulating different human body functions.
Function foods cannot be used for treating diseases, but they are usually considered beneficial to health in ways that go beyond a standard healthy diet. For example, New Zealand honey is labelled as a health food due to its antibacterial features and positive effects on the digestive system.
Nutritional supplements: products that contain dietary ingredients used to supplement nutrients for the human body. Nutritional supplements are divided into single-ingredient and multi-ingredient, and include vitamins, minerals, herbs and sport supplements.
According to estimates from June 2016, in China’s Health Food market, functional foods accounts for about 65 percent of the market while nutritional supplements account for the remaining 35 percent.
Health Food Certification
In order to be legally sold in China as health food, every functional food and nutritional supplement needs to obtain the Health Food Approval Certificate from the CFDA.
Implemented on July 1, 2016, the new Administrative Measure on Health Food Registration and Filing released by CFDA stipulates the registration and filing procedures and requirements for all health foods produced or marketed in China.
Manufacturers who plan to sell health foods in China must either have an official office in China or appoint an authorized agent to obtain the certificate for them. If the product ingredients are not listed in the Catalogue of Health Food Ingredients, or if the product has been imported and does not contain vitamin or mineral supplements, then the registration procedure will require additional steps and scrutiny.
To register a health food product, applicants are required to submit the following materials:
– The product’s R&D report;
– Product’s formula and related documents;
– Production process and related documents;
– Safety and health care evaluation report;
– Three samples of the packaged products for sale; and
– Additional documentation required when the Health Food is imported into China by an overseas manufacturer (such as the standards applied in the country of manufacture).
The process takes between 85 to 95 working days. The Health Food Certificate is valid for five years, with applicants needing to apply for renewal six months prior to expiry.
Direct sales is a popular channel for health food sales due to its low operating costs. Sales are often supported by interactive events, conference marketing and traditional marketing campaigns through television and social media. Shopping malls, hypermarkets and drug stores also all carry health food products, including those with specialized and therapeutic functions.
Many large suppliers of health products have established their own online platforms in addition to operating stores. Through the online-to-offline (O2O) model, consumers are encouraged to try the products in the physical stores and place orders online, thus completing the experience and purchase process.
E-commerce has become a more popular option in recent years, both through e-commerce platforms directly owned by the company (through a stand-alone e-commerce website) and through third-party platforms such as Tmall.com and JD.com. E-commerce is considered a particularly promising channel due to the nature of health foods, which is both a specialty item and easily delivered.
The general enthusiasm for health food in China represents an opportunity for foreign companies looking to expand in the market, especially where the domestic industry cannot meet the quality demands of Chinese consumers.
Foreign companies should look for opportunities in specific niche segments which may be growing due both to social changes and gaps in the domestic market. Health food products for infants and pregnant women, and sports nutrition products are just two of the many specialized segments where foreign companies can benefit from the consumers’ health consciousness and willingness to spend a premium.
As with other consumer and luxury goods, the health foods market is most mature in large cities along the eastern coast. However, even in this region, heavy marketing and branding is required to correctly place and communicate products to customers. Moreover, investors should take proactive measures to protect their intellectual property and prevent counterfeits by filing trade secrets, patents and trademarks with the Chinese Customs authority.
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 email@example.com or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
China Investment Roadmap: the Food & Beverage Industry
In this edition of China Briefing, we examine two areas of Chinese food regulations most pertinent for foreign investors today – licensing and certification, and food safety standards. Both have undergone significant change in recent years, altering the way in which foreign companies must engage with the food & beverage industry, and must be thoroughly understood prior to market entry.
Establishing & Operating a Business in China 2016
Establishing & Operating a Business in China 2016, produced in collaboration with the experts at Dezan Shira & Associates, explores the establishment procedures and related considerations of the Representative Office (RO), and two types of Limited Liability Companies: the Wholly Foreign-owned Enterprise (WFOE) and the Sino-foreign Joint Venture (JV). The guide also includes issues specific to Hong Kong and Singapore holding companies, and details how foreign investors can close a foreign-invested enterprise smoothly in China.
Selling, Sourcing and E-Commerce in China 2016 (First Edition)
This guide, produced in collaboration with the experts at Dezan Shira & Associates, provides a comprehensive analysis of all these aspects of commerce in China. It discusses how foreign companies can best go about sourcing products from China; how foreign retailers can set up operations on the ground to sell directly to the country’s massive consumer class; and finally details how foreign enterprises can access China’s lucrative yet ostensibly complex e-commerce market.