New Restrictions for Foreign Dairy Makers in China

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SHANGHAI – On Monday, China announced changes to regulations for foreign dairy manufacturers to operate in the country, under which companies must now register with the General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ) prior to the import and sale of their products in China.

Along with the announcement, the GAQSIQ published a list of 41 foreign companies that have registered to date. The list includes manufacturers from 13 countries, with major representation from New Zealand, France and the Netherlands. No companies from the U.S. or Japan were included on the list.

This, together with a requirement introduced last month that foreign-made dairy products must be affixed with Chinese labels prior to export for sale in China, spurred accusations of protectionism for China’s domestic dairy industry. The fact that the changes went into effect last Thursday, several days prior to Monday’s announcement, did little to assuage doubts.

The official response given in state media to these complaints is that the government is merely trying to stop “illegal” brands from entering the Chinese market. It is common knowledge however that China has reason to worry about its domestic dairy industry – the industry has yet to recover from the massive blow dealt to it by the 2008 melamine scandal in which adulterated infant formula killed 6 babies and left at least 300,000 ill.

RELATED: Stricter Chinese Food Quality Standards – Or Protectionism?

Memory of this incident still lingers in the minds of Chinese parents, who strongly prefer formula over breast milk, with foreign brands still holding over 60 percent of total market share. The rush on foreign-made formula since 2008 has driven up the price of buying these goods in China and led to the emergence of various “grey” and black markets, including widespread smuggling, tourism conducted for the purpose of buying formula while abroad, counterfeit foreign-made formula and specialized online importers of formula.

The good news is, the current list of registered foreign manufacturers is by no means final. Manufacturers are invited to apply to GAQSIQ for registration, and a second-edition list is already said to be in the works. However, the application process, like all things regulatory in China, is likely to take time and effort, meanwhile cutting into profits as shipments to China are left stranded in their home countries.

China imported one million tons of milk powder in 2013. Q1 figures indicate the country is on track to break this record in 2014.

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 china@dezshira.com or visit www.dezshira.com.

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