Imported Baby ProductsBaby imports
Responding to this, the regulatory authorities in China have worked harder over the last five years to tighten legislation on foodstuffs, particularly baby foods and dietary supplements. Immediately following the Sanlu case, alien baby foods profited from this disgrace by winning much higher lives.
Consumers' trust in China's local baby formulas brand has dropped to zero and preferential international options have declined; many young China parental companies still favour buying baby formulas directly from abroad. After the Sanlu affair, the China authorities also responded by increasing regulatory compliance - governments such as the FDA, the Ministry of Industry and Information Technology, the Administration of Qualitätsmanagement, Inspection and Quarantine ("AQISQ") and the Administration of Industry and Commerce ("AIC") conducted comprehensive trace testing on foodsafety, sampling and testing of baby foods throughout the country, and a number of China trademarks turned out to be similar to Sanlu in terms of product performance and security.
The domestic baby food became virtually unsaleable. Powdered baby formula became one of the most favourite shopping destinations for foreign visitors from China, leading to a shortage of stocks. Hongkong even made the exporting of more than the permissible two jerry cans of baby food a crime. The majority of these sales ended up as concurrent online importations and were selling very well, although they were selling in the country of provenance for three to four fold the selling prices.
In 2013, the China administration shifted its emphasis from local to import brand products. In order to re-establish consumers' trust in China's products, the authorities investigated the use of imported trademarks, restricted purchases abroad and proposed measures against imported goods. Over the last two years, the China authorities have dealt with two issues - ensuring safe foodstuffs and preventing dishonest trade.
In 2013, a county AIC survey investigated a number of alien baby foods and whey brand names claimed to have been supplied with contaminated commodities by Fonterra, a New Zealand milk product company. Traditional and supermarket retailers of these makes in China were also involved in the proceeding.
In 2013, China's regulatory authorities began tightening regulations for the manufacture and import of baby foods abroad and banning the widespread OEM baby foods series. An OEM contract is a contract between a firm, the principal, and a producer for the manufacture of usually customer-specific products, which are delivered only under the principal's name or sign rather than under the manufacturer's name.
Prior to the prohibition, many alien trademarks hired domestic China companies to manufacture baby food for them while selling the products under their own trademarks. Uncertainties remain as to whether China's baby food brand will be able to use the OEM scheme, which involves international growers, and it is anticipated that banning rules will be enacted.
AQSIQ also adopted in January 2013 the imported and exported milk products measure, which streamlines the management of imports of milk products (including baby formula). Those provisions demand that foreign manufacturers and Importers conclude contingent registrations in China before qualifying to enter China with baby foods, ban imports of baby foods for repackaging in China, and print China signs and directions on the package of imported foods prior to custom formalities in China.
Prohibitions on OEM designs and mass imports restrict opportunities to reinvest in baby food, to compel overseas manufacturers to modify their designs to make the baby food themselves (including participation in baby food), or to directly source the jerry cans for retailing in China. As a result, overseas actors may need to re-structure their asset allocation strategies, re-calculate their budgets and monitor adherence.
At about the same contemporaneous point, the National Development and Reform Commission began investigating allegations of collusion on prices and dishonest competitive behaviour by manufacturers of baby foods, in particular those of non-national companies. Over and above the potentially high penalties, reputation risk had to be dealt with, which may to some degree have harmed the "clean and healthy" reputation of imported baby food.
Milk growers in China are now focusing heavily on a wide range of issues related to adherence to regulations. In addition to this area, the lessons of this period apply to overseas corporations doing business in China, but to many if not all industries: poor adherence to regulations domestically does not mean that the risks are less scandalous, and a consequent policy response can lead to a rapid and unforeseeable response that can affect overseas corporations as well as local ones.