Over the past couple of years, CBEC business has enjoyed accolades beyond belief. The 600 million plus customers and the billions being generated have boggled the mind. For example, last “Singles Day” celebration (November 11th) saw Alibba’s sales top $14 billion in 24 hours. Truly amazing!
Fast forward to March 23, 2016 and the party begins to lose its luster. The Ministry of Finance released the new tax policy for CBEC doing away with the previous system, which allowed sales under 500RMB to go tax/tariff free. The new system will tax all shipments forcing CBEC purchases to become more expensive thus ending CBEC’s huge advantage of low prices. For more on the new tax system CLICK HERE.
Then the first week of April saw yet another ominous document from the Ministry of Finance entitled, “Cross Border E-Commerce Retail Commodity List”, which had a positive list of products that were allowed to be sold via CBEC. With the exception of some basic vitamins, fish oil and gingko the list was devote of all other dietary supplements. Furthermore, there was a note next to each of these stating, the product will be ruled out of the list if it cannot be recognized as food or if it is any special food needing registration according to Chinese regulations.
The industry was just coming to terms with the announcement of the new tax scheme then the supplement industry gets hit with this “positive list”, which seems to be saying health products will not be allowed to be sold unless they follow all applicable laws and obtain approval / registration from China FDA.
Wait a minute, “we” thought this was one of the main reasons CBEC existed in the first place. To allow Chinese consumers access to foreign goods that were otherwise unattainable in China. For example, most foreign supplement brands do not have registration approval from China’s FDA, so CBEC was the perfect solution. It allowed consumers to purchase what they wanted directly from overseas. In fact, the supplement category became the second largest category sold through Alibaba’s cross-border site, tmall global. (www.tmall.hk).
Wait not done with the story yet, last night (April 15, 2016) around 11pm the Ministry of Finance was up burning the mid-night oil and shot another round across the bow of the supplement industry. By releasing a second “Cross Border E-Commerce Retail Commodity List” together with an Explanation there of. The new list added Seal Oil and Co-enzyme Q10 and erased notes next to all the vitamins that they needed to be registered. However, the “explanation” document basically states that any Special Foods (include Health Food, Formulas for Special Medical Purpose etc.) are required to be registered or recorded according to Chinese law. Otherwise, those special foods cannot be sold through CBEC model.
Question: if the supplements in question follow the China FDA regulations and go through the registration process, which takes about 3 years and costs over $100k per SKU, why would these products need the CBEC channel in the first palce? There is no need at all. With China FDA approval, the products could be imported and sold via regular e-commerce and retail brick & mortars.
This is an ongoing situation and the U.S.-China Health Products Association (www.uschinahpa.org) and other stake holders are working overtime to obtain clarity from the government. Hopefully in the coming days, the circumstances will become more clear.
The Chinese government should consider its economic development strategy more carefully. For example, two developmental / reform points have been forefront of China’s last Five-Year plan.
1. Move away from an export oriented economy and towards a consumer driven one.
2. Invest in healthcare in particular preventative measures to ensure China’s aging population stays healthy longer, so as not to overburden the healthcare system.
Dietary supplements, fit both this points perfectly. Supplements are consumer goods and they ensure that people are getting the nutrition they need to lead healthier lives.
Be sure to visit USCHPA’s website to view any and all new regulations that effect China’s dietary supplement industry. They are freely available and in English with original Chinese attached. LINK: Regulatory Updates
Also sign up to receive the association’s free weekly newsletter, “China Updates”, which will keep you up to date on all matters that effect China’s supplement / food industry such as consumer trends, e-commerce, regulations, etc. CLICK HERE.