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China is missing a trick by regulating midsize firms out of the market

Post a commentBy RJ Whitehead , 28-May-2014

China is missing a trick by regulating midsize firms out of the market

Pacing through the hall of last week’s Fi Asia-Vietnam trade show in Saigon, something seemed very different. 

For starters, there were none of the customary Chinese one-man-band stands decorated with banners written in Mandarin and filled to overflowing with samples of traditional medicines. Indeed, the Chinese presence was notable by its absence.

At the same time there were murmurings over the viability of China’s market by some of the private international exhibitors. Hearing this, at a time when there’s a gold rush on for companies to enter this fast-growing market, came as quite a surprise.

The lack of Chinese stands can be explained simply by the political tension between Vietnam and China after the latter parked an oil rig in the disputed South China Sea.

In the bars, restaurants and halls of the Saigon Exhibition and Conference Centre, the stand-off could be heard being discussed everywhere. It is a very real issue in Vietnam, with locals and expats seriously worried about what the outcome will be if the row continues to escalate.

This tension provided a suitable backdrop to complaints by some of the Fi exhibitors as they criticised the barriers of entry to China—some even conceding that the country no longer featured in their ambitions.

One midsize Italian producer of processed egg products cited the intricacies of Chinese regulatory approval that led the company to cancel all plans to set up an office in the country. Asked if he could see a time when his firm might reconsider a move into the market there, the company’s representative at the show was thoroughly doubtful.

Southeast Asia, Japan and Korea, definitely: these are good export markets for us. But we could not justify the cost and the time it would take to get our products approved for export to China,” he said.

We will focus on the countries that are China’s neighbours for our Asian business. We don’t see China as a viable market at all, and we don’t expect to.”

Another exhibitor, a private German nutraceuticals manufacturer, lamented the approvals process China has implemented as being a total barrier to entry for his company.

I don’t understand why when Europe has its own tough and rigorous standards, and we comply with every one of these, that China must make us go through the whole process again and then some,” one of the firm’s directors told us.

I know that China has had its problems with product safety and how consumers there must trust the products that are allowed to be sold in China, but it could take three years and cost huge amounts of money for us to get approval to sell just one of our products.

Then, if we did export there, we would have to find local distributors, and that can be very problematic. In China, the power is with the distributor and we don’t know if we could take that risk.”

Of course, many companies are already doing business in China, some of them quite successfully. But these tend to be multinationals with the capital and the might to drive straight through the barriers and then control their distribution. 

But not every company has this power, which usually comes with scale, even if the products they manufacture are world class. 

By being so rigid on its own import standards, China is missing a trick. It is a good thing that the authorities there are working hard to improve the safety of food products at a time when consumers are increasingly worried about what they put in their bodies.

But China’s is still not a free market that encourages the import of well-respected, fully certified products. By acknowledging the regulatory strength of other countries and blocs, and lowering the barriers to entry for smaller, and often more specialised, product manufacturers, China could raise the bar for its own producers and restore faith among its consumers.

By continuing to assert a lengthy and uneconomical approvals process, the country is missing out on the benefits of tapping into Europe and America’s longstanding experience in high-quality food and nutraceuticals—something which alone could drive safety and innovation in China.

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