The current regulations require companies to apply for registration with China’s Food and Drug Administration to gain the “blue hat” mark for their products.
However, this process requires two to three years of administrative procedures, rigorous testing and clinical trials. Furthermore, this is not an inexpensive endeavour: once finalised, most registrations can cost upwards of US$100,000 or more per product depending on what claim is being made and what ingredients are used.
As the process is not at all transparent, registration agents are typically hired to assist in navigating the process and keeping the procedure moving forward. Of course this service is not free and adds to the overall investment in the blue hat.
Up to now, the system has allowed a select group of companies to monopolise the industry as they have invested heavily to obtain blue hat registrations in the 1990s. If we take a look at the numbers of registrations handed out between 2010 and 2103 alone, we can see the great majority of these have been given to domestic companies.
Here are the numbers: Domestic – 3,154 Foreign – 56.
It is a well known industry rumour that many of these domestic registrations are in fact being held by companies that look to sell them and make profits.
Transferring a registration from one company to another is faster than going through the entire process from scratch. And because the registration process is so costly in both time and capital, there are companies willing to pay for these “pre-registered” products in order to expedite their entry to market.
Now this is not to say the government is refusing to give registrations to foreign companies; rather, it is a reflection of most foreign companies refusing to invest in such an unreasonable regulatory system.
The US-China Health Products Association is regularly queried by global players with a flurry of “whys”, such as why does China treat dietary supplements as though they are drugs when they are regulated as food or nutritional products in the rest of the world? Why does China force companies to go through clinical trials and testing when these ingredients have decades of safety data and why must companies go through the process when similar or identical products have already received registrations? What’s with all the redundancies? Why are some dietary supplements registration as OTC drugs, others as blue hat health foods, yet others as traditional Chinese medicine and others as food?
It makes for a very confusing landscape for consumers and is hurting industry development. The current regulations are seen not only as prohibiting the healthy development of the industry, but also as a barrier to trade.
The US-China Health Products Association recently released an export potential report, that showed the US dietary supplement industry is losing in excess of US$8bn in exports to China, as well as over 2,700 jobs that would be created as a result of such exports.
Although this report focused on the US industry, other global and domestic players are all losing out. The association feels the biggest losers in this situation are the consumers as they are denied cutting-edge dietary supplements that could help them live longer healthier lives. (With China’s enormous elderly population looming, the issue of ”healthier lives” is a very important point.)
The great news is there might be light at the end of the tunnel. This year China’s FDA has publicly stated that the dietary supplement (health food) industry will be revised and include a notification-type system. But as these proposals are still being debated, it is hard to say how much of that “light” gets through.
This spring, China’s National People’s Congress put forth legislation that would end the blue hat system and allow dietary supplements to be handled with a notification-type system.
China’s Premier Li Keqiang has been stressing the decentralisation of the government’s power over the market and wants to begin to open China to market forces. However, these reforms are being challenged.
There are two opposing sides to this ongoing struggle to develop China’s dietary supplement industry.
One idea is to do away with the blue hat regulatory system and place it under the overall food safety law regulation, meaning dietary or nutritional supplements would be handled more as a type of food, which would require companies to submit products on a notification basis to the government.
This of course would streamline the “to market” process and solve almost all of the issues mentioned earlier.
The other idea is to keep the system the way it is. This is being promoted by companies that have already invested heavily in the blue hat system and have been dominating the industry while amassing huge profits as a result.
The association sympathises with these companies, as we understand giving up a steering position in the industry is not ideal especially for shareholders.
However, the simple fact is that free market forces are pushing the industry to develop and open to competition. The China market is huge and there will be enough profits to go around for everyone.
This is not a bad thing at all as it will increase the size of the industry dramatically; encourage domestic and foreign investment; increase the development of new sales channels like health food stores; spread education to consumers; increase the number of legitimate players, which in turn will decrease the market space for unscrupulous players seeking to cheat consumers; and finally offer consumers a much larger range of healthy products to choose from.
We hope to see the light at the end of the tunnel at year’s end and look forward to witnessing Chinese regulators make the right decision by allowing market forces and consumer demand to drive legislation.