How to break into the Chinese nutrition market

How to break into the Chinese nutrition market

With nutritional market regulations pending, the time is finally ripe to develop plans to launch into the Chinese domestic market. But how? China expert Steve Hanson gives insight and good advice about how to successfully enter this massive market.

In 2010, the Chinese economy established a milestone, passing Japan to become the world’s second-largest economy. It is on path to become the first largest somewhere in the decade between 2020 and 2030, or even earlier if purchasing power parity is used as the yardstick.

Of course China’s huge population means the per capita measurement of gross domestic product is still far below most of the developed world. But this, too, is changing; some analysts have estimated that up to two-thirds of the world’s middle class will live in China by 2030.

Within this overall growth picture, the country’s nutrition market is growing, too, reaching $44 billion in 2011. The market now represents about 14.5 percent of the world’s overall nutrition market, and is forecast to grow at double-digit rates for the foreseeable future. Imported products are an important part of this picture, and consumer surveys show that American products enjoy an excellent reputation among Chinese consumers.

In the 2000s, the Chinese nutrition industry saw a broader diversification of products offered ranging from multivitamins to essential fatty acids. Outbreaks of Severe Acute Respiratory Syndrome (SARS) and Avian Bird Flu contributed to a dramatic rise in sales of health food supplements especially those focused on enhancing the immune system.

According to a survey conducted by the China Health Care Association in 2004, imports of health food supplements accounted for an estimated 40 percent of sales in China. A more recent update of this report stated that over the past 15 years roughly 644 types of nutritional supplements have been exported to China, with 63 percent of these coming from the United States. Multi-Level Marketing (MLM) companies such as Amway have also found success in China.

Regulatory considerations

So the case is clear about the why about entering China. The question remains, how? First, it’s helpful to know a little about the complicated regulatory landscape.

The regulatory system for health foods and health food supplements is confusing and there has been significant appeal for change among Chinese consumers, domestic companies and foreign ones. Jeff Crowther, executive director of the US-China Health Products Association, said, "There is a lot of grey area in the existing regulations. There are some health food supplements going through the health food approval process while others are being marketed as general foods. The regulations pertaining to dietary supplements aren't very clear."

New regulations related to health food supplements have been in development since 2008 but have yet to be released. There has been no definitive date set for their release but industry insiders expect to see them by the end of 2012. The regulatory picture is further clouded by the number of agencies with jurisdiction, and the number of categories under which health products can be sold.

There are three primary organizations involved with the regulations related to health food, foods and ingredients. These organizations are:

  1. The State Food and Drug Administration (SFDA), a division of the Ministry of Health, is responsible for the regulations and approvals related to health food.
  2. The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). AQSIQ is responsible for national quality, entry-exit commodity inspection, import-export food safety and certification, standardization and administrative law enforcement.
  3. The Ministry of Health is responsible for regulations pertaining to public health, setting quality standards for foods and raw material standards.

The existing system offers health food manufacturers—both dietary supplements and functional foods—the ability to market their products either as an (1) approved health food with the ability to make claims or as an (2) imported health food. Ingredients go through a different process and are approved by the Ministry of Health.

China has a strict registration process for health foods seeking to make claims. When submitting an application for registration, an organization must categorize the product's declared functions, in accordance with the SFDA's published list of 18 approved functions (this list had previously been 27 functions). If the health food supplement functions are not included in the list, the manufacturer may conduct its own animal and human tests and supply a report verifying its function for review. After confirming a product's function, safety and other tests, the application of registration is assessed and then submitted to SFDA with the assessment report.

Alternatively, many manufacturers choose to import dietary supplements as imported food. When a foreign company registers an imported health food, the registration must be completed by an entity incorporated in China, a Chinese subsidiary of the foreign company or a third-party professional based in China.

If marketing products under this approach, the product can't make any health claims on the packaging or in advertising. Also, these products can't utilize the "blue-hat logo." A significant majority of the market is represented by dietary supplements that are sold in this manner.

The pros and cons of each approach are summarized in Tables 1 and 2.

Product and ingredient trends

At the end of 2011, SFDA had approved 11,862 health food products, among which 11,197 were from domestic companies with the remaining 665 from imports. These figures would not include the numerous dietary supplement/health food products that are being marketed as food and have not secured an SFDA approval.

Because each product that registers with the SFDA must submit the product's declared function, there is an understanding of what claims are most utilized. The SFDA had a list of 27 approved health function claims that was reduced to 18 in 2011. Table 3 below shows the ranking of the claims by market size and percentage. Popular health product categories in China include calcium supplements, fish oil, lecithin, spirulina and multivitamins.

Sales channels

Sales channels in China include direct selling—the biggest category in dollar terms—followed by traditional pharmacies, conference selling, chain stores, direct mail sales and Internet sales.

Imported products have had the best success in the direct selling channel or high-end retail environments such as shopping malls catering to China's wealthy class. In the traditional pharmacy and chain store channels, imported products have not done as well due to the higher price point.

The market is witnessing a developing health food store segment so this channel may offer a growing opportunity for imports. Crowther believes that a number of retailers will invest in the market once the regulatory system has been defined.

The opportunities for imported products will continue to grow in China. It has been estimated that up to now only 25 percent of Chinese have used health products, which equates to a population of 336 million, 25 million more people than the entire U.S. population. According to data provided by CNutrInfo, 71 percent of supplements are consumed in the developed regions of China.

So the future upside is almost limitless. Breaking into this market can be a huge boost for any health products company.


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