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The food and beverage industry is one of the most strictly regulated sectors in China, and foreign companies looking to enter the Chinese market need to make sense of a complex network of laws and regulations.
For many entrepreneurs, the process of entering the Chinese market is surprisingly complex – and it is worth noting that market approval in the EU or the US does not mean that a product will be automatically approved for sale in China. If a foreign company wishes to manufacture or conduct sales from a local base, it must register the company in China. Entering a joint venture with a local partner can simplify the process, but it is also possible to register a wholly foreign owned enterprise (WFOE).
According to a report from The World Bank, China is one of the most difficult countries in which to start a business, ranking at 151st place out of 183 economies.
Thibaut Minot is Assistant Manager on the International Business Advisory team of Dezan Shira & Associates in Shanghai. He said even for companies simply looking to export their products to China, there are several legal elements that often take foreign businesses by surprise.
“Companies used to uniform standards overseas, such as EU regulations concerning food safety and traceability, need to perform new registrations and obtain separate certificates ahead of their entry into the China market,” he said.
“Product labelling must also be in the Chinese language. This often implies that products need to be repackaged locally, which is another step that sometimes slows down market entry.”
He added, “Meanwhile, certain F&B products are banned from import into China altogether, while the list of prohibited products is updated periodically…Foreign F&B manufacturers and China importers need to stay up to date with the list of products prohibited or restricted for import as decided by AQSIQ and the Ministry of Agriculture.”
Apart from setting up manufacturing facilities or offices in China, foreign food and drink companies often opt to manufacture elsewhere and work with a Chinese distributor. In that case, defining the terms of the distribution deal is of the utmost importance. Registering trademarks (including in Chinese) with the China Trademark Office as soon as possible is particularly important, as China has a ‘first to file’ patent system, meaning a foreign company cannot use its branding and logo if they have already been registered by a local company.
“This sometimes catches foreign companies off-guard, with some of them assuming that having secured trademark protection overseas means that their brand is also de-facto protected in the China market,” Minot said.
Even after properly registering intellectual property, IP rights infringements are common in China, although there have been major legal reforms regarding IPR over the past decade.
According to market research firm B2B International: “Any company entering the market for the first time should work under the assumption that its technology will be compromised at some point. With this in mind, it is generally recommended that foreign companies, and particularly those with large IP inventories, consult with lawyers and IPR specialists to formulate an IPR strategy for the China market.”
Since the 2008 melamine-tainted infant formula scandal, Chinese authorities have cracked down on companies that flout food safety law, and widespread pollution caused by poor enforcement of environmental standards has also led to tighter regulation among companies manufacturing products in China.
At ports, foreign-produced products are at particular risk of rejection if they contain illegal food ingredients, have non-compliant Chinese labels, or fail to qualify product quality according to Chinese law, says CIRS China, a product safety and chemical management consulting firm.
Companies looking to export pre-packaged food and drink to China therefore must take care to ensure regulatory compliance on these three levels.
There are several regulations that deal with each of these points. For example, there is a regulation on the use of food additives, while others detail maximum permitted levels of pesticide residues, contaminants, and pathogens.
Recent laws also outline specific requirements for allergen labelling and nutrition labelling, among others.
Referring to import and export of food and beverage products, Minot offers a list of steps that companies should take:
He added, “The CIQ sanitary certificate is issued only if the documents are complete. Certain products, such as ‘health’ foods’ or ‘organic’ products require additional licenses and approvals.”
The most important message for food and drink companies looking to enter the Chinese market is to research the regulatory landscape carefully and, if in doubt, to consider employing a specialist regulatory consultant.