Key points on the current law regarding Infant Formula registration are:
All Infant Formula products to be sold in China, whether domestically manufactured or imported, must obtain formula registration from China Food and Drug Administration (“CFDA”);
The maximum number of formulas that can be registered by a company is nine (9), and such formulas shall be allocated to no more than 3 product series (“Formula Quota”);
A wholly owned subsidiary can use formula registered by an affiliate of the same group company provided that (i) the subsidiary has obtained its own formula registration and manufacturers license before using the formulas owned by the affiliate, (ii) the subsidiary has the necessary technology, equipment and facilities for manufacturing, and (iii) the group company files a written report with CFDA beforehand.
By 11 January 2018, there were 1000 formulas registered with CFDA by 134 companies. Among them, 96 were domestic manufacturers (including foreign invested companies) and 38 were foreign manufacturers[3].
Our analysis of the data and information in the formula registration lists, revealed the following:
1. Formula Quota limitation applies to a single entity (not a group).
The relevant Infant Formula registration rules do not state whether the Formula Quota limitation (3 series, in total of 9) applies to an individual entity or to a group of companies. In other words, it is not clear whether each subsidiary of a group company is entitled to apply for the Formula Quota independently.
In the formula registration lists issued by CFDA, there are examples where affiliates of a group company have successfully accumulated more than 9 formulas. Therefore, it can be concluded that each of the affiliated companies can enjoy an independent Formula Quota, as long as the application thresholds are met.
2. “All in” or “save for later”
Among the 134 manufacturers, 87 had registered 9 formulas. So, more than half of the applicants had consumed their entire Formula Quota. But a fair number of manufacturers had saved some of their Formula Quota for later. Among those who had consumed their entire Formula Quota, only 37 were from a foreign investment background (foreign company/foreign invested company). The remaining 50 were pure domestic enterprises. The companies with 9 registered formulas were mostly well known brands.
3. Domestic brands vs foreign brands
Foreign companies account for only 28% of the companies with infant formula registrations. But, this does not necessarily mean international brands have lost their dominance in the sector. Of the 134 manufacturers who have registered Infant Formulas, about 40% of them are pure domestic companies while about 60% have a foreign investment element[4].
4. On-site inspections of Foreign Manufacturers – not strictly implemented
The Management Measures for Formula Registration of Infant Formula Milk Powder allow the CFDA to conduct on-site inspections of applicants, including foreign applicants, at the CFDA’s discretion. However, the procedure for foreign inspections is unclear.
According to anonymous consultations with the CFDA, so far no foreign on-site inspections have been conducted. This is not surprising given the tight schedule by which CFDA have to handle tons of applications from market players. However, how the CFDA will conduct the on-site inspections (if at all) remains unclear.
WHA Price at posting:
$1.41 Sentiment: Hold Disclosure: Held
