China Market Overview 2015-03-06

Expo West March 6, 2015 Jeff Crowther – Executive Director (USCHPA)

China Dietary Supplement Market Overview

Agenda

Your Trusted Partner in China

•  Market Overview

•  Trends

•  Regulatory: Finished Products

•  Regulatory: New Food Ingredients

•  Sales Channels

•  Cross Border E-‐Commerce

•  Market Entry Tips

•  IntroducDon to USCHPA

China: Dietary Supplement Market Overview

Market and Information Disclaimer


Market Overview

Market Overview


GDP Real Growth: 7.4% Population: 1.36 billion Consumer Base: 280 million

Consumer Goods Sales 12.1%

Country Overview*

Opportunities •  China FDA New Regulations (NOTIFICATION)

•  National Health Commission (formerly MOH) Ingredient Approvals (Krill Oil, DHA, Chitosan, Acai, Theanine etc…)

•  Healthcare System Moving Towards Prevention

•  E-commerce Growth

•  High Regard for Foreign Brands

* Data Collected on July 2014 from China Bureau of Statistics

Market Overview


24 20

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15

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30,000

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China to Outpace the World and Asia Pacific Nutritionals Outlook

Sports Nutrition Paediatric Vitamins and Dietary Supplements

Dietary Supplements Tonics and Bottled Nutritive Drinks

Vitamins Weight Management

% Growth Combined Categories 2013/2018

Market Overview

“Health Food” Industry Figures????? ¥600 billion ($96 billion) HK Trade Development Council

¥400 billion ($64 billion) China Health Care Association

¥124 billion ($20 billion) U.S. – China HPA

¥83 billion ($13 billion) Euromonitor

BY 2015 ¥1 trillion ($159 billion) NDRC’s Development Plan Stated

Exchange rate $1 : ¥6.27 March 1, 2015


Why the Confusion? Contributing factors to unclear sales figures: -  Lacking Standard Definition -  Conference Selling -  Gray Market Activities -  Black Market Activities -  Redundant Agencies -  Overlapping industries

Supplements, Pharma, TCM, Food, etc.

Disclaimer!

Market Overview

Market Overview


Source: CNutra

Name Sales (US$) Amway －安利 4.8 billion Infinitus －无极限 3.7 billion Red Bull －红牛 2.6 billion Perfect China －完美 2.3 billion New Era －新时代 1.6 billion Tong Ren Tang －同仁堂 1.4 billion Tien’s －天狮 1.1 billion Jing Brand -‐劲牌 1.06 billion JoinCare Pharma -‐健康元药 1 billion Nuskin (Pharmanex) – 如新 900 million

2013: China’s Top Ten Health Product Companies

Direct Sales (MLM)

Market Overview


Direct Sales

and Conference

Selling Controls over

60% of the Market

新时代

Market Overview


Amway’s China Operations

•  1995 Launched •  6% Annual Growth •  9,000 Employees •  300,000 Sales Staff •  280 Cities

Market Overview


2014: Other Top Supplement Companies

Company Products

BiosRme Baby ProbioRcs Bristol-‐Meyers Squibb Theragran M By Health Dietary Supplements GNC Dietary Supplements Harbin Pharma Kids Liquid Cal-‐ Zinc Minsheng Pharma 21 Super Vita Nature's Bounty Dietary Supplements Shangdong Dong E Jiao Women / Skin Tasly / Kasly TCM / direct sales Wyeth Centrum / Caltrate Yang Sheng Tang Dietary Supplements

Market Overview


8% Growth rate (Euromonitor) 20% Growth rate (NDRC and CHCA) 2,100 Chinese Supplement Companies have passed through GMP certification 14,106 domestic registered dietary supplements with China FDA 736 foreign registered dietary supplements with China FDA 23% of market is calcium supplements 74% of the market are traditional / herbal based products

Dietary Supplements Industry Facts

Market Overview


Senior Citizen Population This segment of the population is an issue for China but an opportunity for the dietary supplement, functional food and medical food industry

Market Overview


Israel Population Pyramid

Source: World Fact Book

Market Overview


U.S. Population Pyramid


Market Overview


China’s Population Pyramid


Market Overview


China’s Population Issue 2015: population of 60 and over

221 million

2053: population of 60 and over 487 million

•  Strain on Economy •  Moving Toward Preventative

Health

•  Opportunity for Supplements, Functional Ingredients / Products

China National Committee on Aging


Trends

Trends


USCHPA Electronic Survey January – February 2015

15.9%

13.1%

13.0%

6.4% 6.3% 6.1%

4.4%

4.1%

3.7%

3.2%

23.8%

1,104 Surveyed in 31 Regions Beijing

Guangdong

Shanghai

Jiangsu

Shandong

Hebei

Tianjin

Zhejiang

Henan

Chongqing

Other

Trends



16.85%

49.46%

25.09%

6.79% 1.72% 0.09%

45%

55%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

15-‐24 25-‐34 35-‐44 45-‐54 55-‐65 Over 65 Male Female

261

339

292

212

0 50 100 150 200 250 300 350 400

Monthly Income

$239 - 478

$479 - 797

$798 - 1,276

$1,277 above

Demographics

Trends



Findings

Does your family take supplements? Are you more interested in buying blue hat products? Are you more interested in domestic or imported brands?

YES NO

78% 22% 73% 27% IMP. DOM. 57% 43%

Trends USCHPA Electronic Survey January – February 2015

Which Supplements is Your Family Taking?

MulR-‐Vitamins 34% ProbioRcs 25% Collagen 23% Minerals 22% Fish Oil 22% Propolis 21% Protein Power 19% Glucosamine 17% Grape seed Extract 14% Others 12% TradiRonal Chinese Medicine 10% DHA 8% Lycopene 7% Folic Acid 7% Soybean Isoflavones 6% Coenzyme-‐Q10 6% Garlic 5% Evening Primrose Oil 4% Melatonin 4% ChondroiRn Sulfate 4% Astaxanthin 3% Milk Thistle Extract 3%


Which International Brands Are you Familiar With?

Which Domestic Brands Are you Familiar With?

Pfizer Centrum 52% NBTY 31% GNC 27% Schiff 22% Blackmore's 17% Nature Made 15% Nature's Way 14% Puritan's Pride 12% Jamieson 11% Others 9% Nordic Naturals 8% Swanson 7% Swisse 6% Jarrow Formulas 6% Now Foods 4%

Amway(China) 58% By-‐Health 55% Yang Sheng Tang 47% Tong Ren Tang 46% 21Vita 40% Jiuzhitang 34% Taitai Jingxin 30% Life No.1 30% Conba 29% Herbalife(China) 29% Perfect(China) 25% Inifinitus 21% Tiens 13% Nu Skin(China) 9% Dr.Herbs 6% Others 4% USANA 4%


What Retail Setting Do You Buy Supplements?

Multiple Responses

Drug Store 66%

Online Store 39%

Receive as Gim 26%

Oversea Purchase by Friends 22%

Hospital 17%

Direct Sell 16%

Others 8%

Trends


•  Probiotics, Calcium and DHA were key functional ingredients

added in milk formula and dairy products

•  Protein popular due to consumer knowledge of muscle lose in elderly (Sarcopenia)

•  Important categories: Elderly, Children and Women’s Beauty •  Greater acceptance among consumers of Green, Organic,

Healthy and Nutritious

Trends


•  Herbal related products in tincture dosage form •  Crack down by CFDA has really hurt the dietary supplement

import business •  Move from brick and mortar to Internet •  Due to lose of “food” import channel companies are working

on food type dosage forms •  USCHPA and other organizations pushing for regulatory

reform paying off – notification system created •  Government reported lack of Omegas-3s in diet. COFCO and

Golden Dragon Fish Cooking Oil added Omega-3s


Regulatory: Finished Products


China’s 12th Five Year Plan (2011-2015)

For the first time ever, China specifically made the health food industry part of their long term plans. Areas of Focus:

1.  R&D of new resource foods

2.  Improve quality

3.  Promote development

4.  Increase consumption for special needs groups

pregnancy, children, elderly, athletes, soldiers etc.

5.  Incorporate TCM – botanicals

6.  Encourage growth of high tech larger firms

7.  By 2015 nutrition and health foods should hit $159

billion with an annual growth rate of 20%

8.  Top 100 firms control 50% of the market

Regulatory

Regulatory Finished Products


Two Ways: 1.  Registering products with China’s

Food and Drug Administration (CFDA) as “Healthy Food”.

2.  Approval from Administration of Quality Supervision Inspection and Quarantine (AQSIQ) as “Food”.

Dietary Supplement Imports


CFDA Regulatory Process

–  CFDA’s health food registration has 27 allowable claims (CHANGING)

–  One product can have up to

three claims –  Claims require extensive

testing including human and animal trials



CFDA New Approved Claims

HT = Human Testing AT = Animal Testing HAT = Human and Animal Testing

1. Improve immune system (AT) 2. Improve Sleep (HAT) 3. Relieve physical fatigue (HAT) 4. Enhance oxygen deficient endurance (AT) 5. Help protect against radioactive matters (AT) 6. Increase bone density (AT) 7. Protect liver against chemical damage (AT) 8. Relieve eye fatigue (HT) 9. Eliminate acne (HAT) 10. Eliminate chloasma (HAT) 11. Improve moisture of the skin (HT) 12. Improve oil content of the skin (HT) 13. Weight loss (HAT) 14. Help in lowering blood glucose (HAT)

15. Improve growth and development (HAT) 16. Anti-oxidation (HAT) 17. Improve nutritional anemia (HAT) 18. Help in memory improvement (HAT) 19. Adjust intestinal flora (HAT) 20. Promote lead excretion (HAT) 21. Promote digestion (HAT) 22. Clear the throat (HAT) 23. Protect gastric mucosa (HAT) 24. Promote lactation (HAT) 25. Promote Fecal Excretion (HAT) 26. Help in lowering blood pressure (HAT) 27. Help in lowering blood lipid (HAT)

Cancelled Combined Combined



This is the year it was approved and its corresponding certificate number. “G” indicates it is a domestic product

This means China Food and Drug Administration (CFDA).

This is the CFDA Functional product logo with Chinese statement which means health food product.

CFDA’s “Blue Hat” Registration for Health Food



Registration Costs

–  Need to hire registration consultant

–  Registration fee in excess of $70,000 per SKU

–  2-3 years waiting period



Year DomesRc Foreign Total 2014 941 10 951 2013 946 11 957 2012 691 11 702 2011 767 13 780 2010 751 21 772 2009 568 25 593 2008 596 36 632 2007 377 10 387 2006 751 17 768 2005 943 29 972 2004 1531 54 1585 2003 603 50 653 2002 882 52 934 2001 491 47 538 2000 779 74 853 1999 689 91 780 1998 742 77 819 1997 1003 106 1109 1996 55 2 57

The first year that registraRon administraRon was transferred from the Ministry of Health to the State Food and Drug AdministraRon

History of CFDA Registrations 1996 - 2014


China’s Regulatory Environment

Blue Hat Registration Flow Chart

•  Two year process

•  If product needs human testing, process extended by 3 -8 months

样品及技术资料交接 Handover the sample and technical data 编制送检验资料，向国家CDC TESTING 申请，缴纳试验费，开始注册检验

完成注册检验及申报资料编制 Finish sample testing and application documents compilation 国家⾷食品药品监督管理局（CFDA）受理

Accepted by the China Food and Drug Administration (CFDA) CFDA复核检验

Quality inspection

CFDA完成技术审评 Technical review by CFDA

CFDA完成⾏行政审批 Administration approval by CFDA

取证 Obtain the certificate


1st Month

2nd Month

13th Month

14th Month

22nd Month

24th Month

24th Month



Blue Hat Registration Costs:

Item Fee (¥) Fee ($) Agent Fees ¥350,000 $56,452 Toxicology test ¥70,000 $11,290 FuncRon appraisal test （animal） ¥80,000 $12,903 FuncRon appraisal test （human） ¥200,000 $32,258 Hygienically and stability test ¥60,000 $9,677 Efficacy composiRon evaluaRon ¥30,000 $4,839 SRmulant / banned substance test ¥10,000 $1,613 Microbial idenRficaRon ¥15,000 $2,419 Microbial toxicity evaluaRon ¥15,000 $2,419 Review inspecRon ¥50,000 $8,065

TOTAL ¥880,000 $141,935



NEW Draft Regulations for Nutritional Supplements Released November 5, 2014

Administrative Regulations for Nutritional Supplements and

Information Requirement for Nutritional Supplements DRAFT



•  Notification System •  Vitamins and Minerals (What about other nutrients?) •  Tablets, Capsules, Liquids, Granules (What about others?) •  Three Consecutive Batches for Testing (New Products?) •  Manufacturing Flow Chart •  Foreign Manufacturers One Year Sales/Marketing Record

(New Products?) •  New DRI (Daily Recommended Intake) Higher than before



•  Controlled by Administration of Quality Supervision Inspection and Quarantine (AQSIQ)

•  Most Foreign Companies were using this method

•  Most dietary supplement dosage forms no longer accepted (tablets, capsules, soft-gels, etc)

•  Need AQSIQ sanitation certificate (pass testing)

•  AQSIQ takes up to 1.5kg of samples for testing

•  Labels must be in Chinese

Food Import Approvals



•  Register label with AQSIQ takes about 2-4 weeks

•  Foreign Organic certificates / logos not recognized.

•  Shipping and customs clearance together takes about 2-3 months

•  Most important: Need experienced customs clearance agent

•  Importing is a Gamble

Food Import Approvals Continued:



Food Import Approvals Continued:

Label Approval Fees – $800 per label. This is a one time fee unless changes are made to the label after it approval, which require paying ¥4,800 again. Agent Fee - $1,600 per shipment or 1.5% of the shipment, whichever is larger Chinese Import Tax - 20% Value Added Tax - 17% Chinese Inspection and Quarantine Testing Fees - $190 - $480 per shipment. It depends on shipment method (air / sea) and how many different products are in the shipment.



AQSIQ Food Import Approvals Cont: Sanitation Certificate Fee – Free but some agents charge $50 or more per SKU. Sanitation certs are needed each time you import for each product. Warehousing Fees - $1 per day per sqm - $0.10 per kilo to load from truck to warehouse. Domestic Logistic Fee - $70 - 130 This is the fee to ship from Tianjin to Beijing customs. Miscellaneous Customs Fees - $100 These include customs receiving fees, hygiene fees, handling fees, etc. Unfortunately, this is not very transparent.



Documents Needed:

•  Health certificate •  Certificate of origin •  Free sale certificate •  Contract between manufacturer and importer •  Invoice from manufacturer •  Packing list

CIQ registration number for foreign manufacturer / marketer company: http://ire.eciq.cn/entire/controller?SERVICE_ID=REGISTRY_EXPORT_ADD_SERVICE&newsearch=true&recordperpage=10&defSearch=true

AQSIQ Food Import Approvals Cont:


Regulatory: New Food Ingredients


The Commission is made up of 2 former agencies (March 16, 2013) Ministry of Health

National Population and Family Planning Commission

Industry Opportunity

February 10, 2014 - At present, China’s food production cannot meet the nutritional needs of its people. Under-nutrition and over-nutrition coexist among Chinese people, and the society lacks the knowledge on nutrition and health. In order to better cope with the above challenges, the State Council officially published the National Program for Food and Nutrition Development (2014-2020). The Program focuses on safeguarding effective food supply, optimizing food structure, and improving the nutritional status of residents.

2008 - 2014 NHFPC has approved 81 New Raw Food Materials



Approval Process Snapshot Agency: NHFPC

Time: Average 2 years

Costs: $30k - $100 (One agent I know their fee is $64k)

Agent: Need a local agent to facilitate process

Risk Assessment Report: New aspect of the process and not well understood

Testing: Should be done in China to avoid set backs Expert Panel: Not transparent (MOH can overturn panels decision)


Sales Channels


Nature’s Bounty •  High-end Supermarkets •  Shopping Mall Kiosks •  Health and Beauty Store

Watson’s Mannings

•  Pharmacies •  Internet •  China currently lacks

Health Food Store Chains

Sales Channels


GNC

Blackmores / K-Lex

Sales Channels


GNC and NBTY

High-end Supermarket

Beijing Hualian – Market Place

Sales Channels


Health and Beauty Stores

Sales Channels


Pharmacy

Sales Channels


Sales Channels

China E-Commerce Fastest Growing

648 million shoppers

$443.68 billion


Sales Channels


Sales Channels


Cross Border E-commerce

Sales Channels

Source: www.iresearchchina.com

Cross Border Percentage Total Imports / Exports

2008 – 4.6%

2016 – 19%

Since 2012 2,000 companies have

registered as cross border traders





3rd Party Customer Service Company (TP Firm)

•  Need TP company $1,500 - $4,800 monthly fees 3 - 10 % profit share •  Need Warehousing •  Shipping $4 per lb. $1 every lb. after •  Customs 10% tax if over ¥500 in value •  Tmall Global (Need Invite) $25,000 deposit (refundable) $5 – 10 thousand annual fee 3% per sale 1% for currency exchange •  Not all products can use free trade zone

Cross Border E-commerce Insights


Market Entry

Market Entry


Things I hear from members and clients:

“Why can’t I do that”? “How can they do that”?

Legal

Illegal

Gray Area

1.  Rule of Law 2.  Relationships

The Two “R’s” of China

R2

R1

Market Entry


• Failed Partnerships

• Partner Mishandling Brand

• Lack of Surveillance (gov.)

• Huge Gray and Black Market

• False Sense of Market

• Lack of Product Education

Market Entry Issues • Non-Transparent Regulations

• Exclusive Retail (private channels not open to new comers)

• Lack of Suitable Sales Channels without Bluehat registration

• Lack of Support / Surveillance from exporting company

Market Entry


•  PROTECT your Intellectual Property

•  Contact Local Export Assistance Groups

•  Contact Your Embassy in Beijing

•  Join U.S. – China Health Products Association

•  Understand China’s Business Environment

•  Bigger Isn’t Always Better

•  Dedicate someone to China project

•  Trips to Ensure Proper Handling…GET INVOLVED

Market Entry Tips:

China Expos

June 24 – 26, 2015 Shanghai New International Expo Center

China Expos

April 1 – 3, 2015 National Exhibition and Convention Center (Shanghai)

China Expos

December 2 – 4, 2015 Xiamen International Expo Center

China International Health Care Expo

China (Hong Kong) Expos

September 2 – 3, 2015 AsiaWorld - Expo Center Hong Kong International Airport


Introduction to

U.S. – China Health Products Association

Intro to U.S. – China HPA


Established: July 28, 2010 Status: U.S. Non-‐Profit 501c6 OrganizaRon Model: TradiRonal AssociaRon / Business Consultancy PosiDon: Largest organizaRon of foreign companies focused

on dietary supplements and nutriRonal ingredients in China

USCHPA MEMBERS



Association Services: 1. Regulatory Advocacy

Annual Industry Paper Comments to China Gov.

2. Business Services On the Ground Partner Product Registration Market Intel Trade Mark Issues Quality Assurance Sourcing Assistance Conferences / Networking Partner Introductions

Staff Jeff Crowther-‐ ExecuRve Director/Founder Carrie Wang-‐ AdministraRve Director Ben Zhang-‐ Science/Regulatory Manager Lilian Lin-‐ CommunicaRons Alice Yang-‐ Magazine Editor Guo Junlong-‐ Web Designer / IT Coco Liu-‐ General Assistant



NutriDonal Outlook Magazine: “Best of Industry Award 2014”

Article Link Here

•  USCHPA hosted the first annual summit on November 3-‐4, 2014 in Beijing.

•  110 Global Abendees represenDng 60 organizaDons

•  24 PresentaDons from leading Industry experts

•  5 Governments involved: Canada, China, Israel, EU DelegaDon and U.S.


Nutrition and Health Industry Summit - Probiotics June 23, 2015 - Shanghai, China

Nutrition and Health Industry Summit – Omega-3s

June 27, 2015 - Shanghai, China

UP COMING SUMMITS

Weekly English Newsleber 130+ Issues Archived Over 5,000 Database

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“Health Weekly –健康周报” Chinese Language Weekly

Newsletter

Over 8,000 Industry Leader Data Base

www.chinaushpa.org



“NutriRon and Health” 膳食与健康

•  Bilingual Chinese/English

•  USCHPA / CHN GOV Partnership

•  60,000 Readers and Growing

•  Platform for Education / Marketing

•  Global News Source



SOCIAL MEDIA Launched WeChat Group -‐ December 1, 2014


Jeff Crowther Executive Director [email protected]

www.uschinahpa.org

THANK YOU