The U.S. – China Health Products Association (USCHPA) anticipates that there may be good news for companies trying to navigate China’s notoriously complicated regulatory system. This year China’s Food and Drug Administration publicly stated that the dietary supplement (health food) industry will be revised and include a notification type system.
 
Industry Obstacles
Current regulations require companies to apply for a “blue hat” registration (nicknamed for the registration logo, which resembles a blue hat) with China’s FDA—a process that requires two to three years of administration procedures, rigorous testing and clinical trials. According to the USCHPA, this process comes with a hefty price tag. Once finalized, most registrations can cost upwards of $100,000 or more per product depending on what claim is being made and what the ingredients are. Additionally, registration agents are typically hired to assist in navigating the challenging process, which adds another layer of complexity and expense.
 
Because of this complicated system, a select group of companies (particularly domestic) have the upper hand in the industry, as they invested in obtaining blue hat registrations in the 1990s. USCHPA noted that of the registrations granted between 2010 -2103, 3,154 were domestic while only 56 were foreign. USCHPA suggests that these numbers are not a reflection of China’s government refusing to give registrations to foreign companies, but rather a result of foreign companies refusing to invest in such an unreasonable regulatory system.
 
The association also referenced problems, such as the industry rumor that many domestic registrations are being held by companies looking to sell them for a profit, because transferring a registration from one company to another is faster than going through the entire process. 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.
 
The current regulations are seen not only as prohibiting the healthy development of the industry, but also as a barrier to trade. USCHPA recently released an export potential report, which showed that the U.S. dietary supplement industry is losing in excess of $8 billion in exports to China as well as over 2,700 jobs that would be created as a result of said exports. Although this report focused on the U.S. industry, other global players as well as domestic players may be losing out. However, the association feels the biggest losers in this situation are consumers.
 
Turning Tides
Perhaps change is on the horizon, as this Spring China’s National People’s Congress put forth legislation that would put an end to 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 decentralization 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 side aims to do away with the “blue hat” regulatory system and place it under the overall “food safety law” regulation. This system would have dietary/nutritional supplements handled similar to food, which would require companies to submit products on a notification basis to the government. USCHPA believes this would streamline the “to market” process and solve almost all of the current system’s problems. 
 
Opponents of the new system aim to keep regulatory management unchanged, as many of them have already invested heavily in this blue hat system and are actively profiting from it.
 
USCHPA said that it sympathizes with these companies, but believes that free market forces are pushing the industry to develop and open to competition. The association noted that this could increase the size of the industry dramatically, encourage domestic and foreign investment, increase the development of new sales channels (i.e. health food stores), spread education to consumers, increase the number of legitimate players, which could decrease the market space for unscrupulous players seeking to cheat consumers. These changes would also provide consumers a much larger range of healthy products to choose from.