1

ISSUE 100 July 8, 2014

USCHPA Celebrates 100th Issue of “ Updates” IN THIS ISSUE

USCHPA Celebrates 100th Issue of “China Updates” China Reforming its Dietary Supplement Industry

Chinese Food Regulator Upgrades Food Safety Law

Shenzhen Govt. Urged to Improve Food Safety

Cancer is No. 1 Killer in Beijing for Seventh Year

National Food Safety Week Ended The U.S. – China Health Products Association was founded on Alibaba Tackles Amazon, eBay on Home July 28, 2010. The association’s mission is to work towards the Turf development of China’s natural health product industry by advocating for a more open and transparent regulatory Focus on Food Safety environment. The association is committed to increasing the trade and availability of its member’s products and services, Concern over GM food as US Corn which will benefit the health and wellbeing of both industry Returned and consumers alike.

China approves Bayer deal to buy Dihon Over the last four years, USCHPA has grown to become the Pharmaceuticals largest foreign natural health product association operating in New FTZ Rules to Trigger Retail China. In addition to the important regulatory advocacy work Competition the association does, USCHPA strives to go beyond the typical lobbying organization role by offering its members and Food vendors using Weibo and WeChat industry services that help them make decisions and succeed. Warned

23

U.S. – CHINA HEALTH PRODUCTS ASSOCIATION

“China Updates” is just one of those services and we at the association are very proud of the contributions it has made as a source of market intel. Over the years, USCHPA has received many accolades from readers like you. We appreciate your praise and thank you for your support.

All “China Updates” issues are archived and free to download from USCHPA’s website, which can be linked to by clicking HERE.

If you have any China related news, please do contact USCHPA, we’ll be happy to publish your news. Here’s to the next hundred issues!!! (Source: Jeff Crowther – USCHPA) China Reforming its Dietary Supplement USCHPA friends at Nutritional Outlook Magazine Industry just released an article discussing the above. View the Article HERE. (Source: USCHPA) Since 2008, the industry has been waiting for China’s central government to move draft regulations Chinese Food Regulator Upgrades Food forward. However, a variety of happenings and other Safety Law issues took precedence such as the Beijing Olympics, food safety scandals, re-organization of China’s Food The Standing Committee of China’s National and Drug Administration, etc. Congress suggested that the blurring lines of responsibility of related departments lead to USCHPA’s efforts to encourage China’s State Council loopholes of food safety regulations in this to move the regulations toward a more open and country. transparent system are now starting to be realized. Together with other domestic entities and in market “The food safety regulation system in China makes players, China is making the first steps toward a related departments very reluctant to shoulder the notification-based system for dietary supplements. responsibility and the whole regulation is very inconsistent in this way,” said Bao Jiake, Although the regulations are now moving in the right representative of People’s National Congress. direction, they are in reality a very small step in the right direction. China’s FDA is a very cautious and Mr. Bao suggested the State Council to draft a conservative organization; they are not willing to comprehensive plan to deal with the local make drastic regulatory moves, which cannot be regulation over food safety and strengthen the controlled. In fact, many companies may not see any communication between related departments. benefit from the proposed draft regulations. As “When the boundary is not clear, it is very possible China’s FDA will most likely only allow single that the regulation can be overlapping or, ingredient vitamins and minerals to utilize the new otherwise, totally absent,” said Jiang Jufeng, a notification system. Formulas and those making representative with the Standing Committee. health claims will still have to go through the “Regarding food safety regulation, the government registration system, which is time consuming and should clean the market, regulate the industry and expensive. Typical registration takes about 2-3 years monitor the food safety,” said Liang Shengli, a to complete and cost approximately $100k per SKU. representative with the Committee. “The

45

U.S. – CHINA HEALTH PRODUCTS ASSOCIATION

government should launch a life-long accountability 329 individual proposals. Proposals reflecting three system to address this issue.” concentrated problems — public transport, urbanization of Bao'an and Longgang districts and The updated food safety law strengthens the pollution renovation in Nantou Peninsula, were accountability system and make local administrative selected as key proposals to be solved by chiefs to be more responsibility for the local food government departments. Other proposals are also safety issue. expected to be dealt with one by one.(Source: China.org.cn) The new draft also increases the fine of illegal food production conduct. (Source: Beijing News) Cancer is No. 1 Killer in Beijing for Seventh Year Govt. Urged to Improve Food Safety Cancer remains the No. 1 killer for Beijing residents for the seventh year in a row, with the rate of The Shenzhen municipal people's congress thyroid cancer rising the fastest, according to a combined 17 food safety proposals into one motion report by the capital’s health authority. Thursday, demanding the city government basically get rid of substandard food within its term. The report, by the Beijing Health and Family The motion asked for tough measures to improve Planning Commission, also for the first time food safety, and demanded apparent improvements estimated “healthy life expectancy,” and found to be made within two years. people aged 18 had a little more than 40 years of full health left. The proposals on food safety management in Shenzhen, raised by 116 deputies, focused on More than 40,000 Beijing permanent residents strengthening efforts to better the city's food were diagnosed with cancer last year, according to market. Wang Ning, deputy director of the Beijing Cancer Control and Prevention Office. That translated into Inefficient management on food market, out-dated 110 new diagnoses a day last year, compared with slaughterhouses system, polluted farms, and an average of 63 cases a decade ago, Wang said. unlicensed food processing were summarized in proposals as the main causes for food problems. Cancer accounted for 27 percent of all deaths in the The city's health bureau received 36 reports on food capital last year, the report said. The other leading poisoning involving 728 people last year. Deputies killers were heart disease and cerebrovascular proposed that the city government should regulate disease, with the three responsible for 74 percent laws to standardize food processing, improve the of deaths, it said. food safety inspection system and set a credit system for food enterprises to guarantee food The most prevalent form of cancer among men was safety. lung cancer, followed by colorectal cancer and liver The conference received another 206 proposals cancer. each of which signed by at least 10 deputies and

67

U.S. – CHINA HEALTH PRODUCTS ASSOCIATION

The top concern for women was breast cancer, then Alibaba Tackles Amazon, eBay on Home lung cancer and colorectal cancer. Turf

The thyroid cancer rate has almost quadrupled in China's Alibaba Group Holding launched a U.S. the past 10 years, and now stood at 15.74 per shopping website, in what would be its biggest 100,000 people, becoming the city’s fastest growing foray into the home turf of e-commerce giants cancer. There was no clear explanation for the Amazon.com Inc. and eBay Inc. rise. （Source: Shenzhen Daily) The 11 Main marketplace hosts more than 1,000 National Food Safety Week Ended merchants in categories such as clothing, fashion accessories and jewelry as well as interior goods The National Food Safety Week, launched by and arts and crafts and it plans to keep adding seventeen departments including the State Council, more, the company said. Ministry of Education and Industry and Commerce Bureau, ended last week. 11 Main is being launched as Alibaba, China's largest e-commerce company, is preparing to go It includes two seminars that discussed innovation public in New York in what could be one of the of food safety regulation, and technology largest initial public offerings in U.S. history. innovation versus food safety. Officials from related departments, experts and representatives from Other than 11 Main, Alibaba has been stepping up companies gave speeches in the seminars. its deal activities in the U.S. over the past year, investing in a range of U.S. companies—not just in Zhang Yong, director of food safety office of State e-commerce, but also in other areas like mobile Council, said that food safety issue should be messaging. addressed by both legal and ethic measures. Regulators should not only enhance the education The shopping section of 11 Main is currently on work ethics of food production, legal authorities available only to customers who first sign up and should also enhance monitoring and regulation on get an email invitation. 11 Main declined to say related issues. when the site will be fully up and running.

The promotion week also includes a 30-expert Building a popular site from scratch won't be easy: seminar, which invited experts, regulators and Consumers already have a number of options to reporters to discuss issues relate to food safety. choose from—not just Amazon and eBay but also niche players like Gilt Groupe and Etsy as well as e- The national broadcasters also promote knowledge commerce sites run by traditional retailers like Wal- of food safety by releasing documentaries and TV Mart Stores Inc. shows to help clarify on a certain food-related issues. Still, 11 Main sees demand from small U.S. merchants who aren't quite satisfied with selling The national industry and commerce bureau their products on existing marketplaces. exposed six illegal cases of food safety during the past week, and the central bureau will also expose "There are many small shop owners that are looking the biggest case since 2013 in the near future. for broader platforms, but when they look at the (Source: China Consumer Daily) broader platforms, those are not necessarily structured to support their brands or their identities," said Mike Effle, 11 Main's president, in an interview. 89

U.S. – CHINA HEALTH PRODUCTS ASSOCIATION

Mr. Effle declined to give any numbers for the on one site. "I'm always looking for alternatives to company's targets for growth. "Of course, we would eBay," she said. love to be an everyday shopping destination." Ms. Berry, who is based in New Hampshire, said she It will likely be hard for Alibaba and 11 Main to pose has been told by people from 11 Main that the a major threat to established players in the U.S. company has set aside an aggressive marketing unless they make major acquisitions, said Forrester budget to make the new site more recognized analyst Zia Daniell Wigder. among U.S. consumers. "I've seen many new sites open over the years but none of them have really With 11 Main, Alibaba "is attempting to break into a gained traction," said Ms. Berry. developed e-commerce market with well- established players and mature growth rates," Ms. An 11 Main spokeswoman said the company has a Wigder said. "It's far easier to be disruptive in an "robust marketing plan" to support the growth of early-stage market where the landscape of leading the shops featured on the new site, but declined to players is still in flux and growth rates are high." share specific plans or how much it plans to spend on advertising. 11 Main—developed by Alibaba's two wholly owned U.S. units, Vendio and Auctiva—is trying to It is still unclear whether 11 Main will actually attract sellers by making the platform less generate any buzz, but Ms. Berry says she is more expensive for merchants. The site charges a hopeful this time, in part because Alibaba's deep commission rate of just 3.5%—about half or one- pockets are behind 11 Main. "I've been down this third of what most other major U.S. shopping sites road before and I'm usually skeptical, but this time charge. I'm cautiously optimistic."

At the same time, 11 Main says it is carefully Alibaba, which dominates e-commerce in the screening the merchants to make sure the ones world's largest Internet market, dwarfs U.S. who join the site meet certain criteria in terms of counterparts in terms of the value of transactions it product quality, customer service and even the handles. quality of the photos they post online. In 2013, the combined transaction volume of its "We set a very high bar," Mr. Effle said. "Sellers consumer shopping sites in China reached $248 want a place that can elevate their brands." He said billion, according to its IPO filing last month. That is 11 Main has received thousands of applications so triple the size of eBay and more than double the far, and it has rejected a fair number of applicants. size of Amazon.

Susan Berry, who runs an online retail business Alibaba owes its massive scale to the sheer size of called Oshun Spirit that sells natural skin-care and the Chinese market, home to more than 600 million beauty products, has joined 11 Main. Internet users.

She has been an eBay seller, off and on, since 2001, Most of the consumers using its shopping sites are but is worried about the risk of relying too heavily in mainland China, though the company is trying to expand in Hong Kong, Taiwan and Southeast Asia.

1011

U.S. – CHINA HEALTH PRODUCTS ASSOCIATION

"The world is not just China," Joe Tsai, Alibaba's executive vice chairman, said in an interview in February. "We do think of ourselves as eventually becoming a more global company."

Alibaba's view on the U.S. market is "very long- term focused," said David Rosenblatt, chief executive of 1stdibs, a New York-based luxury e- commerce company in which Alibaba has invested $15 million earlier this year. Given its experience of building a dominant marketplace in China, "Alibaba is not just another company," Mr. Rosenblatt said. "It will be an important player in the U.S." Obviously, what the premier promised should be Last year, Alibaba set up a dedicated U.S. included in the amendment. investment team in the San Francisco Bay Area. The team, headed by former Liberty Media The amendment stipulates that the fines for unsafe executive Michael Zeisser, has since struck a string food producers will be 15 to 30 times what the of deals. In October, Alibaba led a $206 million total unsafe food is worth, and the fines inflicted investment in ShopRunner Inc., an Amazon rival on those who provide unsafe raw materials for the that offers unlimited two-day shipping from U.S. food production will be as high as 200,000 yuan retailers. Earlier this year, the company said it had ($32,000). And food safety inspectors will be bought a minority stake in TangoMe Inc., a Silicon banned for life if they are found to have cheated in Valley startup behind the Tango mobile-messaging their work. （ ） application, for $215 million. Source: WSJ Relevant leaders will be summoned by higher-level leaders for a talk on food safety accidents, Focus on Food Safety according to the amendment. But there is no knowing how such a talk will increase such leader's Will the amendment to the food safety law be able awareness and sense of responsibility for food to deal a heavy blow to offenders who incorporate safety. unsafe additives into the food we eat and thus relieve people of their worries about what they put It goes without saying that much is expected of the into their mouths? This was the question on the amendment, which will likely add teeth to food minds of many when the draft amendment to the safety watchdogs and considerably increase the law adopted in 2009 was presented to the session punishments for those found profiteering from of the National People's Congress Standing unsafe food. Committee for review on Monday. However, a severe food safety law is one thing, its Premier Li Keqiang said in his work report to the implementation is another. Given the rampancy of NPC plenary session in March that regulations and tacit rules within and beyond food producers, the standards must be abided by to the letter to implementation of this amendment will hardly be a safeguard food safety. He stressed that the tightest plain sailing. (Source: ) supervision needed to be exercised over the entire food production chain, offenders should receive Concern over GM food as U.S. Corn the most severe punishments and the strictest Returned rules should be employed to hold relevant leaders accountable for food safety. The announcement that quarantine authorities have returned 1.25 million tons of US corn 6 1213

U.S. – CHINA HEALTH PRODUCTS ASSOCIATION

shipments after detecting an unapproved Seven shipments totaling over 1,277 tons of genetically modified (GM) strain has triggered unapproved GM DDGS, material used as animal concern among Chinese consumers. feed, were burnt in Fangchenggang, Guangxi Zhuang Autonomous Region on June 15, according Lu Chunming, an official with the General to the local government's website. Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), said at a Monday press "The authorities are responding to public pressure conference that Chinese authorities have detected which questions the allegedly loose management the GM strain MIR162 in US corn shipments since of GM food. They are trying to prove otherwise," October last year when the first batch of MIR162- Fang noted, adding that the rejected shipments tainted corn was found in Shenzhen, South China's from the US could be exported to South Korea, Guangdong Province. where the new strain is approved, but Chinese businesses may suffer financially. MIR162 is a kind of insect-resistant transgenic corn from Syngenta, a Swiss-based bio-technology Jia Zhaowu, CEO of ixumu.com, China's first online company, and is not approved by China's Ministry community of animal husbandry, said that imports of Agriculture (MOA). of GM corn and soybeans take up a large proportion of the Chinese market and few animal The decision to refuse the corn has seen a public feed companies can weed out GM materials when debate over GM food safety, with some scientists domestic production is unable to meet the saying the concerns are groundless. demand.

"Rejection is an act of popularization of "GM food is usually cheaper as the yield is better too," Cui Yongyuan, a former TV host and a firm but it needs less insecticide. China has the full opponent of GM food, wrote on his Sina Weibo. potential to develop our own GM corn to win our His opinion was opposed by Fang Zhouzi, an expert share in the global food market where genetic in chemical biology and a GM food supporter. modification is on the rise," Fang said. (Source: Global Times) "Cui has given the public misleading messages. The authorities returned the shipments not because China Approves Bayer Deal to Buy Dihon they contain genetically modified products, but Pharmaceutical because it's not approved for import yet. China has approved other GM strains already," Fang told the Global Times.

Niu Dun, vice-minister of the MOA, told Reuters in March that China is in the process of approving MIR162, and the exact time will depend on the ministry's bio-safety committee.

The AQSIQ also called on Monday for strengthened control on inspection and asked port branches to return or destroy unapproved GM agricultural products.

"Companies should make clear in contracts that exporters must follow Chinese regulations and laws for their exports of corn and dried distillers grains with solubles (DDGS)," it added. 7 1415

U.S. – CHINA HEALTH PRODUCTS ASSOCIATION

Bayer said it would buy privately held Dihon The fragmented OTC market is gearing up for more Pharmaceutical Group Co, a maker of traditional consolidation, with Merck & Co Inc's consumer herbal Chinese medicines (TCM), as the German healthcare business drawing interest from Bayer drugmaker pushes to become the world's largest and Novartis. non-prescription medicines group. China is of particular focus for deal-hungry With China's healthcare spending forecast to international healthcare firms. Pharmacy chain nearly triple to $1 trillion by 2020 from $357 billion Alliance Boots plans to take a 12 percent stake in in 2011, according to consulting firm McKinsey, the distributor Nanjing Pharmaceutical Co Ltd, while country is a magnet for makers of medicines and Medtronic Inc purchased China Kanghui Holdings in medical equipment, but many patients remain 2012. strongly attached to traditional approaches. But doing business in the world's most populous "What's growing the most within Chinese country is not without risk. China's regulators have healthcare is traditional medicine. It's a strong part been investigating several foreign and domestic of their culture," said Lilian Montero, a healthcare drug companies on suspicion of bribery, with the analyst at Swiss bank Julius Baer. high-profile investigation involving Britain's Glaxo Smith Kline. "Local companies tend to show superior growth in emerging markets. It's a good move from that The country's consumer health and wellness point of view." market is expect to hit almost $70 billion by 2020 as increasing numbers of consumers turn to health Dihon has about 2,400 employees and generated supplements and OTC health treatments, according sales of 123 million euros ($168 million) in 2013, to a recent report from Boston Consulting Group. Bayer said on Thursday. The OTC market alone was worth $18 billion and is It declined to provide the financial terms of the estimated to grow at a rate of around 8 percent deal but brokerage M.M. Warburg estimated it per year, the report said. was worth about 500 million euros ($680 million). The Dihon deal is to close in the second half of Even though TCM is winning a following in some 2014, Bayer said. (Source: Reuters) urban communities in the West, Bayer said it was too early to say whether Dihon products would be New FTZ Rules to Trigger Retail exported to Germany or Europe. Competition

"It's less likely that these products will move to the China's retailers may be facing fiercer competition West," said Julius Baer's Montero. "You would than ever with changes in the China (Shanghai) need a lot more medical training and education, Pilot Free Trade Zone, market insiders said at a otherwise it will stay a niche market like forum in Shanghai on Wednesday. homeopathy." The lifting of some restrictions in the FTZ lets Dihon's products include dandruff treatments, foreign-funded enterprises operate online stores antifungal creams and medicine against within the zone. gynecological conditions such as endometriosis. The relaxation, which may enable qualified foreign The deal, which could help Bayer challenge retailers to sell products via FTZ entities to Chinese Johnson & Johnson to the No. 1 spot in the over- consumers, may pose challenges to domestic the-counter (OTC) market, underscores its push retailers in after-sale services, pricing and into herbal medicine after it bought smaller management, said Yan Jing, deputy chief of German supplier Steigerwald last year. 8 1617

U.S. – CHINA HEALTH PRODUCTS ASSOCIATION

kuajingtong.com, an FTZ-registered online trading Food vendors using Weibo and WeChat platform, at a forum organized by the World Retail Warned Congress.

Free trade zone-registered retailers not only can assure consumers the quality of imported goods but online trading will extend the advantages of price, service and quality control nationwide, said Yan.

Some importers and retailers already are preparing to launch exhibition and trading centers within the FTZ that are devoted to selling the products of specific countries.

In early June, for example, the Australian National Exhibition and Trading Center opened in the zone. A Vendors selling food products via personal Weibo handful of other shopping areas are also set to open and WeChat accounts will be held responsible by the end of the year and could expand to online under food safety legislation, lawmakers have business channels in the near future. warned. Retailers and traders need to closely watch logistics This is despite the fact such social media apps are and warehousing, analysts said. not considered "trading platforms" by regulators "We have noticed that the demand for quality and are set to be banned from being used to sell warehouses and shipping services peaked in recent food products under a new draft law. months, while the land for industries is limited Lawmakers in Beijing are consulting the public on within the zone," said a research note from Shenyin the draft amendment of the Food Safety Law. The & Wanguo Securities Co Ltd. "Enterprises should new legislation promises tougher rules on food take heed of these aspects." production, sales and regulation. According to data from Commercial Real Estate “Weibo and WeChat cannot be treated as trading Services, a US property services provider, prices of platforms,” Chen Xu, deputy director of the legal industrial land have skyrocked some 130 percent in department of the China Food and Drug the Waigaoqiao area where the FTZ operates after Administration (CFDA), told the Beijing Times. the zone was established in September last year. "Trading platforms" instead refers to commercial Experts said luxury goods in Shanghai may also see websites such as Taobao and Jingdong, a new round of pricing and brand positioning in the face of such changes. By contrast, Chen added the Weibo and WeChat apps were for “individuals”. Supply chain conformity is key for retailers and traders amid these shifts, said Zhou Ting, an expert The draft amendment states food vendors would be on luxury brand consumption with Shanghai-based allowed to trade online only after registering their Fortune Character, a luxury lifestyle information shopping platforms – websites – under their real provider. (Source: China Daily) names. Their business permits would also be strictly reviewed.

These shopping websites would have to report any illegal conduct by the vendors to the food safety 9 authorities. 1819

U.S. – CHINA HEALTH PRODUCTS ASSOCIATION

Customers would be entitled to claim conference with the Ministry of Public Security in compensations from the sites if they failed to March. provide authentic information – including the full name, address and contact information – of More than 300 million mainlanders were shopping offending vendors, according to the draft. online, including for food, by the end of last year, according to China Internet Network Information The central government has been trying to improve Centre. public confidence in food safety, which has been severely hit by a series of scandals including WeChat and Weibo, the most popular messaging recycled cooking oil and toxic beansprouts. and social media apps on the mainland, are trying to take a big slice of China’s huge and growing The mainland’s top legislature has been reviewing online retail market. the amendment of the Food Safety Law since last week. It will be the first amendment since the law WeChat, a mobile messaging app similar to was enacted in 2009 after the melamine-tainted WhatsApp, which also offers a social networking milk scandal killed at least six children and made function like Facebook, boasts nearly 400 million 300,000 more ill. active users. It has allowed its users to establish in- app stores to sell goods to their friends and Although no cases of food poisoning from products followers since May. sold online have been reported publicly, the food safety authorities are facing a growing threat from Meanwhile Weibo, a Twitter-like service with at rogue vendors using the Internet. least 129 million active users, announced last month its planned app called “Weimai” for vendors “There’s a rising trend of crimes [from] trading food to provide services online. and drugs on the Internet due to the fast- developing industry and logistics,” Mao Zhenbin, a director from the CFDA warned during a joint press

10