September 30, 2015

There are currently over 2,000 domestic infant formula brands sold in China, but government estimates indicate this number will likely be reduced by 80% – to approximately 400 – once new market regulations go into effect.

The newly adopted policy, Regulations on the Administration of Formula Registration for Infant Formula, will require each branded infant formula in the country to be registered with the China Food and Drug Administration (CDFA) and to provide a full list of ingredients. Each separate brand will also be required to have a unique formulation that contains a minimum of six nutrients that are different than all other brands on the market; subsequently, the new regulation is being called the “One Brand, One Formulation” policy.

Usually, Chinese infant formula manufacturers use 40 different nutrients with about half being critical to every product, leaving 20 remaining ingredients that companies can use to differentiate their products, according to Sun Baoguo, vice-principal of Beijing Technology and Business University. Given that each product must contain six nutrients different from any other brand, it is likely that each manufacturer will only be able to produce and register three brands after the policy is implemented.

Often, Chinese producers will manufacture infant formula in enormous batches to cut costs and then sell leftover formula to outside distributors at a lower price. The distributor will then repackage the formula labeled under multiple ‘sub-brand’ names, often agreeing to sell the sub-brands in only certain regions of the country, leaving selected markets open only to the original, more expensive brand sold by the manufacturer.

This practice creates a market that is difficult for the government to control, and a retail environment that is confusing for consumers. Because of this, the new policy also dictates that all brands must be sold nationwide.

The new regulations will only apply to companies manufacturing their products domestically in China, meaning foreign producers selling their products on the Chinese market and some larger Chinese companies that produce their products offshore will be exempt from the rules. This might change however, as many experts are calling on the government to apply the new regulations to imported infant formula as well.