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New Chinese regulations could see more than 1000 small brands blocked from selling products on the mainland. Janie Barrett
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by Angus Grigg
Infant formula makers like Bellamy's Organic and a2 Milk are set to benefit from new Chinese regulations, which could see more than 1000 small brands blocked from selling products on the mainland.
The new registration requirements announced by the China Food and Drug Administration on Wednesday are aimed at reducing the number of brands sold across the country.
This will be done by limiting registered factories in China and offshore to producing three brands and nine different products each.
"There are currently around 2000 brands sold in the [Chinese] market, among which 70 per cent to 80 per cent will be eliminated under the registration system," said a consumer analyst at UBS, Christine Peng.
"We believe small players with no proper manufacturing capability ... could be negatively impacted, pointing to consolidation benefits for larger players."
The new rules come into effect in October, but are not expected to be fully implemented until the end of next year. They only apply to goods sold in China, not the larger cross border e-commerce channel or product sent via courier from outside the country. Tightening channels
While infant formula sales made in China are small compared to those shipped into the country, they are expected to become increasingly important as authorities tighten up on semi-legal or grey import channels.
"The intention of this regulation is to squeeze out the smaller brands," said Naveen Patney, an investment analyst at CLSA.
"That means the barriers to entry are higher than they used to be."
Adrian Coleman, the chief executive of Bega Cheese, said the new rules had been well flagged and didn't contain any surprises for the company.
He said Bega would concentrate on producing infant formula for Bellamy's, its joint-venture partner Blackmores and one other brand which remained confidential.
"We have got a couple of small Chinese brands and we have made arrangements for them to be produced elsewhere," said Mr Coleman via phone.
"The Chinese government is trying to shake out smaller brands which might be susceptible to quality issues." Joint venture all go
Mr Coleman said the company was pushing ahead with the registration of its joint venture Blackmores infant formula brand in China and expected the process to be completed in the early months of next year.
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