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  1. Analysis
November 29, 2013

China briefing: Beijing puts wheels in motion on new safety laws

The Chinese government has published a draft of proposed changes to the country's laws governing food safety. Companies operating in China may need to make significant changes to how their supply chains and distribution networks. David Green in Beijing reports.

The Chinese government has published a draft of proposed changes to the country’s laws governing food safety. Companies operating in China may need to make significant changes to how their supply chains and distribution networks. David Green in Beijing reports.

After several cases of food contamination in recent years, China’s central government is taking steps to improve food safety regulations.

Food companies serving the Chinese market are keeping a close eye on Beijing’s review of the country’s 2009 National Food Safety Law. Although in its early stages, the changes could significantly impact both foreign and domestic participants in China’s branded food supply chain.

A draft of the changes, submitted by the China Food & Drug Administration (CFDA) to the State Council in late October, suggests an increase in fines for breaking various Chinese food safety laws and attempts to clarify legal responsibilities regarding food safety across the country’s labyrinthine network of provincial and national government bodies charged with implementing the current law. Exactly when the new rules will be enacted, and how they will be enforced, is still unclear, but the draft is an important indication of food safety policy under China’s new political leadership, that assumed office in February.

For instance, the proposals directly address the infant formula market, a long-time poster-child for Chinese food safety problems, from the melamine scandal of 2008 to this year’s rationing of infant milk formula purchases in Hong Kong by mainland consumers.

“These new amendments indicate that the degree to which the infant formula issue and other food safety issues have become politicised up to upper leadership levels which, in China, is a strong indication that the most flagrant abuses will now be addressed,” Rick Gilmore, president and CEO of the Global Food Safety Forum, with offices in China and the United States, says.

The draft introduces a new food traceability framework that assigns liability to food manufacturers for tracking and recalling unsafe products. In addition, stiff penalties for selling expired food products could be imposed. They would be subject to a fine of CNY50,000 to CNY150,000 if the value of the mis-sold commodity is less than CNY10,000 – or a fine between 15 and 30 times the value of the commodity if it exceeds CNY10,000.

“Food producers and traders shall establish food traceability management systems to ensure food is traceable,” the draft says. The proposals also want product sourcing and movement details filed and stored for possible later inspection under a new food safety evaluation and inspection system, which would be regulated by national government agencies, namely the CFDA, the state council health administrative department, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), and the China Public Security Bureau, but implemented locally.

“The outreach to county-level implementation is crucial because it could actually realise a bottom-up [inspection] model, instead of the traditional top-down one carried out by regulators,” Yuting Guo, director at the Global Food Safety Forum, says. “Eighty percent of Chinese food manufacturers are small companies of less than ten people. County-level inspectors can actually reach many of these small food companies where higher-level inspectors do not have the capacity.”

The proposed reforms would also ban using so-called ‘recycled food’ (products made from reconstituted and treated food whose original product had passed its sell-by date). This would close a loophole that had allowed such ‘recycling’, which was particularly prevalent in processed meat, some was resold as animal feed, but there were also cases of resale to human consumers.

Another key change would be new tighter limits on additive usage, with the penalties levied of up to 30 times the original value of the product, and, in the most extreme cases, suspension of business licenses or prosecution.

Meanwhile, as Chinese e-commerce food sales grows, including via third-party retail platforms, the draft stresses such online retailers be responsible for the safety of their food, rather than shuffling the responsibility onto their suppliers, as at present.

So there are some significant reforms in the pipeline. Despite the scope of the draft, however, there is a degree of scepticism over whether the rules will be implemented even-handedly as regards foreign and domestic players.

For example, the draft stipulates infant formula foods are not allowed to be produced via sub-contracting generally and, notably, original foreign manufacturers using Chinese partners for packaging and distribution. This effectively forces overseas infant formula suppliers to handle the entire supply chain themselves, whether by establishing packaging operations in China or attempting to organise bulk pre-packaged imports.   

“Forcing foreign companies to handle packaging overseas would in part make trust in foreign brands even stronger,” said Matthieu David, president of Beijing-based Daxue Consulting. “However, it is logistically very difficult to import and package in bulk into China, and the nature of the market is such that if you run out of stock, you will very quickly lose your business.”  

Also, Steve Dickenson, an attorney based in the city of Qingdao with law firm Harris & Moure, which specialises in helping foreign firms set up and operate in China, warned the law could be used to strengthen the position of local infant formula manufacturers. “It is what is called a non-tariff trade barrier. If this [draft] gets enacted, we can assume that it will be used not to make food safer for the average Chinese, but rather to exclude foreign food, which is almost by definition safer than the Chinese equivalent.”

Other important articles in the draft include the establishment of a mandatory food safety insurance system, whose details will be worked up by the China Insurance Regulatory Commission, in conjunction with the CFDA.

“China is taking mandatory food safety insurance seriously,” explains Guo. “Taking into account the very positive results of the previous and only mandatory insurance system in the market [for automotive insurance], the government is attempting to formulate the same system for food to eradicate safety issues through a market mechanism.”

Meanwhile, the Global Food Safety Forum itself is already in discussions with underwriters to launch an insurance product that targets recall and contamination claims on export transactions from China, indicating the potential for overseas providers of insurance products to influence the market.

While it remains unclear how quickly the draft may be translated into an enacted law, based on the passage of other draft laws including last year’s ‘criminal procedure law,’ final review and initial voting could begin as early as spring 2014, Chinese-language newspaper reports have suggested. Those operating in China would do well to start preparing for any changes now.

Click here for the rest of just-food’s management briefing on China.

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