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July 9, 2013

CHINA: Biostime: We may have broken pricing rules

Hong Kong-listed Biostime International Holdings has admitted its agreements with distributors in China on the price of infant formula could have broken anti-trust rules.

By Dean Best

Hong Kong-listed Biostime International Holdings has admitted its agreements with distributors in China on the price of infant formula could have broken anti-trust rules.

Biostime is one of a number of infant formula companies under investigation for alleged breaches of anti-monopoly laws in China. Nestle, Danone and FrieslandCampina are among the companies also been investigated.

Biostime said today (9 July) deals with distributors may have broken rules on pricing.

“During its co-operation with the investigation, Biostime Guangzhou realised that those terms which provide fixed prices and price floors for the group’s products in its agreements entered into with its distributors, may be allegedly in breach of sub-articles 1 and 2 of Article 14 of [the] Anti-Monopoly Law of the People’s Republic of China,” Biostime said.

The company said it had started to “amend relevant terms in relation to fixed prices and price floors” in the agreements to ensure the contracts complied with the law.

The statement from Biostime is the first admission from companies under scrutiny for allegedly breaking laws on pricing. Nestle, Danone, FrieslandCampina and Mead Johnson have all said they are co-operating with the probe. The three Europe-based companies have since said they would cut prices on their infant formula. Abbott is also said to have decided to lower prices. There has, as yet, been no move to cut prices from Mead Johnson.

Biostime said today it will offer a series of “rewards” granting consumers an effective discount of “around 11%” off suggested retail prices.

“These activities will apply to all series of the infant formulas products of the group. The board believes that these activities will benefit consumers directly and will enhance our business partners’ confidence,” the company said.

It added: “As at the date of this announcement, the investigation is still ongoing. The company will actively co-operate with the investigation and make further announcements to inform its shareholders of relevant updates when and where appropriate.”

Beijing’s investigation comes as China’s infant formula market is booming with demand for foreign-made products driving the sector after a series of safety scares involving domestic companies. However, the Chinese government claims the price of infant formula has jumped 30% since 2008 when the melamine contamination scandal, which involved a number of domestic firms, killed six babies and sickened thousands. 

The price of infant formula in China has further come under the spotlight recently after it emerged Chinese consumers, facing a jump in prices at home, were shipping in products from overseas, prompting rationing in markets in Europe and in Australia.

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