Market Information
Asia Pacific

The Nutraceuticals Market in China

December 2002

Prepared by the
Market Research Centre
and the
Canadian Trade Commissioner Service

© Department of Foreign Affairs and International Trade
(FaxLink no. 34141)

The Market Research Centre produces a wide range of market reports by region and sector for Canadian exporters. For further information please contact:

Market Support Division (TCM)
Department of Foreign Affairs and International Trade
E-mail: mrc@dfait-maeci.gc.ca

- FaxLink Domestic service (613-944-4500);
- DFAIT Internet site ( http://www.dfait-maeci.gc.ca)

Trade Evaluation and Analysis Division (TEAD)
Agriculture and Agri-Food Canada
Contact: Andy Archibald
Tel.: (613) 759-7652
Fax: (613) 759-7665
E-mail: archibalda@agr.gc.ca

Agri-Food Trade Service: ( http://ats.agr.ca)

The Government of Canada has prepared this report based on primary and secondary sources of information. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations listed herein. Readers should independently verify the accuracy and reliability of the information. This report is intended as a concise overview of the market for those interested in its potential and is not intended to provide in-depth analysis which may be required by the individual exporter.

EXECUTIVE SUMMARY

The Chinese have relied on traditional herbal medicines for centuries as a way to cure illness and sustain good health. China has developed a cultural tradition that strongly encourages the use of preventative medicine. This cultural tradition, combined with rising living standards and increased disposable income, has resulted in a sizable market in China for nutraceuticals.

The value of the Chinese market for nutraceuticals is estimated at $7 billion1 and is thought to be the fastest-growing subsector of the entire Chinese health-care market. The most popular products purchased by Chinese consumers are tonics and capsules designed to improve mental capacity, encourage weight loss and delay ageing. Sales of nutraceuticals, particularly tonics, often increase during festivals, when people purchase them to give as gifts, and during exam times, when parents purchase tonics designed to improve mental focus for their children.

There are over 1000 companies in China making traditional Chinese medicines, the majority of which are small or medium-sized enterprises. These companies will become more competitive as international players continue to enter the market as a result of China’s accession to the World Trade Organization (WTO). With research and development investments, advanced manufacturing technologies, as well as effective packaging and advertising, the market for modern preparations based on traditional medicines is expected to be significant.

Canadian companies should effectively research Chinese medical philosophy to understand how the Chinese use nutraceuticals. There are opportunities for Canadian nutraceutical companies in the Chinese market, particularly if companies are able to combine traditional herbal knowledge with modern technology.

MARKET OVERVIEW

For centuries, the Chinese have relied on traditional herbal medicines for general health and to cure common ailments. Their medical traditions relied on over 5000 different natural products made from herbs, plants and animals and mixed in specific combinations to treat disease. To this day, Chinese culture strongly encourages the use of preventative medicine and the maintenance of good health. This cultural tradition, combined with rising living standards and an increase in families’ disposable income, has resulted in a large market in China for nutraceuticals2 (also known as traditional Chinese medicines) and other non-prescription products that claim to promote overall health.

The overall nutritional products market in the Asia-Pacific region is expected to have a value of $71.9 billion in 2002. Nutraceutical sales alone are expected to be worth $19.2 billion in 2002, up from $15.5 billion in 1997. The vast majority of these sales will be in China, Japan and Korea.

Traditional Chinese medicine represents one fifth of China’s market for medications and is valued at an estimated $7 billion annually. With attractive packaging and clearly defined functions adding the perception of legitimacy to traditional preparations, this segment is considered to be the fastest-growing subsector of the entire Chinese healthcare market.

The Chinese spend an average of $22 per month on nutraceuticals. They are more likely than people in other Asian cultures to stick with a particular nutraceutical and take it on a regular basis rather than give up quickly when results are not immediate. They are also typically loyal to specific products and will not switch to others unless their health status changes. This would suggest that although the Chinese spend less than people in other parts of Asia, including Singapore, Hong Kong and Taiwan, they are more loyal to particular products.

The most popular products purchased by Chinese consumers include dietary supplements such as calcium, iron and ginseng, as well as antioxidants and shark liver oil. Nutraceuticals come in a variety of forms including beverages, tonics, capsules, tablets, powders and candies. The Chinese seek out nutraceuticals to improve or prevent a variety of physical and mental conditions. Perceived benefits of nutraceuticals include:

• improved sexual ability
• weight control
• delay ageing
• cancer prevention
• blood pressure reduction
• blood fat reduction
• iodine deficiency prevention
• improved skin
• prevention of osteoporosis
• improved immunity
• Alzheimer’s prevention
• overall antioxidant effects
• prevent fatigue
• improved sport performance

With the increased introduction of Western culture to China, men and women have begun to pay more attention to body image and weight. As well, more urban lifestyles, the introduction of fast-food and other factors have led to increased obesity among the Chinese. Western-style fitness centres have sprung up in large urban centres and the Chinese have also turned to nutraceuticals for weight control for themselves and their children. The total market for weight-control and weight-loss products is estimated at approximately $3.5 billion. A study by AC Nielson Corp. suggests that the Chinese in general would prefer to take medication to improve their health rather than spend time preparing nutritious foods.

Sales of nutraceuticals, particularly tonics, often increase during festivals when people purchase them to give as gifts. Sales also increase during student exam times, when parents purchase tonics designed to improve mental focus and mental capacity of their children. Key customers for nutraceuticals are primarily women, middle-aged and senior citizens, and parents with young children.

Aside from measurable health effects of nutraceuticals, there is a certain psychological impact on users. Taking nutraceuticals on a regular basis often relieves worries over falling sick and growing old. As well, the regular use of traditional Chinese medicines is compatible with Chinese medical philosophy. Chinese medicine tends to look at the entire person and suggests that an illness is a sign of the body’s imbalance. Balance can not be restored in a quick fix, as with Western medications, but must be accomplished over time and then maintained in order to restore health. The Chinese feel nutraceuticals have fewer side effects (and are therefore safer) and are a more natural cure for the body. In fact, Western-style medication is used primarily in the treatment of urgent or serious illness, while traditional Chinese medicine is applied to minor or routine ailments.

Tonics are the largest subsector in the market for nutraceuticals and account for 51% of sales. Most tonics are classified as foods and are, therefore, available in grocery stores, department stores and pharmacies.

Despite the widespread reliance on traditional Chinese medicines, they have not yet been subjected to rigorous testing and approval procedures, nor have effective quality control systems been put into place to monitor dosage and ensure patient safety. In order to compete in international pharmaceutical markets, the Chinese government and private companies announced in September 2001 a plan to spend approximately $200 million to modernize the traditional Chinese medicines industry. Manufacturing improvements and basic research will be the key areas of investment, as well as some venture capital to assist with company development. There are over 1000 companies in China making traditional Chinese medicines, the majority of which are small or medium sized.

Key Factors Shaping Market Growth

Although China is not facing an ageing population to the same extent as in many Western nations, rising life expectancy will have a long-term effect on the health-care market in China. At present, only 6% of the population (84.8 million) is over the age of 65; however this proportion is expected to increase to 13% by 2025. As the population ages, greater demand for clinical products and services that cater to the specific needs of older people is expected.

Other demographic shifts, such as a growing number of middle-class residents and rising income levels, are also contributing to an increased demand for certain products, including nutraceuticals and traditional Chinese medicines perceived to have preventive health qualities. The great importance placed on good health in Chinese culture has also fuelled demand for Western medicines. The Chinese have relied on the curative properties of herbal medicines for centuries and have now invested the same faith in the power of modern preparations, including foreign-produced drugs, to heal or prevent illness. Modern medicines have not, however, superceded traditional remedies; rather, they are often prescribed in conjunction with herbal or Chinese treatments.

Under the old health-care system in China, medical services and drugs were available to consumers free of charge. However, as China modernizes and moves to a more market-driven economy, the new health-care system requires people to contribute to the cost of health care and, in particular, drugs. As a result, people have turned increasingly to self-medication and over-the-counter products rather than paying for a visit to the doctor.

The Chinese government announced in January 2002 that it would increase efforts to promote the use of traditional Chinese medicines in rural areas as a way to improve overall health. As well, the State Administration of Traditional Chinese Medicine3 is looking at ways to modernize the field of traditional Chinese medicine, including through establishing research centres and educational institutions to teach traditional healers.

Provincial governments are also interested in building capacity in the field of nutraceuticals. The Yunnan government announced in March 2001 a $500-million investment to build a modern research and production facility for traditional Chinese medicines. The project will include pilot medicinal gardens, research and development institutes and modern manufacturing facilities.

China’s Accession to the World Trade Organization

China has made a number of trade-related commitments to WTO members that took effect when China acceded to the WTO in late 2001. These include tariff concessions, as well as commitments to apply WTO rules relating to subsidies, standards, intellectual property, import licensing, trade-related investment measures and sanitary and phytosanitary measures. China is also bound by fundamental WTO principles that will require the country to strengthen commercial legal procedures and improve transparency.

As of January 1, 2003, foreign investment in drug wholesaling and retailing will be allowed. A trial period is currently under way with foreign-invested, joint-venture drug companies under the supervision of the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Co-operation.

China’s WTO commitments should help to reduce the risk to foreign companies of doing business in China and encourage increased trade and investment flows. However, most commitments are being phased-in over time. In the case of lower tariff rates, most new rates will be phased in over five equal, annual increments.

Opportunities

There is growing demand for herbal alternatives to synthetic Western medicines used in the treatment of cancer, vascular diseases and other illnesses. Chinese consumers are very receptive to pharmaceutical preparations made with herbal ingredients and other natural compounds.

There are opportunities to combine traditional herbal knowledge with modern technology. Traditional Chinese medicine relies on combinations of herbs and rarely on a single herb. Typical products contain at least three items while tonics of up to 25 items blended together is not uncommon.

Common diseases and illnesses associated with poverty are no longer as prevalent in major urban centres. However, higher incomes, new diets, less physical exercise and increased stress have resulted in new ailments including diabetes, obesity, cardiovascular disease and other stress-related illnesses. There are opportunities for Canadian companies to develop and market natural products to help the Chinese deal with these life-style changes.

There are also opportunities to target nutraceutical products to rural areas where, incomes and level of education are increasing. Little Western medicine has reached rural areas, yet the tradition of Chinese medicines to improve and promote overall health is strong.

COMPETITIVE ENVIRONMENT

Local Capabilities

There will be increased competition in the Chinese pharmaceutical market now that China has been made a WTO member. In order for Chinese companies to compete effectively, new products and preparations must be found. Typically, most Chineseproduced pharmaceutical products have been copies of Western medicines and will no longer be allowed as tighter intellectual property protections are put into place. In order to find a niche in the market, both domestically and internationally, Chinese companies have begun exploring the potential in traditional Chinese medicines. With research and development investments, advanced manufacturing technologies, as well as effective packaging and advertising, the international market for modern preparations based on traditional medicines is expected to be significant.

China’s exports of traditional Chinese medicines account for approximately 3% of the international market. Domestic experts argue that China has not succeeded in exporting more traditional medicines partially because Western and Eastern medical philosophies differ. Chinese medicine considers the whole person and administers specific herbal combinations in a low dosage over a long period of time. Western medicine is based on much more exact science where a specific dosage is applicable to a specific population and dosages are typically larger over a shorter period. However, in an effort to increase competitiveness on an international scale, the Chinese government and traditional medicine manufacturers are working to meet the demands of the international marketplace.

There are approximately 1000 companies producing traditional Chinese medicines (approximately 50% are state-owned), the majority of which are small or medium sized. A few large companies, including Harbin Shiyitang Pharmaceutical Factory, Lanzhou Foci Pharmaceutical Factory, and Sanzhu Group Co. Ltd dominate the market. There are currently about 500 000 people working in the traditional Chinese medicine industry in China, along with 2500 specialized hospitals. Ninety-five percent of all hospitals in China have a department devoted to traditional Chinese medicines and most village doctors have some experience with traditional treatments. There are 28 colleges of traditional Chinese medicine and 57 research institutes located throughout the country.

International Competition

The global market for nutraceuticals is approximately $45 billion and is expected to increase by up to 15% annually. Japan, Southeast Asia and Europe are key suppliers of traditional Chinese medicine in China. Similar to domestic preparations, foreignmade Chinese medicines are available in pills, capsules, tonics and ointments. Foreignmade Chinese medicines, however, are often based on advanced research and manufacturing technology, are of high quality and are available in standardized dosages. With strong advertising campaigns, attractive packaging and clear directions for use, foreign-made products are targeted to higher-end consumers. The products are typically more expensive than domestic preparations, but are often viewed by users are more reliable and worth the extra cost.

There are currently a limited number of international players in the nutraceuticals market in China. Imports are estimated at $1.5 billion annually.

Canadian Position

The nutraceuticals industry in Canada is growing steadily and is based on existing agricultural capacity throughout the country. In particular, the prairie provinces of Alberta, Saskatchewan and Manitoba are building on their existing value-added agricultural sectors to develop nutraceuticals and functional foods. Companies are typically small or medium-sized and often begin as a result of farm diversification strategies and as a way to increase farm income. There are an estimated 150 Canadian companies active in the domestic market.

The primary herbs grown in Canada for nutraceutical production are echinacea, ginseng, garlic, milk thistle, feverfew, golden seal, St. John’s wort, valerian, astragalus and cayenne. Secondary products include anise, senega root, chamomile, yarrow and fireweed. Canadian companies have also developed expertise in developing essential fatty acid supplements from evening primrose, borage, flax seeds and hemp, as well as omega-3 enriched eggs, lactose-free dairy products and various green and black teas.

Total sales of Canadian natural health products (including nutraceuticals and functional foods) are estimated at $1.2 billion. The United States is currently the largest importer of Canadian nutraceutical products, although other markets in Europe and Asia are growing.

Ginseng is the largest Canadian nutraceutical export to China with exports in 2001 totaling $14 million, a dramatic increase from sales of $3 million in 1999. A lower tariff rate as a result of WTO accession will only increase the potential for Canadian products in the Chinese market. Another Canadian nutraceutical product that is developing a market in China is seal oil capsules.

Competitive Advantage Through Canadian Government Policies and Initiatives

Canadian Commercial Corporation

The Canadian Commercial Corporation (CCC) gives Canadian companies access to financing and better payment terms under the Progress Payment Program (PPP). The PPP concept was developed as a partnership between major Canadian financial institutions and the CCC. It enables the exporter's bank to open a project line of credit for the exporter's benefit, based on CCC approval of the project and the exporter's ability to perform. The CCC will also act as a prime contractor on behalf of Canadian small and medium-sized enterprises, giving those businesses increased credibility and competitive advantage.

Export Development Canada

Export Development Canada (EDC) offers export financing and insurance to Canadian exporters. Additionally, insurance can be provided for larger transactions that are subject to the terms and conditions established by the buyer. EDC prefers to work through letters of credit, bank credits or bank guarantees. Approval for financing is considered on a case-by-case basis.

Program for Export Market Development

The Program for Export Market Development (PEMD) helps Canadian companies enter new markets by sharing the costs of activities that companies normally could not or would not undertake alone, thereby reducing risks involved in entering a foreign market. Eligible costs and activities include market visits, trade fairs, incoming buyers, product testing for market certification, legal fees for international marketing agreements, transportation costs of offshore company trainees, product demonstration costs, promotional materials, and other costs necessary to execute a market development plan. Activity costs are shared on a pre-approved, 50/50 basis.

The PEMD refundable contribution ranges from $5,000 to a maximum of $50,000. Preference is given to companies with fewer than 100 employees for a firm in the manufacturing sector and 50 in the service industry, or with annual sales between $250,000 and $10 million. Other components of the program include international bid preparation (Capital Project Bidding) and, for trade associations, developing international marketing activities for their membership. For additional information visit http://www.infoexport.gc.ca/pemd/menu-e.asp or call 1-888-811-1119.

Virtual Trade Commissioner

The Virtual Trade Commissioner (vTC) is a new on-line service offered by Canada's Trade Commissioner Service of the Department of Foreign Affairs and International Trade. Through a personalized and password-protected Web page, vTC-registered Canadian exporters will receive timely and relevant information on contacts and business opportunities in targeted foreign markets. The vTC offers registered users direct on-line access to market information, including market reports, business news, events and business leads related to the companies' industry sectors and markets of interest. Users can request services on line from a trade commissioner responsible for their industry sector in their target markets. They will also automatically receive new information as it becomes available. Canadian exporters can register for a Virtual Trade Commissioner at http://www.infoexport.gc.ca.

MARKET LOGISTICS

Channels of Distribution

The Chinese distribution system can be a challenge for new exporters to navigate. Many products are still shipped through Hong Kong, although some large, experienced exporters have begun dealing directly with Chinese agents. China currently lacks an efficient, reliable distribution system. As a result, coastal cities, which tend to be more prosperous than inland areas, are good areas in which to introduce a product to the Chinese market.

There is a significant degree of regional diversity within China with both formal and informal barriers to trade between regions. Typically, domestic producers, agents and distributors tend to focus on selling a product within one region or even within one city, with very little national distribution. Therefore, Canadian exporters may wish to consider establishing their products within one of the more affluent port cities such as Shanghai or Guangzhou prior to expanding their scope.

One of the greatest obstacles for potential exporters is China’s transportation system and storage facilities. Although China has already begun investing in infrastructure improvements, the transportation system is underdeveloped and sometimes difficult to negotiate. Widespread progress in this area will take years to accomplish. In the interim, exporters will have to negotiate the existing system as best they can. When using the Chinese distribution system, exporters should be prepared for lost or stolen inventory, and be prepared to pay unexpected fees at points of entry. Loss of products, especially perishables, is considered part of doing business in the Chinese market and many agents include a sizeable charge, in addition to their regular fees, to cover unexpected and miscellaneous costs.

Direct Sales

Until recently, foreign companies were not permitted to engage directly in trade with China other than through direct marketing of goods that were manufactured in China. One of the few exceptions to this rule was for stores that were partially financed by foreign investment. These outlets were able to import products directly. However, China’s recent accession to the WTO has reduced import restrictions. Although companies are now able to export directly to China, it is widely believed that many foreign exporters will continue to ship their products through Hong Kong, as local agents have both the experience and the contacts to make the exporting process as smooth as possible.

Distributors and Wholesalers

Many established trading companies and distributors have exclusive agreements with their suppliers, which do not allow the distributor to represent a competitor. However, approaching distributors that handle complementary products can lead to distribution contracts that will sell products through many of the same routes.

It is less expensive to distribute through existing networks rather than to establish new networks. The majority of distribution in China is handled by decentralized state companies that have become regional private-sector companies. They typically have good government contacts to facilitate customs clearance and minimize bureaucracy, but are often limited to the geographic area they serve. Prices are often competitive and services are improving, however product damage through poor handling can occur.

Foreign wholesalers offer wider national or multi-regional service in China, in addition to a more modern range of distribution services. Distribution networks through foreign wholesalers are often extensive, but the exit costs are lower for the manufacturer if they need to pull out of the market. However, the increased cost of foreign wholesalers results in higher retail prices for the consumer. Local wholesalers are also generally more knowledgeable about regional markets.

Privately owned enterprises currently account for 20% of Chinese retail outlets, but their market share is predicted to grow at the expense of collectively owned and state-owned enterprises. This sector includes the developing supermarket and hypermarket industry, which often includes pharmacies and are geared toward more affluent Chinese consumers.

Agents and Sales Representatives

Exporters are required to use a domestic agent when operating in the Chinese market. In addition to offering exporters a physical presence in the local market, these agents and sales representatives can provide vital links to distributors, wholesalers and retail outlets. In essence, employing a reliable agent often involves taking on a variety of other partners including truckers, customs brokers and other agents.

An exporter must weigh a number of factors when selecting an agent, such as which region(s) the agent covers, the individual’s reputation, product knowledge, experience in handling the exported product, the commission to be paid, what (if any) after-sales service is provided, and the size and quality of the agent's staff. These attributes can best be assessed during a visit to China, during which time manufacturers should also ensure that responsibilities are clearly defined before entering into a business relationship. As a new exporter becomes more accustomed to the market less dependence upon the agent will be required.

Sales agents will sell nutraceuticals to hospital pharmacies, government-controlled pharmacies, traditional drugstores and the recently established chain store pharmacies. In 2000, there were an estimated 200 chain pharmacies with 5000 outlets throughout the country. Retail pharmacies accounted for 47% of nutraceutical sales in 2000, while traditional Chinese drugstores maintained 31% of the market.

Market-entry Considerations

Since 1988, China has established a number of duty-free import/export zones and five special economic zones: Shenzhen, Shantou and Zhuhai in southern Guangdong Province, Xiamen in southern Fujian, and one on the island of Hainan. These zones facilitate foreign investment and trade by offering lower business tax rates and operating costs, a better investment climate, a more developed infrastructure, and lower local taxes and rent. In deciding where to locate, some foreign firms have found the willingness of authorities to cater to the specific needs of the investor advantageous. Cheap labour, additional tax breaks, easing of construction restrictions, and low property and construction costs attract investments, while extra perks are developed for ownership and management. Though the special zones provide incentives, investors should bear in mind the distance to the target market, as well as the availability of supplies and labour.

Suggested Business Practices

Establishing a personal relationship with Chinese business associates is an important step in successfully entering the Chinese market. In many cases, trust between business parties is as significant, if not more important, than contractual agreements. Sharing information on personal interests as well as showing an interest in your business associates can quickly strengthen business ties. Once established, maintaining solid relationships will depend on frequent face-to-face meetings with Chinese counterparts, as well as a long-term commitment to the market. Making potential business associates feel comfortable will also strengthen business relationships. For example, providing literature and business cards in both Chinese and English, as well as learning a few words of Chinese, is appreciated by Chinese businesses. In addition, the effort of obtaining translations will be interpreted as an indication of your commitment to doing business with the Chinese company.

The use of interpreters is strongly recommended for business meetings. Interpreters allow Chinese business associates-even those who speak English-to feel more relaxed, and perhaps enables the Canadian exporter to provide more details than they could while speaking English. Before the meeting, interpreters should be briefed about both companies involved, specific products and the objectives of the meeting. Following the meeting, interpreters should provide a debriefing about the tone and any private, verbal and/or non-verbal exchanges that may have taken place among the Chinese business associates.

Like many Asian countries, the hierarchical structure of Chinese companies differs from those of North American companies. Many business initiatives start at the bottom of a company and "work their way up." Foreign companies often bypass lower levels of administration in an attempt to appeal to senior personnel. More often than not, this type of approach results in the alienation of key decision makers.

Participation in some of China’s many specialized trade shows and exhibitions is an excellent method for potential exporters to both assess the market and make contacts. Due to the extensive preparatory requirements for these events, combined with the need to communicate in Chinese, it is recommended that Canadian exporters select an agent or distributor before attending the show. This is usually a prerequisite to effective participation and provides support to the agent’s or distributor’s work in effectively representing and profiling the exporter’s product. However, with or without an agent or distributor, participation may enable exporters to benefit from local pricing information, information about competing products, a chance to measure consumer acceptance of a product, product exposure in the Chinese market, and an opportunity to find an importer or distributor.

Import Regulations

In an attempt to speed up customs clearance procedures, the Chinese government recently merged a number of its inspection agencies into one bureau. The China Animal and Plant Quarantine Bureau, the State Administration for Commodity Inspection (SACI) and the Health Inspection Bureau were all merged in the new State Administration for Entry and Exit Inspection and Quarantine (CIQ-SA). The CIQ-SA is responsible for inspecting all imported foods and beverages for sanitation and health, quality, quantity, weight, and labelling. Importers or distributors should apply to the CIQSA to get labeling approved before shipments arrive in China. This will help to keep border delays to a minimum.

In 1998, the Chinese government began cracking down on the smuggling of products into China. Customs officials now thoroughly check imported goods for all correct documentation to ensure that all products are being claimed and that products are not entering at an undervalued rate. Although this has not put an end to imports through illegal channels, the number of products entering by these means has been significantly reduced and will continue to decline in the future. Both government officials and industry analysts hope that this will lead to a reasonably transparent system in the not too distant future.

Intellectual Property Rights Protection

As a result of a Memorandum of Understanding on the Protection of Intellectual Property signed by China in 1992 and revised in 1995, products can be patented for a full 20-year term in China. China has also established regulations to protect products awaiting official approval and registration. Patent applications by foreign firms must be made to the Patent Agency of the China Council for the Promotion of International Trade, the Shanghai Patent Office or the Hong Kong-based China Patent Agent. Patent applications and proceedings are published in the Patent Gazette 18 months after initial filing.

Trademarks are valid for 10 years from the approval date and can be renewed upon application. Foreign companies must apply to the State Administration of Industry and Commerce for a trademark.

Companies should be aware that although China has indicated a strong commitment to improving protection for intellectual property rights, trademark infractions and theft of patented technology is still prevalent. Accordingly, Canadian exporters may wish to enlist the services of a qualified lawyer familiar with China’s intellectual property rights environment.

Local Standards, Certificates or Registrations

All products exported to China must be accompanied by a set of shipping documents. Documentation should be thoroughly checked to ensure that it is correctly prepared and arrives with the shipment. All documents should be completed in both English and Chinese in order to avoid any unnecessary delay.

Under a new law governing the advertisement of nutritional supplements and over-thecounter preparations (OTC), manufacturers and distributors are prohibited from exaggerating the effectiveness of a given product and citing anecdotal evidence of a product’s quality in promotional activities. The Ministry of Health (MOH) is expected to establish further regulations with respect to the promotion of products in this category and to take legal action against manufacturers who do not comply. These regulations were established in response to rapid growth in the industry as well as an increase in the number of suppliers using questionable tactics to market health-care products, pharmaceuticals and nutraceuticals in China in order to profit from growing demand.

There are separate regulations for health foods and OTC pharmaceuticals in China. Each nutraceutical product must be approved prior to sale, however, the nature of the product will determine which set of regulations apply. Pills, capsules, ointments and powders will most likely be classified as OTC drugs, while tonics and other edible products that resemble food will likely be classified as health foods. The regulations appear to be straight forward, but this is not always the case. Canadian companies interested in seeking product approval for the Chinese market are advised to contact the Canadian Embassy for additional guidance.

All pharmaceutical products imported to China must be registered with the State Drug Administration (SDA), which is responsible for overseeing the sale of both domestically produced and imported drugs. The Directorate of Pharmaceutical Products of the Ministry of Health (MOH) is ultimately responsible for testing pharmaceuticals. However, pharmaceutical products are normally required to be tested at several levels (municipal, provincial and national) and are subject to testing criteria similar to those followed by the U.S. Food and Drug Administration.

Under the Chinese Interim Law on the Distribution of Prescription and Over-the-Counter Drugs (July 2000), additional requirements are applied to pharmaceuticals. Manufacturers of either prescription or OTC drugs must have a Drug Production Licence and must classify their products as either prescription or OTC. Packaging for high- and medium-risk OTC drugs may be required to include the following warning: "May be purchased and used only according to a pharmacist’s instructions." In accordance with the Interim Law, manufacturers are prohibited from selling or promoting prescription medical drugs directly to individual consumers.

Products must also be labelled in Chinese to indicate:

• product name;
• manufacturer’s name and address;
• primary ingredients, their grades and specifications (for pharmaceuticals);
• expiry date for sale or efficacy (where applicable);
• warnings on potential hazards and their prevention; and
• directions for proper transport and storage of potentially hazardous products.

Health foods must also be registered with the Ministry of Health. Once an application has been received, the MOH Review Committee will look over the documents, and then forward the submission to the MOH’s Food Administration Department. The Food Administration Department will decide if functional tests need to be conducted in China and will designate an institute to carry out the tests. The Review Committee will then formally evaluate the submission and any test results and send a recommendation to the Food Administration Department, which ultimately grants approvals and issues import licenses. A key component in the submission process is proof of the function of the food and it is increasingly necessary to submit scientific evidence of efficacy.

Export Credit Risks, Restrictions on Letters of Credit, Currency Controls

Conditions of payment should be clearly outlined and mutually agreed upon by both the Canadian exporter and the Chinese business associate before any product is shipped.

Generally, the three methods of payment used by exporters to China are:

• payment upon receipt of shipment;
• delay of payment (payment is made after a set number of days-e.g. 30 days or 60 days); or
• consignment.

Consignment is widely used by first-time exporters to China. Consignment essentially allows Chinese retailers to attempt to sell a new product to consumers without a finalized agreement with the foreign supplier. By using this method of payment, Canadian exporters and their Chinese counterparts can assess whether or not a product has been accepted by consumers (after an agreed-upon period of time), after which details to complete the transaction can be arranged.

Payment for products that must be sold relatively quickly after their arrival to prevent spoilage is usually made before the product is shipped. Cash, wire transfer or letters of credit are all common forms of payment for this type of product. Wire transfers, which are only used for transactions that are low in both value and volume, are inexpensive and easy to arrange through the Bank of China. A letter of credit, on the other hand, can be expensive and may take a long time to process. However, this form of payment is recommended as it guarantees Canadian exporters that they will be paid within a set period of time. Letters of credit account for almost 80% of all export financing and payment transactions to China.

Canadian exporters are advised to contact Export Development Canada, which offers insurance programs to protect Canadian exporters against non-payment by Chinese buyers.

PROMOTIONAL EVENTS

Nutritionals 2003
January 21-23, 2003 (Annual)
Disneyland Hotel
Anaheim, California
Internet: http://www.devicelink.com/expo/nu02/index.html

• Organizer
  Canon Communications LLC
  11444 W. Olympic Blvd.
  Los Angeles, CA 90064-1549
  Tel.: (310) 445-4200
  Fax: (310) 996-9499
  Internet: http://www.canontradeshows.com

Expo Quebec 2003
March 20-23, 2003
Palais des Congres
Montreal, Quebec
Internet: http://www.chfa.ca/events/expoquebec.htm

• Organizer
  Canadian Health Food Association
  550 Alden Rd., Suite 205
  Markham, ON L3R 6A8
  Tel.: (905) 479-6939
  Fax: (905) 479-1516
  Internet: http://www.chfa.ca

Expo West 2003
April 24-27, 2003
Vancouver Convention and Exhibition Centre
Vancouver, BC
Internet: http://www.chfa.ca/events/expowest.htm

• Organizer
  Canadian Health Food Association
  550 Alden Rd., Suite 205
  Markham, ON L3R 6A8
  Tel.: (905) 479-6939
  Fax: (905) 479-1516
  Internet: http://www.chfa.ca

Natural Products Expo Asia
June 18-20, 2003
Hong Kong Convention and Exhibition Centre
Hong Kong, China

• Organizer
  Natural Products Expo Asia
  Penton Media Asia
  7/F No. 9 Des Voeux Road West
  Hong Kong, China
  Tel.: (852) 3402 5011
  Fax: (852) 2857 6144
  E-mail: wso@pentonasia.com
  Internet: http://www.naturalproductsasia.com

SIAL Asia 2003
July 2-4, 2002 (Annual)
Suntec Singapore
A wide variety of foods on display, both commodities and value-added products

• Organizer
  SIAL ASIA Pte Ltd
  20 Kallang Ave
  2nd floor, Pico Creative Centre
  Singapore 339411
  Tel.: (65) 6392-9269
  Fax: (65) 6392-9260
  E-mail: doreengoh@mpgroupasia.co
  Internet: http://www.sialasia.com

Expo East 2003
October 16-19, 2002
Metro Toronto Convention Centre (North Building)
Toronto, Ontario
Internet: http://www.chfa.ca/events/expoeast.htm

• Organizer
  Canadian Health Food Association
  550 Alden Rd., Suite 205
  Markham, ON L3R 6A8
  Tel.: (905) 479-6939
  Fax: (905) 479-1516
  Internet: http://www.chfa.ca

KEY CONTACTS AND SUPPORT SERVICES

Canadian Government Contacts

Canadian Embassy in China
19 Dongzhimenwai Dajie
Chaoyang District
Beijing, 100600 China
Tel.: (86-10) 6532-3536
Fax: (86-10) 6532-4072
Contact: Gordon Parsons, Commercial
Counsellor
E-mail: bejing-td@dfait-maeci.gc.ca
Internet: http://www.canada.org.cn

Canadian Consulate in Chongqing
Suite 1705, Metropolitan Tower
Wu Yi Lu, Yu Zhong District
Chongqing, 400010 China
Tel.: (86-23) 6373-8007
Fax: (86-23) 6373-8026
Contact: Dorothy Hu, Commercial Assistant
E-mail: chonq@dfait-maeci.gc.ca
Internet: http://www.canada.org.cn

Canadian Consulate General in Guangzhou
Suite 801, China Hotel Office Tower
Liu Hua Lu
Guangzhou, 510015 China
Tel.: (86-20) 8666-0569
Fax: (86-20) 8667-2401
Contact: Minster Li, Commercial Officer
E-mail: ganzu@dfait-maeci.gc.ca
Internet: http://www.canada.org.cn

Canadian Consulate General in Shanghai
Tower 4, Suite 604
Shanghai Centre
1376 Nanjing Xi Lu
Shanghai, 200040 China
Tel.: (86-21) 6279-8400
Fax: (86-21) 6279-8401
Contact: Henry Deng, Senior Commercial Officer
E-mail: shngi@dfait-maeci.gc.ca
Internet: http://www.canada.org.cn

Canadian Consulate General in Hong Kong
13th Floor, Tower 1, Exchange Square
8 Connaught Place
Central, Hong Kong
Tel.: (852) 2847-7414
Fax: (852) 2847-7441
Contact: Monica Heron, Trade Commissioner
E-mail: canadatrade.hkong@dfait-maeci.gc.ca
Internet: http://www.hongkong.gc.ca

Agriculture and Agri-Food Canada
Agri-Food Trade Service
930 Carling Ave., 10th Floor
Ottawa, ON K1A 0C5
Tel.: (613) 759-7637
Fax: (613) 759-7506
Contact: Jane Morisset
E-mail: morissetj@agr.gc.ca
Internet: http://ats.agr.ca

Canadian Commercial Corporation (CCC)
50 O'Connor St., 11th Floor
Ottawa, ON K1A 0S6
Tel.: 1-800-748-8191 or (613) 996-0034
Fax: (613) 995-2121
E-mail: info@ccc.ca
Internet: http://www.ccc.ca

Canadian Food Inspection Agency (CFIA)
59 Camelot Dr.
Nepean, ON K1A 0Y9
Tel.: (613) 225-2342
Fax: (613) 228-6653
E-mail: cfiamaster@agr.gc.ca
Internet: http://www.inspection.gc.ca

Department of Foreign Affairs and International Trade (DFAIT)
125 Sussex Dr.
Ottawa, ON K1A 0G2
Internet: http://www.dfait-maeci.gc.ca
China and Mongolia Division (PCM)
Contact: Jeremy Wallace, Trade Commissioner
E-mail: jeremy wallace@dfait-maeci.gc.ca
Tel.: (613) 996-7177
Fax: (613) 943-1068
Internet: http://www.infoexport.gc.ca
Market Support Division (TCM)
Contact: Chris Duggan, Trade Commissioner
Tel.: (613) 996-1431
Fax: (613) 944-0050
E-mail: christopher.duggan@dfait-maeci.gc.ca

Export Development Canada (EDC)
151 O’Connor St.
Ottawa, ON K1A 1K3
Tel.: 1-888-332-4593 or (613) 598-2500
Fax: (613) 598-6697
E-mail: export@edc4.edc.ca
Internet: http://www.edc.ca

Chinese Government Contacts

Chinese Embassy in Canada
515 St. Patrick St.
Ottawa, ON K1N 5H3
Tel.: (613) 789-3434
Fax: (613) 789-1911
Internet: http://www.chinaembassycanada.org

General Administration of Customs
Avenue Jian-Guo-Men Nei, 6
Beijing, China
Tel.: (86-10) 6519-4114
Fax: (86-10) 6519-4004
Internet: http://www.customs.gov.cn (Chinese)

Ministry of Agriculture
No.11 Nongzhanguan Nanli
Beijing, 100026 China
Tel.: (86-10) 6419-1114
Fax: (86-10) 6419-2468
Internet: http://www.agri.gov.cn/english/index.htm

Ministry of Health (MOH)
1 Xizhimenwai South Road, Xicheng District
Beijing, 100044 China
Internet: http://www.moh.gov.cn (Chinese)
China National Institute for the Control of
Pharmaceutical and Biological Products
Tel.: (86-10) 6710-7755
Fax: (86-10) 6701-3755
Internet: http://www.nicpbp.org.cn (Chinese)
Department of International Co-operation
Tel.: (86-10) 6879-2292
Fax: (86-10) 6879-2295
Department of Laws and Regulations
Tel.: (86-10) 6879-2389
Fax: (86-10) 6879-2387

Ministry of Foreign Trade and International Co-operation
No.2 Dong Chang'an Ave.
Beijing, 100731 China
Tel.: (86-10) 6519-8114
Fax: (86-10) 6519-8039
E-mail: moftec@moftec.gov.cn
Internet:http://www.moftec.gov.cn/moftec_en/index.html

State Drug Administration (SDA)
38A Beilishi Rd
Beijing, 100810 China
Internet: http://www.sda.gov.cn (Chinese)
Department for International Co-operation
Tel.: (86-10) 6831-3344, ext. 0502
Fax: (86-10) 6831-5648
Foreign Product Registration Division
Tel.: (86-10) 6831-3344, ext. 0609
Fax: (86-10) 6831-5649
Medical Device Administration
Tel.: (86-10) 6831-3344, ext. 0616
Fax: (86-10) 6831-5649

State Administration of Traditional Chinese Medicine
Internet: http://www.satcm.gov.cn

State Pharmaceutical Administration
38A Beilishilu
Beijing, 100810 China
Tel.: (86-10) 831-3344
Fax: (86-10) 831-5648

Canadian Industry Associations

Canadian Manufacturers and Exporters Association (CME)
National Office
1 Nicholas St., Suite 1500
Ottawa, ON K1N 7B7
Tel.: (613) 238-8888
Fax: (613) 563-9218
Internet: http://www.cme-mec.ca

British Columbia Functional Food and Nutraceutical Network (BCFN)
Rm 218 - Food, Nutrition, and Health Bldg.
Faculty of Agricultural Sciences
University of British Columbia
2205 East Mall
Vancouver, BC V6T 1Z4
Tel.: (604) 822-6920
Fax: (604) 822-5143
E-mail: info@bcfn2.com
Internet: http://www.bcfn2.com

Canadian Association of Importers and Exporters
438 University Ave., Suite 1618
Toronto, ON M5G 2K8
Tel.: (416) 595-5333
Fax: (416) 595-8226
E-mail: info@caie.ca
Internet: http://www.importers.ca

Canadian Food Exporters Association
885 Don Mills Rd., Suite 301
Don Mills, ON M3C 1V9
Tel.: 1-888-227-8848 or (416) 445-3747
Fax: (416) 510-8044
E-mail: info@cfea.com
Internet: http://www.cfea.com

Canadian Health Food Association
550 Alden Rd., Suite 205
Markham, ON L3R 6A8
Tel.: (905) 479-6939
Fax: (905) 479-1516
Internet: http://www.chfa.ca

Food Institute of Canada (FIC)
1600 Scott St., Suite 415
Ottawa, ON K1Y 4N7
Tel.: (613) 722-1000
Fax: (613) 722-1404
Internet: http://foodnet.fic.ca

Quebec Agri-Food Export Club
668 Montée Montarville
St. Bruno, PQ J3V 6B1
Tel.: (450) 461-6266
Fax: (450) 461-6255
E-mail: clubexport@clubexport.ca
Internet: http://www.clubexport.ca/exporte.htm

Saskatchewan Nutraceutical Network
105 North Rd.
Saskatoon, SK S7N 4L5
Tel.: (306) 652-2783
Fax: (306) 933-7208
E-mail: info@nutranet.org
Internet: http://www.nutranet.org

Chinese Industry Associations

China Chamber of Commerce of Medicines and Health Products Importers and Exporters
8th Floor, 12 Panjiayuan Nanli, Chaoyang Qu
Beijing 100021 China
Tel.: (86-10) 6773-6869
Fax: (86-10) 6773-4768

China Council for the Promotion of International Trade (CCPIT)
1 Fu Xing Men Wai St.
Beijing, 100860 China
Tel.: (86-10) 6801-3344
Fax: (86-10) 6801-1370
E-mail: ccpitweb@public.bta.net.cn
Internet: http://www.ccpit.org

Chinese Medical Association
Department of Foreign Relations
42 Dongsi Xidajie
Beijing, 100710 China
Tel.: (86-10) 6525-0394 or 6513-4885
Fax: (86-10) 6512-3754
Internet: http://www.chinamed.org.cn

China Pharmaceutical Association
A-38 Beilishi Rd.
Beijing, 100810 China
Tel.: (86-10) 6831-3601

BIBLIOGRAPHY

Print

Asia Pulse, "Chinese Medicine Gets Booster in China," September 2001.

China Business Information Network, "WTO Right Rx for Traditional Chinese Medicine," January 2002.

Espicom Business Intelligence. World Pharmaceutical Markets, "China," July 2001.

Euromonitor Market Reports. "Herbal Remedies," 2000.

Freedonia Group Inc., "World Nutraceuticals to 2004," 2000.

Lu, Zhang. "Traditional Medicine Maker to go Overseas," China Daily, December 2001.

Nutraceuticals International, "Nutra/health Foods Popular in Hong Kong," June 2001.

People’s Daily. "People Turn to Bottle for Daily Fix of Vitamins," March 2001.

United States. United States Department of Agriculture. "People’s Republic of China: Food and

Agricultural Import Regulations and Standards, Health Food Standard,"2001.

United States. United States Department of Commerce. "China–Dietary Supplements," August 1999.

World News Connection, "Wild Herbal Medicines to Help China Compete in Pharmaceutical Sector After WTO Entry," December 2001.

Xinhua News Agency, "Intellectual Property Rights Protection of Traditional Chinese Medicine Urged," November 2001.

Electronic

Canada. Agriculture and Agri-Food Canada. "Functional Foods and Nutraceuticals: Market, Industry and Distribution," 2000. Downloaded from http://www.agr.gc.ca/food/nff/ffnmrket.html on February 15, 2002.

Chen, Junshi. "The Regulatory Situation–China," Nuta Ingredients, 2001. Downloaded from http://www.nutraingredients.com/ingredients/paper.asp?id=2 on February 18, 2002.

China Concept Consulting. "The OTC Market–Ready for Take Off," 2002. Downloaded from http://www.chinaconcept.com/content/resources/
industry/pharma_agribusiness/otc on February 21, 2002.

China Products.Com. "China Imports More Traditional Chinese Medicine Than It Exports," 2001.

Downloaded from http://www.chinaproducts.com/eng2/content/contf77.phtml on February 18, 2002.

Food and Beverage. "Herbal Concoctions Pass Effectiveness Challenge," March 2001. Downloaded from http://www.foodandbeverage.globalsources.com/
MAGAZINE/FB/0104?HFOODC.HTM on February 18, 2002.

Medical Food News. "China Sets Rules on Health Foods." Downloaded from http://www.medicalfoodnews.com/vol02/issue6/china.htm on February 14, 2002.

Nutra Ingredients. "Western Health Supplements Trendy in Asia," August 2001. Downloaded from http://www.nutraingredients.com/news/news.asp?id=2267 on February 18, 2002.

OTHER REFERENCE MATERIAL

Useful Internet Sites

Agriculture Canada Agri-Food Trade Service: http://ats.agr.ca

Canada Business Service Centres: http://www.cbsc.org

Canadian Food Trade Alliance: http://www.cfta.ca

Canadian Offices in China: http://www.canada.org.cn

China–Overview of Cities and Provinces: http://www.tdctrade.com/mktprof/china.htm

China Ministry of Foreign Trade and Economic Co-operation: http://www.moftec.gov.cn

China Online: http://www.chinaonline.com (Note: Daily news site with industry links)

Chinese Economic and Commercial Counselor’s Office: http://www.chinacommercial.org

Department of Foreign Affairs and International Trade: http://www.dfait.maeci.gc.ca

Embassy of the People’s Republic of China in Canada: http://www.chinaembassycanada.org

ExportSource: http://exportsource.gc.ca

InfoExport: http://www.infoexport.gc.ca

1 All monetary amounts are expressed in Canadian dollars, unless otherwise indicated. The conversion rate to Canadian dollars is based on IDD Information Services, Tradeline, February 2002.

2 Agriculture and Agri-Food Canada defines a nutraceutical as a product isolated or purified from foods that is generally sold in medicinal forms not usually associated with food. A nutraceutical is demonstrated to have a physiological benefit or provide protection against chronic disease. This is distinguished from a functional food, which is consumed as part of a usual diet. A nutraceutical is demonstrated to have physiological benefits and/or reduce the risk of chronic disease beyond basic nutritional functions. Many traditional Chinese medicines are delivered in tonic form or as powder and should be considered nutraceuticals. As well, the term "herbal medications" can also be used to signify a nutraceutical. The Chinese consider nutraceuticals, functional foods, traditional Chinese medicines and herbal medications to be all "health foods" and classify them as such. For the purposes of this study, the term nutraceuticals will adhere to the Agriculture Canada definition and include traditional Chinese medicines.

3 For contact information regarding key organizations mentioned in this report, see Key Contacts and Support Services.