China slashes import tax on speciality infant formulas and a raft of food products

By Gary Scattergood contact

- Last updated on GMT

China has reduced import taxes for a raft of edible consumer goods. ©iStock
China has reduced import taxes for a raft of edible consumer goods. ©iStock

Related tags: International trade

Global manufacturers of speciality infant formulas have received a major boost from the Chinese government, which has done away completely with the 20% import duty.

But China's Ministry of Finance has announced that the measures will apply only to products that can't be produced domestically, so mainstream infant formulas won't benefit from this.

According to the ministry, the zero rate will be applied to "partially hydrolyxed milk protein formulations, deep amino acid formula and lactose-free formulas" ​and some additional "special infant milk powders".

Meanwhile, packaged infant food will see tariffs cut from 15% to 2%.

The move will be a welcome boost to many infant formula MNCs, which have faced a period of regulatory upheaval in the country.

Restricting brands

Overseas brands wishing to export to China have had to clear a number of hurdles to be able access the market from January 2018 onwards.

Each infant formula enterprise is now restricted to selling a maximum of nine products, with the China Food and Drug Administration (CFDA) wanting to restrict the number of brands on the market.

The knock-on effect was initially negative for global brands because many local players — most of which had multiple products — reduced prices in order to shed stock before the new rules come into force.

However, most analysts believe the rule change will benefit the MNCs in the long run as the competition dwindles, while the reduction in import taxes, which will come into force on 1 December, will provide an additional boost.

With regard to the latter, Jean-Philippe Bertschy, an analyst at Bank Vontobel, said: "It's a win-win situation for both consumers and high-quality global consumer goods companies."

A whole host of other food and beverage products will also be subject to lower import taxes, including whisky, salmon, macadamia nuts, avocados, cheese, abalone and shrimp.

Retail injection

There are multiple motivations for the rule changes, which will see taxes reduced from an average rate of 17.3% to 7.7%.

Firstly, there is surging demand from China's emerging middle classes for high-quality imported products. This has created a roaring trade for so-called daigou​ shoppers, i.e., Chinese entrepreneurs who buy goods overseas and sell them in China via e-commerce.

Lowering import tariffs could well reduce this channel in some sectors, thereby boosting tax returns for the government and giving China's domestic retail economy a shot in the arm.

Yu Simin from Chinese e-commerce consulting firm CECRC told The Australian Financial Review​ that this was "not a friendly move for daigou in Australia"​, adding: "The lower tariffs mean Chinese consumers can buy Australian products at a lower price and more conveniently at home. This means the daigou will lose their price advantage."

China has also been under pressure from other countries, most notably the US, to reduce its trade gap.

The ministry said in a statement: "People's consumption demands are ever-increasing. (These measures} will benefit the choices available to consumers domestically, and help upgrade the domestic supply system."

Related topics: Regulation & Policy

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