Formula makers rise on new guidance

A baby poses with a can of baby formula in a supermarket in Nantong, Jiangsu province.[Photo/VCG]

Shares of baby formula makers soared on Thursday as the central government clarified a policy on online imports of the items, saying all products have to be registered by January 2018, much later than the industry expected.

The new guidance on registering baby formula with the China Food and Drug Administration was issued by the Ministry of Finance on Wednesday.

It stated that as the registration framework was still in the process of being drafted, all baby formula currently registered with the Certification and Accreditation Administration in China will not have to obtain CFDA registration until Jan 1, 2018.

Chinese maker Yashili Group Co jumped as much as 14 percent before closing up 7 percent to close at HK$1.94 (25 cents), the most since 2013, as the new cross-border e-commerce regulation was seen as favorable to domestic brands.

Australia's largest organic baby formula brand Bellamy's Australia Ltd rose 7.15 percent on the Australian Securities Exchange on Thursday, having plunged 10.8 percent on Tuesday amid confusion over the imports policy.

The company said the clarification meant the firm could continue with normal operations in China.

"The guidance provided last night by the Ministry of Finance in China reconfirms that it's business as usual for Bellamy's in the e-commerce channel," CEO Laura McBain said in a statement.

China's cross-border e-commerce refers to goods either shipped directly to shoppers from overseas or from bonded warehouses in free-trade zones within China.

The new policy is favorable to Yashili and Mengniu Dairy Group Co, said China Galaxy analyst Mark Po in a research note.

But industry expert Song Liang questioned how "favorable" the policy really is toward the formula producers as he forecast early implementation of the registration framework.

"The CFDA is drafting the registration framework and it is expected to be carried out next year," Song said. "The date of 2018 is merely expected to be a guidance on imported formula registration set by the Ministry of Finance," Song said.

He said the implementation of the regulation will cast shadows on large overseas dairy manufacturers who produce hundreds of infant formula brands each year and will face their exported brands to China down to just three. This will result into mild competition and larger market space for domestic infant formula producers, he said.

The country's baby formula market is estimated to be worth 65.7 billion yuan ($10 billion) this year and is forecast to rise to 133.7 billion yuan by 2020, according to Euromonitor International, led by overseas brands such as Nestle, Mead Johnson Nutrition, Beingmate and Danone.