Regulation confusion has investors spooked, but long-term demand for Australian products is unlikely to slow
Investors rushed for the exits after confusion over new import regulations, but long-term demand for Australian health products is unlikely to slow down
In his first visit to China since seizing the prime ministership, Malcolm Turnbull last week gushed about the enduring potential of Australia and China’s economic partnership.
It was a marked departure from his predecessor Tony Abbott, who reportedly once told German Chancellor Angela Merkel that Australia’s policies on China were driven by fear and greed.
Nevertheless, the markets were speaking the former PM’s language. Last week, shares in three Australian health product manufacturers lost $1.25 billion in value, spooked by complex Chinese changes to the taxing and regulation of imported goods bought online.
Vitamins supplier Blackmores alone lost $1 billion in value, its share price, which closed at $203 a share the previous Friday, tumbling to a low of $144 before recovering slightly. Bellamy’s Organic, a $900 million Australian infant milk and food brand, lost nearly $130 million in 30 minutes of trading early in the week before staging a recovery.
The panic centred on how Australian health products find their way to Chinese consumers, explains Alex Shevelev, a portfolio manager at Glennon Capital who researches Australian exporters to China.
The first delivery method is in the luggage of a returning Chinese national. The second is by being mailed directly from Australia to the Chinese consumer after being purchased online. The third is through a cross-border e-commerce (CBEC) sale, where goods are imported through one of the country’s 13 free trade zones (rolled out from 2014), stored in a warehouse, and sold from digital stores set up by their Australian manufacturers and distributors on Chinese equivalents of eBay.
Currently, that last method lets manufacturers circumvent the long and costly Chinese registration process for each product that makes a health claim.
But Blackmores CEO Christine Holgate, who was in China with Mr Turnbull’s trade mission, revealed last week that less than 12% of the company’s China-focused sales were CBEC. She aggressively downplayed fears, saying the changes showed China’s commitment to free trade zones.
Mr Shevelev attributed the share dive to confusion and conflicting information from brokers, and said the companies affected had somewhat recovered.
But, he said, there was still confusion among investors, and confused investors often sell stocks.
Who can blame them?
In the past month two major changes took place. Three Chinese government agencies enacted a tax circular scaling back the preferential tax environment of CBEC sales.
Separately, 11 government agencies published a ‘Positive List’ of 1142 types of goods that can be imported through CBEC. But even Chinese officials disagree as to the latter’s significance, an analysis by Hong Kong law firm King & Wood Mallesons shows. And excluded are products that require special Chinese licences, such as health foods and specialty foods. But fish oil is specifically allowed.
One senior Chinese customs lawyer told The Medical Republic he heard officials would be required to more rigorously examine undeclared parcels, which could delay direct e-commerce sales and make CBEC more attractive.
But one man who isn’t worried is Fu*, a 30-year-old purchasing manager at a Sydney warehouse which mails Australian products direct to Chinese customers. The Zhejiang national, who asked that his real name and company not be printed, told TMR he made $14,000 in the past month.
He says the new stricter approach doesn’t bother him.
“It’s easy. Just hire more people in the warehouse. The costs will be transferred to the customers directly,” he said.
Huge Chinese demand means they’ll pay, he says. Add a recent drop in the Australian market price of Swisse and Blackmores products, and Fu says his bottom line is unlikely to be affected.
For Beijing legal attorney Wei*, 32, Australia represents two things: Ugg boots, and health products that won’t endanger her 13-month-old son’s life.
Wei takes Australian vitamins to improve her breast milk and feeds her son Bellamy’s Organic Baby Rice. She has no idea how much more expensive imported goods will be under the new tax arrangements but says a price rise will not deter her from buying them.
“It’s just about safety,” she tells TMR. “In China, food safety cannot be guaranteed, even in the very big companies. So we have to overcome all kinds of difficulties to buy expensive products overseas.”
Earlier this month China’s food and drugs regulator shut down a popular herbal supplement maker when batches of Tibetan caterpillar fungus used in its flagship preparation were found to contain up to seven times the legal level of arsenic.
And in late March it emerged police in Shanghai had arrested six people over a knock-off baby formula racket in September of last year.
China’s food safety watchdog said the fake formula met national standards and declined to name the affected brands, Chinese investigative news site Caixin reported.