By Mark Schaub and Chen Bing King & Wood Mallesons’ Foreign Direct Investment (FDI) Group

It would be safe to say that when Hong Kong rejoined China as a Special Administrative Region in 1997 there was little thought, if any, paid to milk powder and its effect on relations with the mainland. However, recent restrictions introduced in Hong Kong on the sale and distribution of milk powder produced by mainland suppliers has become a major, and indeed emotional, issue. As the 12th Chinese People’s Political Consultative Conference National Committee (“CPPCC”) and 12th National People’s Congress (“NPC”) (the highest authority of the PRC) commenced on March 5, 2013, baby milk grabbed the attention of representatives in both forums.

When Australian food businesses think China they often think “food security” and the Chinese government’s concern to ensure adequate food supplies. However, the Chinese consumer’s concern with “food safety” may be the far greater selling point.

As a consequence of a spate of high profile safety scares affecting staples in the local diet, food safety is now very much a part of the public focus in China. Although this level of heightened awareness will naturally recede, strong public sentiment remains just beneath the surface awaiting the next scandal. Food safety scandals have surfaced in China long before the recent milk powder concerns and include sub-standard baby milk produced in Anhui, Longkou noodles containing lead from Shandong, fake alcohol in Guangdong, eggs with melamine and even soy sauce made from human hair (still not clear how that works in practice). .The list is long and a cause of grave concern for increasingly selective Chinese consumers.

Consultations during recent NPC and CPPCC sessions regarding food safety aimed to further promote institutional reform, improve the regulatory and monitoring system, as well as the food safety inspection techniques.

  • Institutional Reform

The PRC Food Safety Law which went into effect on June 1, 2009 consolidated hundreds of regulations and standards which governs the operation and activities of China’s 500,000 food-processing companies.

However, a serious flaw in the PRC Food Safety Law was the failure to consolidate oversight and implementation in respect of monitoring and supervision. Several agencies remain responsible for food safety including the Ministry of Health, the General Administration of Industry and Commerce, , the State Food and Drug Administration and the General Administration of Quality Supervision Inspection and Quarantine. The responsibilities would in some cases overlap while policies of various authorities would in some cases be contradictory.

The existence of multiple responsible oversight authorities remains the one of the greatest obstacles to improved implementation. It appears that this has been widely recognized among the representatives of the NPC and CPPCC and it is expected that institutional reform will be forthcoming. Bringing food safety within the remit of a single government authority would avoid duplication of work, reduce the risk of contradictory or inconsistent application and enforcement and reduce the likelihood of a failure to perform vital tasks. As part of the recent reform of PRC central government organizations officially announced in early March, the newly established State Food and Drug General Administration (a combination of the former State Food and Drug Administration and other central agencies) is expected to act as the sole authority responsible for supervision of the new food safety regime, though the details ofthese changes are yet to be publicized.

  • Improved Regulation

Although the Food Safety Law of 2009 stipulated a set of mandatory national food safety standards, it was still only an umbrella law which aimed to establish a framework for a comprehensive supervision system for food safety. Accordingly the promulgation of this law alone did not have an immediate effect upon China’s food safety landscape. In order to move forward it will be necessary for China to make specific and detailed stipulations while avoiding the confusion and contradictory characteristics of the previous patchwork of rules and regulations. An example of this is the specific draft law regarding infant milk powder is currently on the legislative agenda.

  •  Greater Deterrence

Another reason why food safety issues continue to arise in China is that existing punishments for violations available to enforcement authorities are generally considered to be insufficient to create an effective deterrent. The Head of the State Administration of Industry and Commerce, Mr. Zhou Bohua, emphasized that the Food Safety Law of PRC needs to be strengthened in this regard. Mr. Zhou expressed the wish that in the near future much more severe punishments are needed to deter potential offenders. An example is that companies which are placed on the blacklist will be closed down.

  •  Improved Monitoring

Food safety legislation in China has traditionally been reactive, focusing solely upon monitoring food-related disease/contamination and assessing food safety risks as they arise. China will need to establish a system that holistically deals with all levels of the food supply chain and can accurately track the origin of different types of food. Although this approach is common in the West, China will still need to make great efforts to establish a system which is not purely reactive.

  • Food Safety Inspection Technique

PRC food safety inspectors will need better technology and techniques in order to work more effectively and to win consumer confidence. In a recent incident the inspection authority was unable to differentiate gutter oil from normal oil for cooking. The authorities will need to invest in food safety inspections in order for the improvements in regulation and institutional reform to be meaningful.

  • Summary

Continued consumer concerns and feedback from recent NPC and CPPCC sessions make it clear that measures will be taken to strengthen food safety in China. For Australian food companies stricter testing and improved supervision is likely to result in a more level playing field in China for their product. Compliance will likely increase the cost of production for Chinese producers and also lead to pressure to open the Chinese market to high quality imported products. Although Australian producers are likely to be a beneficiary of China’s improved food safety regime, the ultimate (and rightful) beneficiaries of improved food quality and safety will be the “lao bai xing” constituting the rank and file of Chinese consumers.