Importing from China provides huge opportunities for UK businesses. As FOCUS readers will no doubt be aware, China replaced Germany as the UK’s largest import partner in 2021, with £62.8 billion worth of goods and services being imported. Done correctly, importing from China can reap huge rewards and benefits such as immediate upscaling and lower input costs. Done badly, it can create huge issues not only to the bottom line, but reputationally.

So what is the best way UK businesses can best protect themselves once they have developed a relationship with a potential supplier? This article sets out common issues UK parties face when importing from China, and offers solutions for what can be done to prevent or limit their impact. The article focuses on what issues may arise when dealing with parties in China rather than domestic issues such as regulatory, sanctions, import restrictions, authorisations, customs and tax issues.

The most common things that can go wrong

The potential problems that importers face are varied and industry-specific; issues life science entities face will differ from those in the construction sector. However, the most common issues include:

• Payment, non-delivery or delayed delivery
• Quality of goods supplied
• Supply chain and transportation shortages (especially in the current global environment and following the Covid-19 restrictions in China)
• Intellectual property infringement where proprietary information has been provided to assist in the manufacture of goods

How can a company protect itself from these common mistakes prior to entering the market?

The potential impact of the issues outlined above can be prevented or limited through clear written agreements. Prevention is better than cure. The best way UK importers can protect themselves is upfront by ensuring that all key requirements are covered in a signed written contract. This helps reduce any misunderstandings between the parties.

At a minimum, contracts should contain:

• Details of the quality and quantity of what you are purchasing
• Agreed price and payment method
• What UK regulatory requirements the products need to conform to
• Delivery terms (including dates), and who has responsibility for each stage of the delivery process
• Provisions for how any intellectual property or proprietary information will be protected (for example, if you need to provide this for a Chinese supplier to manufacture)
• A dispute resolution clause

If the commercial value of what is being imported justifies it, you may wish to instruct a lawyer to help prepare the agreement to ensure that all key issues are covered.

In respect of the dispute resolution clause, think carefully about where your counterparty has assets or receivables or where you would need to enforce any judgment to protect your rights. This will dictate what forum may best suit your needs if something goes wrong.

If your Chinese counterparty has assets and/or receivables in the UK or Europe, an English Courts’ jurisdiction clause should help you be able to enforce any judgment against them. Alternatively, if the counterparty only has assets and/or receivables in China or in a jurisdiction where enforcement of English judgments can be problematic, consider whether another court jurisdiction or dispute resolution process will provide you with the best chance of protecting your rights.

For example, China and Hong Kong now have an arrangement regarding the reciprocal enforcement of arbitration awards between each state. Hong Kong Arbitration before the HKIAC may therefore provide UK parties with a system of law and process they are more familiar with whilst providing them with a mechanism to enforce in Mainland China.

It should be added that at the time of producing this article, there were reports that a Chinese court has enforced an English judgment in China. The decision is currently unreported. But it could demonstrate a significant development if Chinese courts start to routinely enforce English court judgments.

That position may soon arise in any event. China has signed but has not yet ratified the Hague Convention on Choice of Court Agreements 2005. If China ratifies that Convention then there will be a convention between the UK and China which provides for the enforcement of each other’s judgments in the context of exclusive jurisdiction agreements. Reports from China suggest that the Chinese Ministry of Foreign Affairs has indicated they wish for the Hague Convention to become effective in China as soon as possible, but it is not clear when that will be.

If something goes wrong what are the legal steps a company can take?

If a situation that might lead to a dispute arises, it is always best to seek out some preliminary legal advice first. Often, early communications or decisions can worsen the legal position of a party in dispute – for example inadvertent waivers of rights, termination of business relations without proper cause, or statements of fact that harm the legal position. These should be averted by seeking legal advice early on, if possible.

The route to resolution of a dispute will depend on the circumstances. However, if an independent body (such as a court or arbitral body) is required to make a judgment, then as set out above, the agreement should determine which of these forums a case should be pursued in.

If your agreement does not specify the forum, your lawyers will direct you as to which would be the possible and preferred option in the circumstances. Relevant factors will include: the location of parties; the law applicable to the agreement; and where services are performed. In the situation where no forum is specified and a dispute is likely to be referred to a court or similar, it is important to act fast, as leaving the decision could allow the other party to determine where the dispute will be heard.

The legal costs of bringing or defending a claim will depend on the circumstances, however, costs for the likely phases of work can be estimated at the outset.

What government or other bodies can help?

If things do go wrong with your Chinese supplier, consider contacting bodies such as the China British Business Council or the UK Department for International Trade China to see if they can assist.

Whilst they will not be able to judicially resolve a dispute, bodies such as these tend to have longstanding relationships in the regions they operate within to promote UK business and therefore can help seek guidance from local bodies to see if an amicable resolution can be achieved.

Often disputes arise from misunderstandings which can be resolved quickly once the misunderstanding has been understood. However, it is always worth speaking to a lawyer to ascertain what steps you need to take to protect yourself.

This article is part of a series on importing from China. See all the articles in the series below.

Part 1: How to source a manufacturer in China
Part 2: How to source and manage suppliers
Part 3: How to ship products and navigate customs

Click here to read our Exporting to China series

Get immediate access to the China market with Launchpad, CBBC’s flagship market entry service. Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out more.

The post Importing from China: Legal recourse if things go wrong appeared first on Focus - China Britain Business Council.

Where and how can you find the right shipping/freight company for you?

Whether you are importing from China or anywhere else in the world, freight forwarders will play a pivotal role in your business. It is important that you choose the right forwarder for you, which can appear to be a minefield. Look for a forwarder that offers expertise and advice. This will give you immediate feedback and confidence that you are choosing the right one for you. While it is always good to get cost comparisons, quality of service and speed of response should give you a better indication of the service levels you will get moving forward – the cheapest isn’t always the best. Liken it to if you were wanting a new kitchen or building work; you would look for a reputable builder to use, you would want a professional, and your logistics partner should be the same.

What are the customs rules and where can you find them? 

The freight company you choose (especially if it is a reputable one) should be able to navigate you through all the processes and legislation on the product you are looking to purchase from overseas. While you are ultimately responsible for choosing the right commodity code for your goods, a goods forwarder will offer guidance. There are also departments within HM Revenue & Customs that will be able to advise on correct commodity codes, which dictates the duty you will pay. Your freight company should be able to steer you in the right direction.

What costs and fees are involved?

The final costs you face, in particular, the cost of freight from China, are very much dependent on the Incoterms (International Commercial Terms), a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law, of the sale of the product to you. This will dictate which part of your shipment’s journey you are responsible for. The two most common terms are: 1) Ex Works, where you are responsible for all local charges in China, as well as the freight charges to the UK and UK Local Charges, and 2) Free on Board (FOB), where you are only responsible for the freight charges and UK local charges.

A few important things to note:

• JAG-UFS usually recommends FOB to their clients, as this gives more control of costs and shipping to the UK, whether by air or sea. You are in more control of your shipment and there are no nasty surprises of local charges at origin.
• Beware of suppliers offering to get your shipment to the UK for “free”. Especially for ocean freight shipments: often, the local consolidators for less than container (LCL) loads will offer incentives to suppliers and as the UK importer, you will receive overinflated import costs which will have to be paid before the release of your shipment.

How do payments work (upon order or upon delivery)?

Payment is very much dependent on whether your shipment is by air or ocean and your relationship with your supplier. For air shipments, your supplier would probably expect full payment before releasing the shipment to your chosen forwarder. For ocean freight, ownership of your shipment will only happen when full payment has been received and on production of the original bills of lading. Once paid, the supplier will issue a stamped copy of an original bill of lading which can either be surrendered to the local forwarder in China, who will then either send an “Express Release” and no original will be required in the UK, or the supplier will send the original to you, which you will have to send to your freight company to gain release of the shipment. The payment for ocean freight shipments will need to be done at least a week in advance so that the express release or sending of the originals to the UK well in time before the shipment arrives to avoid shipments being delayed awaiting release.

What are bonded warehouses and where should you store your product?

Bonded warehouses are licensed warehouses that can store goods without duty or VAT being paid at the time of importation, although there still must be an import entry produced at the airport or port of arrival and goods can only be delivered directly to the chosen bonded warehouse. Shipments can then be called off in smaller batches, with duty and VAT being paid at the time orders are needed. Bonded warehouses work well for higher value items or for goods that are going to remain in bonded storage for long periods. However, since the introduction of post VAT accounting, the requirement for a bonded warehousing is not as prevalent as before. If you register for post VAT accounting, this will help you defer VAT payment and you will not have to pay at the time of importation.

This article is part of a series on importing from China. See all the articles in the series below.

Part 1: How to source a manufacturer in China
Part 2: How to source and manage suppliers
Part 3: How to ship products and navigate customs

Click here to read our Exporting to China series

Get immediate access to the China market with Launchpad, CBBC’s flagship market entry service. Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out more.

The post Importing from China: How to ship products and navigate customs appeared first on Focus - China Britain Business Council.

In recent years, rising labour costs and Covid-19 control policies have meant that some Western buyers are eschewing China for India, Vietnam or Cambodia. However, China remains an unavoidable choice for sourcing sophisticated products where buyers can rely on stable and dependable talent, equipment and logistic infrastructure. More importantly, China is by far the largest market capable of serving as both a manufacturing base and a massive consumer market. This article discusses some common questions that people have before dealing with Chinese suppliers.

How to source a trustworthy partner in China

There is no doubt that finding a trustworthy partner requires considerable effort. Apart from the usual way of searching suppliers via Google or Baidu and alibaba.com, 1688.com –currently in Chinese only – is another large scale B2B sourcing website run by Alibaba and is a more time and energy-efficient B2B platform where you can find thousands of Chinese suppliers at the touch of a button. In addition to Alibaba, websites like hhtdc.com, endorsed by the Hong Kong Trade Development Council, could also be a useful resource for searching for suppliers in China.

As a general rule, highly ranked suppliers on a credible platform may be reliable partners. However, like all types of online rankings, these rankings may be influenced by factors other than their actual reputation. That said, searching online platforms is the very first step in the sourcing process. It might help you narrow down a few potential suppliers. More reference checking is still required.

How to check a Chinese supplier before working with them

Other than engaging a third-party investigator or checking the certifications granted to the suppliers, British buyers may also carry out audits on potential suppliers by going through the relevant suppliers’ registration information. Legally speaking, if a supplier is a legally registered entity basic corporate information must be disclosed by the registration authority, i.e., the State Administration for Market Regulation.

According to Chinese Company Law, a company must register with the Administration for Market Regulation in its place of residence and submit a range of details about its operations, such as the name of its legal representative (similar to the managing director under UK law), the address, and the capital that shareholders subscribed for and paid in. The National Enterprise Credit Information Publicity System contains basic company information. Other third-party private e-platforms, such as Tianyancha and Qichacha provide more information about the company by capturing data from open Internet resources (note that the information on these websites is only available in Chinese). An experienced adviser may be required to help filter and interpret this information.

You may also want to conduct due diligence on the suppliers’ financial information. These details are not publicly available, but you could ask the suppliers to provide audited financial statements, records of VAT payments, and sales performance, among other things, before engaging in substantial negotiations with them.

Furthermore, in practice, factory visits and face-to-face meetings are always useful for investigating the capabilities and relevant experiences of the partners.

How to set up a contract with a Chinese supplier

A legally binding contract with appropriate terms will reduce the risks to which you may be exposed. Here are some essential legal terms to know:

Corporate information

The contract must specify the precise entity you are contracting with. The information to identify an entity includes the official name, legal representative, Unified Social Credit Code, and registration address.

Intellectual property (IP) rights

Disputes over IP are very common in sourcing contracts. Here are some practical tips on drafting IP clauses:

Firstly, ensure that your patent and trademark have been registered with the China National Intellectual Property Administration and attach the relevant certificates as an appendix to the contract. Legal protection of IPs is territorial. Without a valid IP registered in China, the chance of successful legal protection is low. It is necessary to make sure that the supplier is aware of the ownership of IP and that you are serious about protecting it.

Secondly, you should confirm in the contract about the ownership of any improvement and relevant contractual arrangements to ensure the enforceability of your owning the improvements. Please keep in mind that these arrangements should be reviewed by a lawyer because some commonly used restrictions in the West that benefit IP owners may be deemed invalid under Chinese law.

Thirdly, if you want the supplier to manufacture a product labelled with your brand, you must license your trademark with the supplier in order to legally use it. As a result, the contract should specify whether this trademark license is transferable, sub-licensable or has a limited territory/scope of use. Furthermore, the contract should grant you the right to monitor your supplier’s use of your trademark.

Dispute resolution

You should consider the way of resolving disputes. Your home law and courts are not always the best choice. Foreign court judgments may not be recognised and enforced in China unless the country in question has signed a bilateral treaty with China. China currently does not have such treaties with the UK, but it has signed treaties with certain European countries such as France and Spain.

NNN

Non-disclosure, non-use, and non-circumvention (NNN) obligations should be included in the contract. Suppliers must not disclose the confidential information you provide them in order for them to continue R&D and manufacturing. Non-use means that they will not use your confidential information for purposes other than the project at hand. Non-circumvention means they do not try to sell your goods to your own customers.

Other important contractual terms that the buyer should be aware of include penalties, delivery and after-sales obligations. Since these are dynamic commercial terms that require tailored solutions, we recommend that you consult with your advisers before committing to any contract obligations or establishing any obligations for your partners.

How to hire and pay Chinese suppliers

The payment clause in any contract is critical. Before making any payment, you should request that the supplier allow you enough time to inspect the product that has been shipped to you, and that no payment will be made unless you approve or accept it. If your supplier requests a down payment, you can negotiate the exact percentage of the down payment, keeping in mind that the maximum down payment under Chinese law is 20% of the total purchase price.

Furthermore, payment is the primary obligation of buyers under a sales contract, so buyers are advised to review the payment terms thoroughly in order to avoid terms that impose additional and unreasonable contractual obligations.

This article is part of a series on importing from China. See all the articles in the series below.

Part 1: How to source a manufacturer in China
Part 2: How to source and manage suppliers

Click here to read our Exporting to China series

Get immediate access to the China market with Launchpad, CBBC’s flagship market entry service. Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out more.

The post Importing from China: How to source and manage suppliers appeared first on Focus - China Britain Business Council.

China is still the first port of call for many companies looking to source products to import to the UK, but before you start sourcing, it is important to define what you (think) are looking for. What is important to your organisation? What is a must-have, a nice to have and an optional? What are your short- and longer-term plans, and will the products/manager you need change as your plans change? Having these before you start sourcing is a good foundation and a useful document to refer back to at later stages to reground you.

Below are a few examples of where you can start sourcing a manufacturer:

1. Industry conferences and trade shows: Chinese attendees should be experienced in international trade and have the basic skills needed to work with you.
2. UK online forums: Focused, niche forums can be a source of specific information including contacts, practical tips based on others’ experiences, and feedback on products bought.
3. Alibaba: Alibaba has evolved tremendously over the last two decades, and while it is a powerful search engine with lots of information, it can still be quite hard to find a great partner. It helps to use filters effectively to find exactly what you’re looking for.
4.  LinkedIn: There are groups on LinkedIn focused on connecting manufacturers and agents with potential clients, although they vary in quality. Nevertheless, LinkedIn is a good place to post questions and requirements, as well as learn from others’ experiences.
5. CBBC: Our CBBC teams may be able to offer advice or introduce you to other member companies.

The next best step is to reach out to 3-10 companies. Initial contact can be one of the best, early filters – who replies and how are communications? This doesn’t guarantee quality, but from a sanity point of view, it can be very important.

Try to select a mix of companies to find out which one is right for you. As an SME, for example, selecting a multi-billion USD supplier probably isn’t the best final choice, however, a large company can be a good source of information and resources which can be useful reference points when dealing with others. Ask for references in your country or region, and do engage with these references before you order.

What times and costs need to be considered?

If you are just buying a few units as a one-off, then it may be best not to buy from China directly. Even before the Covid-19 pandemic, if you wanted to ship by sea from China you needed to allow a couple of months from order to door, and negotiations and discussions may add on time before that.

Below is a brief review of the timeline you can expect at each stage of the process:

• Production: 30-60 days
• China export: 3-7 days for local transportation and export
• Shipping: 30-45 days to main UK/EU ports (be aware of trans-shipping where the container is transferred at another port such as Singapore or in Hong Kong, which can add 3-7 days)
• UK import: 2-5 days (note, the Economic Operators Registration and Identification Number, EORI, should be lodged before the vessel arrives).
  Total: 65-124 days

In terms of costs, a container could be worth £5,000-200,000, and with lead times from factory to warehouse of 70-100 days, cash can be tied up for long periods of time. Furthermore, depending on business volumes, you usually want product in production, product on the water, and sufficient stock in the warehouse. Be careful to consider stock levels, turnover and production, as seasonality and varying stock turnover mean that it can be difficult to plan and forecast, especially with current levels of geopolitical uncertainty.

How to manage your manufacturing partner and ensure quality control is maintained

Quality management will depend on your business and its needs. As with anything, you get what you pay for in terms of quality. Third-party quality control (QC) companies with trained teams for onsite audits and inspections can be a sensible investment if you can’t visit.

On-site visits are important because there can be no end to misunderstandings and outright misinformation about where a company is. For example, if you see a factory’s address is in Shanghai, often this actually turns out to be a trade office. Especially on Alibaba, you’ll often discover multiple companies at one address.

Whether you tackle a pre-order visit internally or through a third-party company, it should usually include the following:

• Thorough visit and inspection, with the inspector taking pictures and videos of the site, key personnel and manufacturing processes.
• Production visit to inspect raw materials and current product in production, with a final pre-shipping inspection and/or loading inspection including:
  Ensure packaging is correct (labels, wrapping, etc.)
  Pallets are suitable for freight
  Product count
  Loading supervision and confirmation of container sealing.

A problem in China that is caught early can be solved easily and relatively cost-effectively for all involved. A problem that is not discovered until your client receives it can be challenging to solve and costly on multiple levels.

What payment terms are available and what should you look out for?

Standard terms for full container loads (FCL) are usually 30/70 or 20/80, though for an initial order many factories will ask for a deposit of around, say, 10% before they order materials. For smaller, less than container loads (LCL), the cost is typically 100% upfront before shipping.

Always double-check bank details before wiring funds. Confirm via a formal company email rather than an Outlook/Yahoo/163 type of address. Bank details may be in Singapore or Hong Kong, even though you are buying from a Mainland company.

What other legal risks need to be considered?

Businesses should be very careful if shipping by LCL, as it is very common that a lot of the freight charges will be applied as destination charges, meaning you may face a very large bill on arrival in the UK. It is worth checking with your own freight forwarder on services, options and costs based on the FCA China port.

It is always worth keeping a weather eye on IP and branding issues. When sourcing from China for the long run, register your brand, logos and names in China before you share this information with the factories. The Chinese IP protection system is very robust nowadays, but there are still issues with IP squatting.

Sourcing in China can be a great way to secure excellent products that are competitively priced from suppliers who are focused on quality and innovation. While there are plenty of options available to source remotely, with travel to China gradually becoming more convenient, it is worth visiting in person if possible, as it not only helps with business from existing suppliers, but you also inevitably discover new products and new suppliers. Problems that drag on via email can often be resolved quickly and new ideas exchanged, and suppliers are usually keen to hear about your business and customers.

Click here to read our Exporting to China series

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC can help you find the perfect partner or supplier to support the growth of your business in China.

The post Importing from China: How to source a manufacturer in China appeared first on Focus - China Britain Business Council.

How did the Chinese government come to implement these new cosmetic regulations?

In the last 30 years, we have not had any new laws within the cosmetics industry in China, so you can imagine how much of a demand there was for these new regulations. The Chinese government has been working on them for around the last three to four years, developing a novel regulatory framework that is both amazing and really complicated in the sense that there are more safety requirements for the products than in any other market.

Therefore, in June 2020, the State Council announced a new cosmetics regulation called the Cosmetic Supervision and Administration Regulation (CSAR), which came into effect on 1 January 2021. As a follow up to this general regulation, on 4 March 2021, the National Medical Products Administration (NMPA) in China released the Administrative Measures on Cosmetic Registration and Notification, which came into force on 1 May 2021. These new measures officially specify that animal testing will no longer be mandatory for imported cosmetics.

What are the regulations that have replaced animal testing requirements?

When selling imported cosmetics that are not tested on animals in China, the products need to have a Good Manufacturing Practice (GMP) certificate or Quality Management System (QMS) certificate, proving that the cosmetics’ manufacturer has passed Good Manufacturing Practice in their home country. The biggest challenge from this is that the certificate needs to be signed off by the government, rather than by a third party, which is what normally happens in Western countries. Once regular cosmetics brands can show proof of a GMP certificate from their home country that is signed off by the government, then they can generally avoid animal testing when importing into China.

Regular cosmetics refers to regular skincare and haircare, as opposed to special cosmetics, which could include hair dye, hair perms, anti-freckle and whitening products, sunscreen, and anti-hair loss products. Products for children are also regulated as special cosmetics, for which mandatory animal testing requirements are still in place.

Although this new GMP requirement has caused a lot of headaches, especially among US brands where they don’t have this kind of mechanism in place, it has been a huge game-changer for cruelty-free cosmetics brands as they can now enter the Chinese market.

How do the new cosmetics regulations differ from the previous ones?

One of the main differences is that animal testing was previously mandatory for all imported cosmetics, and now it is no longer required. However, the new regulations also pose some new challenges when it comes to the safeguarding mechanisms that have been put in place. A lot of documentation and information is required from brands regarding both the product and the raw materials used. The reason behind this is because the Chinese government wants to avoid so-called ‘kitchen sink’ cosmetic products, which are products that contain harmful substances such as heavy metals.

Although a lot of documentation is still required, the entire process and uploading of the information can be carried out online, which makes registering much easier.

Although a lot of documentation is still required, the entire process and uploading of the information can be carried out online, which makes registering much easier. As an example, in the past, companies like Knudsen & CRC. would need somewhere between 500-1000 pages of printed paper to complete a single product registration.

What types of documentation are needed for product registration under the new regulations?

The documentation includes qualification documents of the applicant and production entity, basic information about the product, technical and safety reports such as certificates of analysis, testing reports (including on raw materials), or other documents that indicate the products are safe for use.

In addition, new requirements have also been put in place in which brands making efficacy claims about their products must show proof of these claims through documentation. As an example, if a brand says a product provides anti-ageing effects, then this must be proven through scientific literature, human tests, consumer surveys or lab tests.

As you can imagine, this means that the documentation required for product registration under the new laws is massive but will also help to fight against misleading or false product claims among brands.

Are there any other requirements that brands should know about under the new cosmetics regulations?

One of the new requirements of the law is that both the applicant and the entrusted production entity shall appoint a quality and safety person with more than five years of working experience in the cosmetics industry. This person will be responsible for product safety and quality control, quality management supervision, and adverse reaction monitoring and reporting. If something happens in regards to product safety, then this person is responsible and will be liable, directly facing any punishments imposed by the authorities.

For imported cosmetics registrations, the foreign applicant is also required to appoint a responsible agent (legal entity) in China. This China-based legal entity must fulfil several requirements that include having an office, having a cosmetic business scope, and having at least four or five employees. The legal entity will be responsible for cooperating with the supervision and inspection work of the NMPA, marketing communication and advertising compliance, sales and distribution, assisting with product recalls, adverse reaction regular reporting, warehouse control and the handling of customer complaints.

Can you provide a brief breakdown of the steps that cruelty-free brands should take when entering the China market?

The first step is always to ensure that their trademark has been registered. This is something that we constantly repeat, and yet many brands still don’t do it and then encounter difficulties later because they haven’t protected their trademarks.

The next step is to decide on the owner of the product registration or the responsible person. I would strongly recommend that all brands use the product owner as the owner of the product registration, or at least avoid using the distributor. The reason for this is that the owner of the product registration will have full access to all the information or trade secrets regarding the product formula, production process, and raw material suppliers. We had a very bad case in 2020 where one of our clients provided the product registration to their distributor, who then took everything and copied the product entirely with the information they obtained access to.

I strongly recommend all brands use the product owner as the owner of the product registration, because the owner of the product registration will have full access to all the information or trade secrets regarding the product formula, production process, and raw material suppliers …

The third step is to screen the raw materials. Sometimes brands will use ingredients and raw materials such as probiotics or specific oils that may not be approved in China. In these cases, brands can either decide to re-formulate, to not register in China, or to apply for a new raw material registration, which involves animal testing. As a cruelty-free brand, this may not be an option.

Finally, after determining whether the raw materials are approved in China, the brand will normally decide on the products that they want to register, which is when the actual product registration process begins. Normally,  the products will be registered within four to six months, after which the brand can start selling in China. Under the new law, regular product filings are applicable for life, whereas previously the products needed to be re-filed after four years. Special cosmetic registrations are currently still only valid for five years.

Subtle Energies is a cruelty-free brand that is now being sold at The Peninsula hotels in China

How do you see the new regulations changing the timeline for registration?

With the new online system, I think it will make the time to market much shorter. This is a huge advantage for many cosmetics brands, especially colour cosmetics (i.e., makeup), which are almost like a fashion product where the fashionable colours change rapidly. As a result, the shortened time to market will be hugely beneficial.

Are there any parts of the new cosmetics regulations that you anticipate brands will find difficult or confusing?

I think it depends on where the brand is from. If brands are used to European regulations, they will likely not find it too confusing because the regulations are similar, apart from the need for more documentation. For brands from the US, for example, the documentation requirements may be much more difficult to fulfil because they won’t already have it in hand. The brands will need to go back and test everything for the first time, especially when it comes to the raw materials. The responsible person part of the new regulations may also be a point of confusion because of the number of requirements, even among European brands.

Are there any categories where you are seeing a particular trend with the types of brands that will be entering the China market after these new cosmetics regulations have come into effect?

There are no specific categories. Every single brand, from low-end and cheaper colour cosmetics to high-end premium skincare will take advantage of these new regulations. China is growing faster than any other market when it comes to cosmetics and will soon to be the biggest market in the world. Most brands don’t have a choice but to look to China, especially with the new lack of need for animal testing. They need to enter the market to be able to compete in the future, which has caused the demand for registration in China to explode.

Do you have a case study that you could provide us with when it comes to importing a cruelty-free brand into China?

As a part of a pilot programme we started in 2018 and that continues to run today, we worked with a number of regular cosmetics brands to launch into China without animal testing. One of these brands is Australian premium skincare brand Subtle Energies, which is currently being sold at The Peninsula Hotel. The brand is Leaping Bunny certified, which is a cruelty-free certification. To import into China through the programme, Subtle Energies needed to comply with cosmetic regulations, such as using only approved raw materials, while also shifting a portion of the manufacturing process into an approved facility within China.

The post A guide to the new animal testing and cosmetics laws in China appeared first on Focus - China Britain Business Council.

There are many ways of sourcing materials or products from China that can if tackled successfully, give UK businesses an edge. The different methods each offer a range of advantages and disadvantages.

Online: Websites such as Alibaba offer a searchable service that allows you to find suppliers for free. However, whilst ideal for finding benchmark prices, without visiting suppliers in person and seeing their facilities, it is an unreliable means of developing a solid relationship.

Social Media: Sites such as LinkedIn enable buyers to find suppliers but, again, building trust will be difficult.

Trade shows: There are a number of major trade shows such as the famous Canton Fair in China and the Spring Fair in Birmingham. Face to face meetings and seeing products in the flesh is a great way to meet potential partners and will often be worth the investment of time and money.

CBBC: CBBC provides a supplier and sourcing service where CBBC staff will shortlist potential partners, vet them and provide you with their contact details.

Specialist sourcing firms: Whilst they can offer more detailed vetting and more options, specialist sourcing firms can prove costly as they will be acting as an intermediary. 

Managing the relationship

Finding a supplier that you can work with is, of course, only the beginning. As you work together, it is important to manage the relationship that develops by being aware of key factors.

Your importance to them: If you’re only looking to source a hundred products then you are likely to be fairly low on the list of priorities for a major manufacturer. Do they have Minimum Order Quantities and can you meet them? If not, you might want to find a partner to reach those numbers. Larger orders will also often reduce shipping costs per item. And remember that if you need specific tooling or training to make your product then costs will also rise.

Importance of face to face meetings: It is essential to have a strong relationship between the two businesses and this can only be achieved with regular face to face meetings.

Quality Control: Whilst your supplier will have quality control responsibilities it is important to get an independent party to monitor your products. Any disputes will be much easier to resolve if independently verified.

Maintain relationships at several layers: By having a relationship with directors, managers and other staff you will avoid relying on just a single partner at a company, whilst having a better understanding of where the power in the relationship is held. Always keep communication open.

Putting together a contract

Make sure you have contracts in place for every stage of the process and that these are legal and enforceable in Chinese courts. Whilst much of these may be industry-specific, some issues need to be considered regardless of what you are importing.

• Will you have exclusivity on the design or a specific range?
• Who owns the moulds and tooling?
• What is the warranty period if a product breaks?
• What percentage of faulty goods is acceptable?
• Who is liable for faulty goods?
• Ensure that the port of delivery is specified
• Always ensure your trademarks and IP are protected and that you have your trademarks before you start manufacturing in China.
• Getting professional legal help at this point is essential.

Arranging payments

Ensure that payment terms are clearly expressed in any contract. The supplier will want a percentage paid upfront so don’t expect them to take on all the risk.

Payment can be complex when dealing with exchange rates and overseas transactions, and companies like Ebury can arrange international payments whilst handling currency exchange risk. They also can provide trade finance, helping you out if, for example, you have orders of £500,000 but only £100,000 in the bank.

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