Exporting OTC Pharmaceutical Items to China Through Cross-Border E-Commerce

Lately we have been getting many questions from clients about importing OTC pharmaceutical items through cross-border e-commerce, specifically through Alibaba's cross-border e-commerce platform Tmall Global. 

While in the past there were severe restrictions on importing and selling OTC pharmaceutical items, these restrictions are gradually loosening up and sellers such as Australia's Chemist Warehouse and Shenzhen's China Resources Group are selling OTC items through their Tmall stores. 

Popular items include eyedrops, children's medicine, nicotine patches, and digestive drugs. China Resources' Tmall store is selling some traditional Chinese medicine from Hong Kong & Singapore, as well as some Japanese brands. 

We are highly bullish on this category as Chinese consumers have a strong demand for such products. Since it is a fairly new category, there aren't many merchants selling OTC products on Tmall and the margins can be significantly higher than other crowded categories. We take a deeper look below. 

China's Pilot Program for Importing OTC Pharmaceuticals

On December 30th, 2019, the China National Medical Products Administration approved a pilot program for the bonded importing of OTC pharmaceutical products in Beijing, through which merchants can store products in the Tianzhu bonded warehouse area. 

Since the beginning of this program, Hangzhou has also launched a similar program, likely due to the fact that Alibaba is headquartered there. (Note that JD.com is headquartered in Beijing, so it is likely that they have more experience with the Beijing program). 

One catch is that for the Beijing program, there needs to be a locally-registered enterprise in Beijing to apply for acceptance; it's unclear whether this is a TP (Tmall partner) or has to be the foreign company's China entity. Here are the full details below:

- The applicant enterprise shall be an enterprise registered in the administrative area of Beijing and have a qualified corporate legal person representing the company. There should also be a third-party e-commerce platform that enables the sale of such products.

- The imported products will be cleared through Beijing customs.

- The importing company should have warehousing capabilities that both 1. meet requirements for the storage of cross-border pharmaceutical imports and 2. be based in Beijing's Tianzhu bonded warehouse area.

- Importing companies should sell through third-party e-commerce platforms that meet the requirements for the pilot program. This includes quality control systems and returns processing of cross-border pharmaceutical products, as well as risk prevention and control systems. Companies should provide pre-sales and after-sales services for customers.

- Products should be pre-registered with the National Medical Products Administration, and the product subcategories should be on the official list issued by the thirteen relevant ministries and commissions.

Two Routes for Importing OTC Pharmaceuticals Through Tmall

All Tmall sellers of OTC pharmaceutical products have to place a deposit of 300,000 RMB; this is because of the greater health risks implied if the products turn out to be faulty or harmful to customers. So for this category, the barriers to entry are higher. 

There are two routes you can take to sell on Tmall. Aside from the Hangzhou/Beijing route, you can also stock your inventory in Hong Kong. 

The Hong Kong route is a little complex. While you don't have to register your products per se, you do have to have a licensed importer that can bring the products in, enlist them with Hong Kong's Drug Office, and re-export them to China. Typically the importer is a logistics provider or distributor/wholesaler/retailer. 

It takes 15-30 days to enlist products and they have to be declared for re-export upon entering the city. The products have to be re-exported within one year. 

The benefit of the Hong Kong route is that it's a free trade port, and there are no duties upon importing into the city. 

The products can also be used for re-export to other countries, giving the original merchant more freedom. Hong Kong is also a popular center for sourcing; merchants can source products from Japan, Singapore, Thailand, etc. Such Asian countries are likely to have more products that cater to Chinese tastes, such as traditional Chinese medicine. 

The benefit of the bonded warehouse route is that it is likely cheaper than storing the products in Hong Kong, and the shipping will be faster, given that the items are pre-registered and fast-tracked for cross-border e-commerce importing. 

The downside is that there is additional inventory risk; if the merchant can't sell the inventory then the products may have to be written down. This is because it can be difficult and costly to remove items from bonded warehouses, which are located in free trade zones. 

Summary

1. More and more merchants are selling OTC pharmaceutical items on Tmall Global. The category is in high demand and as of yet there are few merchants that are selling such products. 

2. Merchants can choose to stock their goods in Hong Kong or Cainiao/Tmall warehouses in Chinese free trade zones. If selling through Hong Kong, there has to be a licensed importer to enlist the items with the Hong Kong Drug Office for re-export. 

3. Requirements and regulations are constantly changing. It's best to discuss these directly with the e-commerce platforms as they have extensive experience.