BEIJING, May 6 -- China's dairy enterprises, especially infant formula makers, are bracing themselves for intense rivalry with foreign counterparts following the country's new regulation to streamline imported dairy products.
So far, over 1,000 overseas dairy producers have received entry approval from China's quality watchdog. Among those 41 are makers of infant formula milk powder from 13 countries including New Zealand, Ireland and Singapore.
According to the new rule that took effect on May 1, foreign dairy companies have to ensure their products are consistent with China's safety standards and registered to the General Administration of Quality Supervision, Inspection and Quarantine. It is the only way to gain access into the market.
The move was regarded as fresh efforts from the Chinese government to further regulate the country's dairy market for better product quality, keeping the excellent and weeding out the unqualified, especially fake foreign brands that are actually produced by local makers.
Industry analysts predict around 50 percent of small foreign milk powder producers that lack research capabilities will be ruled out of the Chinese market by the restriction.
The regulation, although seemingly harsher to overseas companies, is unlikely to hinder the operation of major international producers like Danone, Wyeth and Mead Johnson, which have all been included in the approval list.
A sound and orderly competitive arena, after sweeping out substandard producers, will help leading firms grab larger market share.
Song Liang, a senior analyst of Distribution Productivity Promotion Center of China Commerce, said firms that have been rejected from the Chinese market did not take up a large proportion and main competitors still remain, indicating the competition will remain tough for the country's local brands.
In 2013, overseas milk powder brands occupied 54 percent of the market share in terms of sales revenue, outnumbering Chinese local products. Beingmate, China's largest milk powder maker, only had 8.5 percent of the market, dwarfed by 13.3 percent of Wyeth and 14.5 percent of Mead Johnson.
In addition, Song said the first batch of approvals only targeted the world's major producers and the state watchdog will certify brands from countries including Japan and the United States in the next phase.
To tackle the fiercer competition, Chinese dairy firms have started to counteract their weaknesses.
Sanyuan, one of China's leading dairy producers in Beijing, has received 10 million yuan (1.62 million U.S. dollars) worth of financial aid from the municipality for the company's research on infant formula milk powder, dubbed as the corporate's attempt to improve product quality and project a sound image for homegrown brands.
Similar to Sanyuan, Beingmate is also gathering steam to tap the Chinese market, by striving to build a more efficient marketing channel and restructure its business, as well as mergers and acquisitions, in a bid to increase its market proportion.
The moves are in line with the country's resolution to push forward integration in the dairy sector, thus strengthening large and promising producers.
Analysts expect resources and market share of small makers to be taken by dairy giants which will reinforce their position.
Foreign dairy products take up a lion's share of the Chinese market. Chinese consumers regard products to be safer and healthier, with them buying 301,000 tonnes of milk powder in the first two months of 2014, up 79.3 percent from a year ago.