INTERPRETATION

How to Sell OTC Drugs to China Through Cross-Border E-Commerce

by Grace Wang
Mar 29, 2022

To register over-the-counter (OTC) drugs in China, stakeholders used to obey the same documentation requirements and registration procedures as prescriptions drugs. Thus, it was more difficult to sell OTC drugs in China than in other countries with less strict regulations on these medicines.

However, in recent years, China has loosened up a bit on OTC drug regulations, including approving two pilot programs for importing OTC drugs through cross-border e-commerce (CBEC). The regulatory change indicates that CBEC could be an opportunity to approach China's massive OTC drug market.

This article discusses

  1. How China Regulates OTC Drugs

  2. China's OTC Drug Market Overview

  3. How to Sell OTC Drugs to China via CBEC-three delivery models

  4. China's Tax Policy for CBEC Import

  5. How to Establish an Online Drugstore on a Chinese CBEC Platform

  6. BaiPharm's CBEC Service for Overseas Medical Suppliers

RELATED: Webinar on selling OTC drugs to China via CBEC.

1. How China Regulates OTC Drugs

OTC drugs, or nonprescription drugs, refer to drugs that consumers can buy and use without prescriptions from licensed physicians. OTC drugs in the Chinese market mainly include cold drugs, cough drugs, pain relievers, gastrointestinal prokinetic drugs, gastric antacids, vitamins, anthelmintics, tonics, constipation drugs, drugs for external use, contraceptives, skin care drugs, etc.1

China's OTC Drug Catalog, released by National Medical Products Administration (NMPA), currently covers over 5,000 drugs. The catalog occasionally changes as NMPA sometimes makes Rx-to-OTC switches and vice versa based on the monitoring and evaluation of relevant drugs.

2. China's OTC Drug Market Overview

China's huge OTC drug market scored the revenue of 109.22 billion yuan2 (circa US$17.13 billion) in 2020. In 2021, 140 OTC drugs (79 traditional Chinese medicines and 61 chemical drugs) were each estimated to have the revenue of over 100 million yuan3. The top five best-selling chemical OTC drugs' therapeutic areas were ①gastrointestinal system & metabolism, ②skin diseases, ③respiratory system, ④genitourinary system & sex hormones, and ⑤sensory system.

Due to the aging population and the stronger awareness of healthcare, the OTC drug sector is gaining momentum. According to Market Data Forecast, the Chinese OTC market is predicted to reach US$26.35 billion4 by the end of 2027.

3. How to Sell OTC Drugs to China via CBEC

3.1 Bonded Warehouse (Customs Supervision Code: 1210), B2B2C


cross-border-e-commerce-via-bonded-warehouse-2.jpgCross-border E-commerce via Bonded Warehouse

Foreign suppliers can store their OTC drugs in Chinese bonded warehouses and have them delivered to individual Chinese consumers under the conditions that the drugs are in the List of Imported Retail Goods for Cross-border E-commerce and only for personal use.

The list currently covers limited OTC drug categories like traditional Chinese medicinal liquor and cooling balm. More OTC drugs may be added to the list in the future, but it'll take time for authorities to select appropriate drugs without compromising the supervision of quality and safety.

Medical Products in the List of Imported Retail Goods for Cross-border E-commerce (The list was expanded5 in 2019 and adjusted6 in 2022. The current 2022 version has been effective since March 1, 2022)

Tariff Code

Goods

Notes

30049051

Traditional Chinese medicinal liquor (mixed or non-mixed; for preventing or treating diseases; with prescribed dose or retail packages)

Except the commodity that is listed in the Catalog of Wild Fauna and Flora Commodities for Import/Export, and can't provide the species certificate issued by the Endangered Species Import and Export Management Office of the PRC to prove the commodity isn't listed in the aforementioned catalog

30049054

Cooling balm (Qing Liang You) (mixed or non-mixed; for preventing or treating diseases; with prescribed dose or retail packages)

/

30051010

Plaster bandage (having been immersed in or applied with drugs, with retail packages for medical use in surgery/dentistry, or by veterinarian)  

/

30051090

Other adhesive dressings, or objects with adhesive coating (having been immersed in or applied with drugs, with retail packages for medical use in surgery/dentistry, or by veterinarian)

/

30059010

Absorbent cotton, gauze, and bandage (having been immersed in or applied with drugs, with retail packages for medical use in surgery/dentistry, or by veterinarian)

/

30059090

Other soft medical filler or similar objects (having been immersed in or applied with drugs, with retail packages for medical use in surgery/dentistry, or by veterinarian)

Except the goods regulated as medical devices

30061000

Sterile surgical catgut;

sterile ecklonia kurome, sterile adhesive plaster, sterile absorbent hemostatic material, sterile anti-adhesion barrier material for surgery or dentistry use, or other similar sterile materials

Except the goods regulated as medical devices

30067000

Gel products for human use or veterinary medicines (as an emollient between different body parts during surgery or physical examination, or as a coupling agent between body and medical device)

Except the goods regulated as medical devices

China launched its first pilot program for importing overseas medicines via CBEC in Beijing on Dec. 30, 2019.7 Beijing's pilot program allows overseas suppliers to sell medicines via Chinese partners' CBEC platforms. The medical products are limited to those which have been should be stored at Chinese warehouses in Tianzhu Comprehensive Bonded Area and delivered only to individual Chinese consumers.

The Chinese partners should provide online purchase platforms, customs clearance service, warehouse storage, and delivery service. Each storage warehouse should be no smaller than 500 square meters in Tianzhu Comprehensive Bonded Zone. The Chinese companies are also required to establish a system for tracing each medicine sold in retail packages, and keep the medicines' information for no less than three years and transaction information for no less than five years.

By March 2022, five Chinese CBEC companies—Alibaba, Jingdong, Beijing Yaodou, Dingdang Kuaiyao, and Wandou Gongzhu—have joined the Beijing program and realized more than 1.07 million transactions worth over 110 million yuan.8

The second pilot program for importing OTC drugs via CEBC, approved by the State Council on May 8, 2021, is being carried out in Henan province. Henan's pilot program will last for three years.9 One breakthrough about this program is that it includes 13 OTC drugs that have National Medical Products Administration's marketing authorization but are outside of the List of Imported Retail Goods for Cross-border E-commerce.

RELATED: China to Pilot Cross-Border E-Commerce Retail Import of Drugs in Henan Province

Mechanism of Pilot-Program for Cross-border E-commerce Retail Import of- Drugs in Henan Province, China.png

3.2 Direct Mail from Overseas (Customs Supervision Code: 9610), B2C

baipharm-cross-border-e-commerce-via-direct-delivery-from-overseas.jpgCross-border E-commerce via Direct Mail from Overseas

The second delivery method is to send OTC drugs directly from overseas warehouses to Chinese consumers. Commodities should also comply with the CBEC positive list.

3.3 Direct Mail from Overseas, C2C

The third delivery model is also direct mail but it is supervised as a personal article mail. OTC medicines imported via this method are not limited to the CBEC positive list. But the commodities should meet all the four requirements:

  1. Having obtained overseas marketing authorization;

  2. Should not be in the Catalog of Wild Fauna and Flora Commodities for Import/Export or in the Catalog of Precursor Chemicals.

  3. Should comply with the positive list of the CBEC platform on which you will sell your products;

  4. Should comply with the positive list of the specific Chinese customs through which you will transport your products into China.

*Things for attention:

  1. Overseas Marketing authorization: OTC drugs imported via CBEC to China must have overseas marketing authorization.

  2. OTC status in China: If a drug is listed as an OTC drug in a foreign country/region, but as a prescription drug in China, such a drug cannot be imported via CBEC to China.

  3. Classification of OTC products: If a product is an OTC drug according to overseas classification but an OTC cosmetics or health products according to China's classifications, then the Chinese classification shall prevail for CBEC imports.

  4. China  NMPA's marketing authorization is not mandatory for drug qualified to be imported by CBEC.10 Exception: OTC drugs approved to be imported under Beijing's or Henan's CBEC pilot programs already have NMPA's marketing authorization.

  5. Commodities imported via CBEC into China are for personal use only and cannot be sold again.11

4. China's Tax Policy for CBEC Import

4.1 Bonded Warehouse Model (B2B2C) and Direct Mail Model (B2C)

The two CBEC pathways above need to obey the following tax rules12: a single CBEC transaction should not exceed 5,000 yuan and the annual transactions no more than 26,000 yuan. Transactions within the limits enjoy the preferential tariff rate of 0%. The value-added tax (VAT) and consumption tax are reduced to 70% of the normal tax amount. Transactions over the limits shall obey the tax policies for general trade.

Transaction value (dutiable)

CBEC Comprehensive Tax Rate

Single transaction ≤ 5,000 yuan and annual transactions ≤ 26,000 yuan.

Tariff: 0.

[(Consumption tax rate+ VAT rate) / (1 – consumption tax)] x 70%

Single transaction > 5,000 yuan and accumulated annual transactions ≤ 26,000 yuan

Tariff rate+ VAT rate+ consumption tax rate

Single transaction > 5,000 yuan and annual transactions > 26,000 yuan

4.2 Direct Mail Model (C2C)

Tax: 50 yuan of the transaction can be exempted from tax; 13% tax for drugs imported via C2C mail. 

Transaction limit: single transaction (from Hong Kong, Macao, and Taiwan) ≤ 800 yuan or (from other countries and regions) ≤ 1,000 yuan.

5. How to Establish an Online Drugstore on a Chinese CBEC Platform

Since the Beijing program came into effect, foreign OTC drugs have been legally permitted to be presented and sold on Chinese CBEC platforms like Tmall Global and JD Worldwide. Take Tmall Global as an example, it requires companies to go through four phases13 to open an online store:

Four Phases to Open an Online Store on Tmall Global

Phase 1: Submit information

Ÿ     Choose the store type, brand type, and business category;

Ÿ     Fill in the brand information;

Ÿ     Fill in the seller information;

Ÿ     Name the online store;

Ÿ     Submit the above information for review.

Phase 2: Wait for review

Ÿ   Brand evaluation;

Ÿ   Evaluation of the seller's qualification.

Phase 3: Prepare for opening the store

Ÿ     Activate the seller's account and log in;

Ÿ     Sign the agreement and pay the deposit.

Phase 4: The store goes online

Ÿ   Release commodity information;

Ÿ   Pay the annual fee and have the store go online.

As for documentation requirements14, companies which own exclusive stores, specialty stores, and galaxy franchise stores need to submit the following documents for proving their qualification as sellers:

  1. Registration documents of the business entity of the store;

  2. Statement of the authorized representative of the business entity;

  3. Identity document of the authorized representative of the business entity;

  4. Overseas bank account opening certificate or bank statement of the business entity.

To prove brand qualification, the former two types of stores need to provide trademark-related documents and the letter of authorization from the brand owner. Galaxy franchise store do not need to submit any documents for brand qualification.

In addition, special documents for OTC businesses should be provided:

  1. A business license and related certificates for selling drugs according to the business scope and complying with relevant laws and regulations.

  2. A product liability insurance policy with an amount of RMB 10 million.

6. BaiPharm's CBEC Service for Overseas Medical Suppliers

BaiPharm has established online stores on Tmall Global and JD Worldwide, which are licensed to help foreign pharmaceutical companies sell OTC drugs to individual Chinese consumers. Also, we can help foreign suppliers open their own online stores and serve as a local agent for running the online businesses. If you have interest in our OTC drug e-commerce service, please contact us via contact@chemlinked.com.

Grace Wang
ChemLinked Regulatory Analyst
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