Hong Kong cracks down on trade in baby formula

HONG KONG -- Chinese distrust of the safety of certain health and food products is fueling a "gray" market in Hong Kong, leaving parents there scrambling to secure one essential item: baby formula.
Written by Vanessa Ko, Contributor

Milk formula is sold alongside Chinese herbs.

HONG KONG -- Hong Kong parents have been contending with a frustrating shortage of infant milk formula. The problem has grown over the past few years, as mainland Chinese enter the city to sweep stores of the powder for resale in China, prompting the local government to finally place rare controls on taking these products out of Hong Kong.

At the Hong Kong district of Sheung Shui, near the border, mainland Chinese line up to the train station that will take them back into China, each pulling large packages filled with mostly health and food products, like diapers and bottled drinks. Traders buy these so-called gray-goods in large quantities at tax-free prices in Hong Kong, and then they move the items to the mainland where they are sold at a mark-up.

Mainland Chinese who live near the border are permitted to enter Hong Kong, a semiautonomous region of China with separate legal and political systems, on multiple-entry tourist visas, which means they can go in and out of the city several times a day.

But their main target is milk powder. Hong Kong’s baby formula, mostly imported from European countries, has been in particularly high demand because the products from the rest of China are seen as less safe, especially following a scandal in 2008, when formula was found to be tainted with the toxic substance melamine.

Hong Kong has long held the title of having the freest economy in the world, with few taxes and trade regulations. But in the case of risk-free milk powder, the supply has simply not been enough to fulfill the demand. And many Hong Kong people have come to resent these traders for aggressively buying up milk formula, pushing up prices on basic necessities and creating the crowded lines at places like the Sheung Shui train station.

“This isn’t about market economy. This is market ransack,” said Vincent Lau, an activist who is pushing for better controls over the trading scheme.“They are coming here to ransack — I would use this word.”

While formula companies over the past few years have said they had increased supplies to Hong Kong retailers, it seems that they are far from keeping up with the efficiency of the gray-goods traders. Working mothers of small children here, many of whom say they must rely on formula to feed their kids, would tell you that they routinely go from store to store before finding the kind they need.

The public outcry over the shortage has led the government to take legislative action, announcing two weeks ago that anyone leaving the city will be allowed to take with them only two cans of formula, a law that is expected to come into effect by the end of this month.

But until the supply at drugstores and supermarkets goes back to normal — and the public is still skeptical that the new limits will greatly improve the situation — parents must frantically search for the right cans of milk powder, whose prices have gone up in many stores.

Some parents resort to joining the milk formula distributors’ “clubs,” which provides a steady supply of their products to members, but at extra costs that amount to a premium of about 25 percent.

“It is actually not a lack of supply of formula. Rather, it is an extremely huge demand of formula from the mainlanders that is jacking up the prices,” said Evelyn Kuong, a Hong Kong mother who has a 7-month-old son. “The formula companies can now afford to manipulate their prices via these ‘clubs’ and leave no other option for the layman than to pay the higher prices.”

There is also a call for the abolishment of multiple-entry tourist visas. Without these permits, this kind of large-scale gray-goods trading of Hong Kong’s products probably could not exist.

Other nearby cities, even ones as far as Australia, have also been affected by mainland Chinese purchases of milk formula, and some have taken measures of their own to safeguard supplies. Macau, for example, gives local parents a guarantee of up to five cans of formula per month.

But the real root of the problem is found in China’s food safety problem, one that will take years to tackle. “The country’s nationals can’t even trust things made in their own country,” Lau said.

Photo: Vanessa Ko

This post was originally published on Smartplanet.com

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