China’s Infant Formula Market Faces Demographic Pressure
China’s infant formula market, valued at over USD 20 billion annually, is confronting unprecedented demand contraction. The National Bureau of Statistics reported only 9.02 million births in 2023, a sharp decline from 17.86 million in 2016, marking nearly a 50% reduction in just seven years.
Key factors driving this decline include:
- Rising marriage and childbearing ages
- High urban living costs
- Limited uptake of the three-child policy introduced in 2021
Approximately 60–70% of Chinese infants consume formula by six months, so the shrinking birth cohort directly impacts overall demand.
The market is also bifurcating by price tier:
- Premium formulas (>RMB 300 per 900g tin) retain urban consumers but face stagnant growth due to fewer buyers
- Mass-market formulas in lower-tier cities are under intense price pressure as domestic brands compete for a smaller pool of cost-conscious parents
Manufacturers are pivoting from volume growth to premiumisation, ingredient innovation, and loyalty programs to extract value from a contracting market.
Historical Dependence on Imported Formula
China’s reliance on foreign formula is rooted in the 2008 melamine crisis, which affected roughly 300,000 infants and devastated confidence in domestic products. Import penetration surged from under 30% pre-crisis to over 70% by 2015, with New Zealand, the Netherlands, Ireland, and France dominating. Brands such as Aptamil, Karicare, and A2 captured premium segments.
Import trends and disruptions:
- Imports peaked around USD 3 billion annually in 2018–2019
- By 2023, import values declined over 20% due to:
- Collapse of the daigou channel under e-commerce regulations
- COVID-19 travel restrictions
- Abbott Similac recall in the US (2022)
- European suppliers facing cost inflation and lower China-specific export volumes
Rise of Domestic Brands and Production Capacity
Regulatory reforms and infrastructure investments have bolstered domestic production:
- SAMR registration system (2018): Caps each factory at three brands with nine SKUs, raising quality standards
- Investments in Heilongjiang and Inner Mongolia secure traceable raw milk supply chains
- Feihe, China’s largest domestic producer, earned RMB 22 billion in 2022, capturing 18% market share
- Yili and Mengniu expanded formula capacity, adding 100,000+ tons annually since 2019
Product innovation highlights:
- Functional ingredients like human milk oligosaccharides, lactoferrin, probiotics
- Organic certifications and automated, international-standard production
- Reduced dependence on imported finished formula while still importing raw dairy ingredients like whey protein concentrate and lactose
Domestic brands now supply over 60% of China’s formula, emphasizing premium positioning with competitive pricing.
Regulatory, Safety, and Trust Dynamics
SAMR reforms represent the most significant regulatory intervention since 2008:
- Around 150 domestic and 80 foreign brands registered by 2023
- Mandatory ingredient disclosure and functional claim validation
- Stricter contamination, heavy metal, and pathogen testing
Consumer trust improvements:
- Domestic formula purchase willingness rose from ~40% in 2018 to >55% in 2023
- Affluent urban consumers still favor foreign brands for perceived safety
- Transparency initiatives and high-profile certifications are narrowing the trust gap
Trade Flows, Pricing Pressure, and Market Restructuring
China’s import landscape is shifting:
- New Zealand’s dominance in imports has declined as domestic production rises
- Imports remain above USD 2 billion annually but show negative growth
- China’s formula exports are modest but growing in Southeast Asian markets
Pricing dynamics:
- Mass-market formulas (<RMB 200) face margin compression
- Premium segment prices remain stable (>RMB 300) but promotions and loyalty discounts are increasing
- Foreign brand premiums have narrowed from 30–40% to 10–20% over domestic equivalents
Channel evolution:
- Traditional mother-and-baby stores now allocate shelf space to premium domestic formulas
- E-commerce accounts for 40%+ of formula sales, boosting domestic brand visibility
- Cross-border channels now face stricter enforcement, reducing daigou-style imports
Outlook: Strategic Implications
China’s infant formula market is contracting, premiumizing, and domesticizing simultaneously. Manufacturers must:
- Focus on premium and functional formulations
- Strengthen traceable, high-quality domestic production
- Adapt to pricing pressures and channel shifts
- Explore regional export opportunities as domestic growth slows
The convergence of demographic decline, regulatory rigor, and consumer trust evolution signals a structurally reshaped market, offering opportunities for innovation, brand differentiation, and strategic premiumisation.
