HK to curb parallel trading amid baby formula woes

(Ecns.cn) -- The number of so-called "parallel traders" has decreased since Hong Kong on Friday announced a string of measures designed to address a shortage of milk formula in the city, the Southern Metropolis Daily reports.

A week ahead of Lunar New Year, baby formula products from seven major brands were mostly gone from shop shelves in Hong Kong, resulting in a shortage that has affected many local families.

Where did it all go? Much went across the border into the Chinese mainland.

The problem stems from a series of food safety scandals in recent years, most notably related to the Chinese dairy industry; and insecurity about products like infant formula is driving thousands of mainlanders to buy it in Hong Kong every day.

Fed up with it, protesters blamed the government for inaction, pushing the Hong Kong government to limit every person leaving the city to 1.8kg, or two cans of milk formula. It also said it would refuse people that it finds "suspicious" of parallel trading.

Although the new regulation has not yet been approved (travelers can still leave Hong Kong with more than two cans of formula), the Mass Transit Railway has already restricted the weight of passenger luggage from 32kg to 23kg per person, and stepped up inspections at major stations.

Meanwhile, a 24-hour government hotline has been set up for Hong Kong parents, allowing them to more easily acquire formula from seven major brands.

Over the past several years, parallel traders have formed profit chains that involve purchasing, transportation, storage and sales, and the group is growing shockingly fast, writes People's Daily.

By the end of 2012, there were an estimated 200,000 parallel traders crossing into the Chinese mainland from Hong Kong or Macao with different kinds of products every day. These products were either restricted for import and export or prevented by the Tariff Act.

Much of the activity exploited loopholes in the system, and much of it could've been considered smuggling. Last year, Shenzhen customs cracked 9,309 cases of smuggling worth 2.32 billion yuan. Along with Hong Kong customs, the "special economic zone" brought down 31 criminal gangs engaged in large-scale parallel trading or smuggling, according to the Southern Metropolis Daily.

The reason for the boom is obvious – easy profit.

Because Hong Kong is a free port, it doesn't levy customs tariffs on imports and exports. Travelers gladly take advantage of the tariff difference by buying popular products and bringing them back to the mainland. Some of them travel frequently and hoard tax-free goods to resell, which is forbidden by customs, yet hard to detect.

Office workers who travel between Hong Kong and the mainland on a regular basis are sometimes lured into the business, which makes the crackdown even more difficult, says Chen Jianwen, deputy director of Guangdong Customs.

With an increasing number of white-collar workers supporting parallel trade, an "ant smuggling" group can take shape, and it may take law enforcement officials a long time to gather sufficient evidence, adds Chen.

However, cross-border trade of infant formula is different from electronics, in that it exposes public distrust about dairy safety at home, says Southern Metropolis Daily.

The government should introduce tougher regulations to ensure dairy safety and boost confidence in domestic brands, adds the newspaper.