Abandoning the "Blue Hat" and taking a detour overseas: Why are domestic health supplements piling up to rebrand as "Xiaopai" brands? | Big Fish Finance

Ask AI · How can cross-border health supplements use offshore shell companies to bypass domestic approvals?

The U.S. Yi storm has gradually exposed the underlying logic of the cross-border health supplement industry. The vast majority of products are made by contract manufacturers in China, and some key raw materials are also produced domestically. Yet companies choose to register offshore shell companies, and ultimately return to domestic sales as a “cross-border brand.”

Recently, reporters from Xinhuanghe sorted through the IPO prospectuses, financial reports, and brokerage research reports of leading domestic health supplement companies. Combining the on-site evidence from third-party anti-counterfeiting teams and observations from industry insiders, the operating mechanism of this cross-border industrial chain is very clear: bypassing domestic review barriers, capturing overseas identity value-added, and leveraging the policy dividends of cross-border e-commerce—together forming a precise commercial arbitrage.

Why you must do “cross-border”: barrier avoidance and room for premium pricing

The direct motivation for packaging as counterfeit brands is to bypass China’s stringent market-entry requirements and gain more room on the marketing side.

Under the current traffic allocation mechanism, mainstream listed products have transparent prices and thinner channel margins. Internet celebrity livestreaming requires higher commissions to support sales, which in turn requires products to have higher gross profit. An insider disclosed that for certain specially targeted health supplements, the share of costs for raw materials, production, and compliance is relatively low; most funds are directed to marketing and channels. Within the industry, there is even a saying: “Selling for 100 yuan, with materials worth only 5 yuan is considered conscientious.” Sticking the label of “overseas import” provides the cognitive support for such high markups.

The deeper reason is also reflected in many of the companies’ official filings. In its prospectus, Lily Holdings highlights the policy barriers in China’s health supplement industry. In China, health food is subject to a strict dual-track approval system. To obtain the “Blue Hat” approval letter that enables legally advertised health benefits, companies must go through processes such as quality standard research, efficacy verification, and stability testing. The approval timeline is typically as long as two to three years, requiring large upfront investments of capital and time.

By contrast, cross-border e-commerce channels offer another route. In an industry-depth report, Founder Securities points out that since 2019, for retail-imported goods under the cross-border e-commerce framework, personal-use items entering the country are regulated as items carried in for personal use, and the first-import permit approval documents, as well as registration or filing requirements, are not yet applied. If merchants register shell companies overseas, they can bypass China’s strict food-safety supervision system and bring products to market quickly.

This model also has room to evade the Advertising Law. Founder Securities’ research report shows that domestic “Blue Hat” products are subject to strict regulation, and efficacy promotion is often limited to vague levels. Meanwhile, products from cross-border channels are not directly constrained by the hard requirements of China’s Advertising Law. A senior practitioner compared the differences between the two: Blue Hat products have meticulous production processes and testing that meets national standards, but the per-capsule content of efficacy ingredients is restricted; cross-border goods are not subject to these limits, and the per-unit content is often listed very high. This difference creates a marketing advantage and targets certain consumers’ health pain points.

What kind of supply chain is this? Reassembling offshore shell companies and domestic capacity

As entry thresholds are lowered, various “overseas big-name” brands have begun to appear in batches, but their actual operations often differ from what is promoted.

A registered pharmacist working at a pharmacy chain in Australia observed that some so-called Australian national health supplements that are hot on domestic social platforms have no sales records in local mainstream supermarkets or pharmacies. An overseas student studying in Australia also said that after three years in Melbourne, he had never seen the brand U.S. Yi in local pharmacies.

The traceability investigation by Wang Hai’s team shows that the brand entity owner registered with Australia’s TGA is a shell entity with registered capital of only 100 AUD, wholly controlled by people from China. Its publicly disclosed registered address is an unmarked auto repair shop with no signage.

In response to external doubts, some brands publish lists of global contract manufacturers, but the capital backgrounds of those manufacturers are also worth investigating. Taking as examples the core production bases in New Zealand—Oranutrition—and in Australia—Ferngrove—publicized by U.S. Yi: earlier announcements by Lily Holdings showed that it had invested about RMB 67 million to acquire 56% equity of Oranutrition Limited. In addition, according to the transfer disclosure documents of Dalian Inno (Dalian YiNuo), Ferngrove is not only controlled by Chinese people, but also a major customer of China’s raw material companies. In Q1 2024 alone, the amount it purchased ingredients such as chrysanthemum extracts from Dalian Inno exceeded RMB 8 million.

This model has become a relatively mature operating path for cross-border health supplements. The brand owner registers an offshore shell company, uses the domestically mature supply chain to procure raw materials, ships them to overseas workshops controlled by Chinese entities for secondary encapsulation, and finally returns to the domestic market under the name of cross-border bonded goods—completing a “one-day overseas trip” for raw materials.

Domestic contract-manufacturing giants are also aligning with this trend. In its 2025 interim report, Health Science Xianle proposed to seize opportunities created by new entrants such as cross-border players, private-domain players, and MCN in the Chinese market. The report analyzes that these new players mostly follow an asset-light model, lack in-house R&D and manufacturing capabilities, and are more inclined to outsource R&D and production to third parties. Xianle Health states that it possesses end-to-end service capabilities across the whole industry chain, from product positioning, concept design, and formulation research to marketing support. This means the brand side only needs to handle front-end marketing, while domestic contract manufacturers already provide a complete solution on the back end.

How to return smoothly: low-threshold filing procedures with differences in testing

Special supply products entering the domestic market mainly rely on offshore low-threshold filing systems and domestic related rule exemptions.

In its 2020 private placement plan, Besti Yuanyou mentioned that Australia has a strict TGA certification system, which is an important reason for domestic companies to acquire Australian brands to seek endorsement.

But for most small and mid-sized players, they make more use of the more relaxed side of the filing rules. In the Australian market, most cross-border dietary supplement applications are for the TGA low-risk product filing numbers. According to the TGA website, before such products are listed, no separate testing and assessment are required; manufacturers only need to make an online commitment that the product complies with standards to obtain a number. In actual operations, this kind of low-threshold filing is often promoted by domestic merchants as an official stringent certification. Wang Hai’s team disclosed that U.S. Yi’s affiliated companies have dozens of product cancellation records in the TGA database. This means that if a product faces the risk of random inspection, the brand can simply cancel the existing number and re-register, cutting off the cross-border traceability chain.

During customs clearance, the companies involved typically submit self-test reports generated using the UV-Visible spectrophotometry method. This method has larger measurement errors and easily counts impurities into the effective ingredients. When third-party institutions use higher-precision high-performance liquid chromatography instruments to retest, the problem of insufficient ingredients becomes apparent. Based on test data, for U.S. Yi’s liver-protecting tablets that claim a high content, the actual per-capsule effective ingredient content is lower than what is promised on its English back label.

A senior mom-and-baby blogger, when reviewing market chaos, commented that the substance of these brands is that they have not been tested in overseas markets, yet they are disguised as winners in competition.

An overseas filing, the promotional space to evade China’s Advertising Law, and seamless cross-border contract-manufacturing logistics once helped many brands grow quickly at scale. But as market information transparency increases and third-party testing moves in, this business model that relies on loopholes in the rules is facing much stricter scrutiny by the market and regulatory challenges.

Reporter: Du Lin Editor: Bai Lingjun Proofreader: Yang Hefang