24 Aug 2017

China’s Cosmetics Market

I. Market Overview

1. The cosmetics sector on the Chinese mainland has been growing at a fast pace in
tandem with the rapid development of the Chinese economy in recent years. Data from
Euromonitor reveals that total retail sales of skincare products and make-up products in
China reached RMB169.1 billion and RMB28.3 billion respectively in 2016, achieving year-
on-year growth of 5% and 12% respectively. The table below shows recent years’ retail
sales of cosmetic products by wholesale and retail enterprises above a designated scale.

Year Retail sales (RMB billion)

2011 110.3

2012 134.0

2013 162.5

2014 182.5

2015 204.9

2016 222.2

Source: National Bureau of Statistics of China

2. Current structure of China’s consumer market of cosmetic products:

Skincare products: the fastest growing sector in the cosmetics market.

Shampoos and hair care products: a market niche becoming saturated, seeing
growth decelerating.
Make-up products: the market far from saturated, particularly for enhancement
items, such as colour correcting (CC) and blemish balm (BB) cream. Sales of eye
make-up products recorded significant growth in recent years.
Products for children: sales of products designed for use by children continue to
soar.
Sunscreen products: sunscreen products help ensure sales will not slow down during
traditional quiet seasons.
Anti-aging products: cosmetic products that help consumers stay youthful and fight
aging are increasingly popular.
Sports cosmetics: many consumers who love sports and fitness pursuits are keen to
maintain an attractive appearance as well. They need sports cosmetics that can help
prevent the loss of moisture and are anti-odour, anti-sweat, anti-bacteria, packaged

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in compact, portable sizes.

Cosmeceuticals: consumers have growing awareness of products which combine
cosmetic and pharmaceutical features, such as spot lightening cream, acne
treatment lotion and acne ointment.
Green/natural cosmetics: containing natural or nutritional ingredients, such as aloe
and vitamins.

3. Currently, China’s skincare products market is trending towards the high-end.

Euromonitor figures show that the 2016 market shares of high-end skincare products far
outstripped that of mass market fast-moving alternatives. Consumers favour major
international brand skincare products, and spending habits are switching from price-
focussed to quality and brand driven.

4. China’s domestic cosmetic brands performed very well in 2016, the main
reason being expansion into second- and third-tier markets. They have also been
developing online sales vigorously and boosting advertising on new media
platforms (WeChat and Weibo) to raise brand recognition.

5. According to China's Skincare and Cosmetics Market, a 2016 HKTDC Research survey
report, Chinese women’s most important considerations for purchasing cosmetics include:
“product benefits/efficacy” (66%), “brand” (64%) and “word-of-mouth” (60%). Young
respondents were more influenced by factors such as “word-of-mouth” and “price”, while
mature respondents were more attracted by “natural/organic/herbal ingredients” and
“high-tech/biotech products”.

6. The main consumer groups for make-up products are the post-80s and post-90s
generations, who value the appearance and trendiness of the products, and are highly
sensitive of product updates. As a result, many brands are collaborating with film/TV
stars and beauty bloggers, or placing embedded ads in films/TVs and entertainment
events as a way to boost sales.

7. According to the HKTDC survey, women in China have gradually formed the habit of
putting on make-up. This is particularly true for younger women, aged 20-30. The 88%
of the age group putting on make-up is higher than that of 31-45 year old women, at
83%. Men are also beginning to care for their skin, with 63% of male respondents using
cleansing milk, lotion or face cream.

8. The men’s cosmetics sector exhibits strong growth, in particular skincare products for
men. According to estimates by Euromonitor, the male skincare products market
expanded by 5% year-on-year in 2016 as more and more male consumers are receptive
to men’s skincare and make-up products. In 2016, male accounted for 52.2% of
mainland’s total population. However, the share of cosmetic products for men in the
overall cosmetics market is relatively small. Oil-control and cleansing are the two major
concerns. While facial cleansers take the lion’s share of the male market, demand for
specialty products like masks, sun-blocks and those with whitening and moisturising
functions is also on the rise. This demonstrates that male consumers are paying more
attention to skin conditions such as aging and coarseness.

9. Cosmeceuticals, especially Chinese herbal cosmetics, are opening up a new territory in

the cosmetics market. It is understood that more than 170 enterprises have tapped into
China’s cosmeceuticals market to date, many of them renowned pharmaceutical
companies in China, such as Tongrentang and Yunnan Baiyao. Cosmeceuticals only have

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a market share of about 20% in the mainland at present. In Europe, the US and Japan,
cosmeceuticals take a 50-60% share. It is believed that China's cosmeceuticals market
has much room for development. While cosmeceuticals have medical properties, they are
classified as cosmetics since there is still no official definition for the term
“cosmeceuticals” on the mainland. According to the Regulations on the Hygienic
Supervision over Cosmetics, no medical jargon or claims of medical efficacy should be
used in cosmetic items’ packaging or instructions.

10. In the cosmetics market, consumers’ attitude has changed drastically. Nowadays,
consumers are more independent in making decisions. Instead of being influenced by
advertising or promotional campaigns, they gather information through different channels
and consider various factors before picking products. Consumers can be grouped into
three major tiers, namely upper, middle and lower, based on their preference for brand,
quality, and price, as well as consumers’ purchasing power. Buyers of imported brand
products in the high-end market are mostly high-income earners in large and medium-
sized cities. Most of them are young and middle-aged women who prefer famous
cosmetics brands from Europe, the US and Japan.

11. People are increasingly aware of cosmetics safety issues. A series of problems arising
from unsafe products have put consumers, manufacturers and regulatory authorities on
alert. It is believed that the promulgation of the Hygienic Standard for Cosmetics and the
Hygienic Standard for Cosmetics Production Enterprises can help regulate the behaviour
of cosmetics manufacturers and protect the rights of consumers.

12. All-natural DIY cosmetics have gained popularity in recent years. Consumers
purchase ingredients themselves and tailor-make cosmetics and skincare products with
their own formulas. DIY cosmetics were intended for individual use to achieve self-
sufficiency. Today, they are increasingly commercialised, mass-produced and sold
through e-commerce platforms like Taobao.com and Tmall.com. Nevertheless, DIY
cosmetics for online sales generally have quality problems. They do not meet the
requirements stipulated in the Regulations on the Hygienic Supervision over Cosmetics
and have not applied for cosmetics production and sales permits.

13. China’s imports of major cosmetic products in 2016:

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HS Code Description 2016 (US$ YoY change

million) (%)

33030000 Perfumes and toilet waters 182 -2.3

33041000 Lip make-up preparations 218 47.7

33042000 Eye make-up preparations 96 1.2

33049100 Powders, whether or not compressed 96 10.9

33049900 Others (including preparations for the care of the skin, 3,584 31.7
suntan preparations, etc.)

33051000 Shampoos 155 20.9

33052000 Preparations for permanent waving 3 3.9

33053000 Hair lacquers 3 -63.9

33059000 Others 108 10.3

33072000 Personal deodorants and antiperspirants 4 -2.3

Source: Global Trade Atlas

II. Market Competition

1. According to China Food and Drug Administration (CFDA) statistics, the number of
enterprises qualified to produce cosmetics in China at the end of November 2016 was
4,798. Looking at the cosmetics market as a whole, domestic brands are mostly
concentrated in the mid- to low-end segments, while foreign-invested enterprises and
joint ventures dominated the high-end segment.

2. It is understood that foreign brands account for nearly 60% of the total sales of
cosmetics in China, with sales value making up nearly 90%. Because of the rapid
development of domestic cosmetics companies, domestic brands’ market share is
growing gradually, posing competition to their foreign counterparts. To seek new sales
growth, domestic brands are applying traditional Chinese medicine concepts and natural
extraction methods in developing skincare products. Examples include the Taichi Beauty
Retaining series and the Five Elements Skin Revitalising series from the Herborist and the
Herbal Skin Whitening series from Pehchaolin.

3. Although there has been negative news about the quality of cosmetic products from
world-renowned brands, mainland consumers still favour international brands. They
believe that these well-known enterprises have been producing cosmetics for years, so
even though problems have been reported in individual products, the overall quality is
still reliable. Some young women also consider it trendy to use famous brand cosmetic
products.

4. A number of mainland cosmetics producers, such as Chinfie, CMM, Houdy, Longrich,

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Herborist and Chando, are catching their international counterparts fast and have built up
reputations in the domestic market. Some long-established domestic brands like
Pehchaolin, Maxam and Bee & Flower are also actively carrying out research,
rejuvenating existing products or developing new ones to meet market needs. They aim
to regain market share by re-launching these upgraded and repackaged items at much
higher prices. In the past, domestic brands emphasised value-for-money and mostly
target second- and third-tier markets. Today, some large domestic companies have
started to develop high quality products, aiming to meet the demands of increasingly
discerning consumers in the domestic mid- and high-end markets.

5. The cosmeceuticals market is dominated by foreign brands. At present, major

cosmeceutical brands filling the shelves of large drugstores include VICHY, La Roche-
Posay, Freeplus and Simple. Domestic brands like Tongrentang, Herborist and Sanjiu
have also ventured into the cosmeceuticals market and are gradually recognised by
consumers.

6. Children’s skincare product is a market of huge potential. Frog Prince, Haiermian,

Mentholatum, Yumeijing and Johnson & Johnson are major players in the children’s
market. According to estimates, Johnson & Johnson takes more than 50% of the
children’s toiletries and skincare products market on the mainland. More and more
international childcare heavyweights are eyeing the China market and competition is
becoming intense.

III. Sales Channels

1. Major sales channels for cosmetics on the mainland include wholesale markets,
supermarkets and department stores, dedicated counters, specialty chain stores,
drugstores, beauty parlours and direct selling. Online shopping channels have also
recorded significant growth in recent years. Currently, department stores, supermarkets
and specialty stores are the top three sales channels. It is estimated that retail sales of
cosmetics through these three major channels account for approximately two-thirds of
the whole cosmetics market.

2. The “dedicated counter” is a major traditional sales channel for cosmetics, adopted by
most world-renowned cosmetics brands. Dedicated counters generate great return in
terms of word-of-mouth publicity and are thus highly effective in establishing brand
image. Top global brands such as Lancôme, Estée Lauder, Chanel and Dior dominate the
sales of cosmetics through dedicated counters on the mainland. Just a few domestic
brands like Herborist are able to compete with these giants.

3. Some brands expand their business by opening specialty stores, mainly in the directly-
operated specialty store and franchise store formats. Many multi-national cosmetics
giants prefer directly-operated specialty stores, since they can better display brand
image, ensure the quality of service management and enforce unified, stable pricing. On
the other hand, compared with other sales formats, opening franchise chain stores is
regarded as the most effective format with the least input and highest rate of success.

4. Direct selling is a means of selling cosmetic products through distributors’ personal

networks. Direct selling companies will award the distributors according to the quantity of
goods sold through their respective networks. Avon was the first brand to engage in a
pilot programme after the Regulations for the Administration of Direct Selling were
promulgated in 2005. Subsequently, the authorities also granted direct selling licences to

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Amway, Perfect, Longrich and others.

5. Selling cosmetics through drugstores has become a major feature in China’s cosmetics
market. While the cosmeceuticals market is now dominated by foreign players, a number
of local pharmaceutical companies have already set foot in this territory. Domestic brand
Longrich, for example, has adopted a two-pronged approach. Apart from distributing
through shopping centres and supermarkets, it also launches its products in local
pharmacies.

6. Cosmetic products can also be distributed through various types of beauty parlours,
such as traditional, pampering and therapeutic beauty parlours; large and medium-sized
high-end beauty spas; franchise chain stores; and grooming and hairdressing parlours,
etc.

7. The retail concept of “cosmetics supermarket” or “one-stop shop” is gaining attention,

with the entry of players like Watson’s, Sephora of France and Sasa.

8. Online cosmetics shopping has seen rapid growth, with some mainland consumers are
beginning to buy cosmetics and skincare products online. According to the HKTDC survey,
69% of female respondents and 65% of male respondents would buy skincare products
and cosmetics from online stores mainly because “online shopping is convenient/offers
delivery service”. The survey also found that female and male consumers spent
RMB2,158 and RMB1,681 respectively on online purchases of skincare products and
cosmetics on average in the preceding year.

9. Many foreign brands have entered the mainland market by acquiring domestic brands
and making use of their distribution networks. For example, MiniNurse and MG were
acquired by L'Oréal, TJoy by Coty for a time, and Dabao by Johnson & Johnson.

10. Fairs held in China provide an ideal channel for industry players to gather the latest
information and to meet dealers. Selected cosmetics fairs to be held in China in 2017-18
are as follows:

Date Exhibition Location

3-5 September China International Beauty Expo China Import & Export Fair Complex
2017 (Guangzhou) Autumn (CIBE) Guangzhou

22-24 October China Beauty Expo Chengdu (CCBE) Chengdu Century City New International
2017 Convention and Exhibition Center

3-5 November Shanghai International Beauty Shanghai Everbright Convention & Exhibition
2017 Hairdressing & Cosmetics Expo Center

10-12 March China International Beauty Expo China Import & Export Fair Complex
2018 (Guangzhou) Spring (CIBE) Guangzhou

22-24 May China Beauty Expo 2018 Shanghai New International Expo Center
2018

IV. Import and Trade Regulations

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1. The Detailed Rules for the Implementation of the Regulations on the Hygienic
Supervision over Cosmetics provide that, for cosmetic products to be imported to China
for the first time, foreign manufacturers or their agents must obtain and complete an
Application Form for Hygiene Licence of Imported Cosmetics from the hygiene
administration department above the local or city level of the importing place. They must
submit their applications directly to the hygiene administration department under the
State Council. Upon receipt of the application dossiers, the hygiene administration
department under the State Council will set up a cosmetics safety panel to inspect the
product in question. Products which have passed the inspection will be issued with an
Approval Document for Hygiene Licence of Imported Cosmetics and the number of the
approval document. The approval document will be valid for four years. Application for
renewal can be submitted to the hygiene administration department under the State
Council four to six months prior to the expiry date of the approval document and
attachment of relevant information is not required.

2. Pursuant to the Administrative Measures on the Inspection, Quarantine and

Supervision of Import and Export of Cosmetics, in addition to obtaining an Approval
Document for Hygiene Licence, an importer must also apply for a Verification Certificate
for Chinese Labelling on Imported Cosmetics before reporting to the inspection and
quarantine department. Normally, an application for verification of labelling for imported
cosmetics should be submitted to a designated examination body 90 working days before
reporting to the verification department. Imported cosmetic products may use printed
Chinese labels on a temporary basis and the whole label should be affixed onto the
original sales packaging box. The names and addresses of the dealer, importer, agent
and contact person on the mainland who have legally registered in China must be clearly
shown on the labels of the imported cosmetic products.

3. Once its label has been verified to be in compliance with regulations, the enterprise
concerned should submit the related cosmetic product for inspection in accordance with
the Regulations on the Application for Entry-Exit Inspection and Quarantine, accompanied
by the corresponding Verification Certificate for Labelling on Imported Cosmetics. The
inspection and quarantine authority concerned will carry out inspection on the following:
the label, quantity, weight, specification, packing and logo as well as the quality and
hygiene of the cosmetic product. It will also inspect the container for compliance with the
functional, safety and hygienic requirements. For an imported cosmetic product which
has passed the inspection, the inspection and quarantine authority will issue a conformity
slip and supervise the affixing of inspection and quarantine labels.

4. Pursuant to Administrative Measures on the Inspection, Quarantine and Supervision of

Import and Export of Cosmetics issued in 2011 for cosmetics subject to hygiene licensing
or state archival filing the approval documents for hygiene licensing or a certificate of
archival filing of imported cosmetics approved by the relevant supervisory department
should be submitted. For cosmetics not subject to hygiene licensing or state archival
filing, documents to be submitted would include the relevant safety assessment data on
materials with a potential safety risk, and certification for allowing production and sale of
the cosmetics in the country (territory) of production or a certificate of origin. In addition,
a sample of a Chinese label, a foreign label and its Chinese version are also required. For
finished cosmetic products without sales packaging, information such as the name,
amount/weight, specification and origin should also be provided.

5. On 12 May 2017 a pilot scheme that allows the import of non-special use cosmetics on
a “filing instead of approving” basis was launched in the Shanghai Pudong New Area. This

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is an innovation in administrative measures without a lowering in product safety

regulation standards. At the time of import, no sample of such products needs to be
submitted, instead, approval procedures will be carried out during or after importation.
This new scheme will simplify the process by which foreign cosmetics enter the Chinese
market, shorten the cycle for imported cosmetics and lower logistics and warehousing
costs.

6. When assessing the mainland cosmetics market, foreign players should pay attention
to relevant standards adopted by mainland authorities. Under the Standardisation Law of
the People’s Republic of China (Revised Draft 2016), standards are classified into four
levels, namely national, trade, local and enterprise standards, in order of descending
precedence. National standards are further classified into compulsory and voluntary
standards, represented respectively by standard codes GB and GB/T. Likewise, trade
standards are classified into compulsory and voluntary standards. The cosmetics sector,
classified under the category of light industry, is represented by the standards codes of
QB and QB/T. Local standards are compulsory within their respective administrative
regions. Enterprise standards are applicable within the respective enterprises. Industry
players may refer to the standardisation website operated by the China Academy of
Machinery Science and Technology and the Standardisation Administration of China
website to look up relevant standards.

7. Pursuant to China’s WTO commitments, a final bound tariff rate of 10% has been
applied to imported lip and eye make-up preparations and powders since 1 January 2005.
As for other imported cosmetics, a final bound tariff rate of 6.5% has been levied since
2008.

8. Import tariffs of selected cosmetic products in 2017:

HS Code Description (%)

33030000 Perfumes and toilet waters 10

33041000 Lip make-up preparations 10

33042000 Eye make-up preparations 10

33043000 Manicure or pedicure preparations 10

33049100 Powders, whether or not compressed 10

33049900 Others (including preparations for the care of the skin, suntan preparations, etc.) 2, 6.5

33051000 Shampoos 6.5

33052000 Preparations for permanent waving 10

33053000 Hair lacquers 10

33059000 Others 10

Source: Customs Import and Export Tariff of the People's Republic of China 2017

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9. According to the decision of the State Council executive meeting on 28 April 2015,
China will improve the consumption tax policies on mass consumer goods, such as
clothing and cosmetics, and will also adjust the levying scope, tariff rates and levying
process. Subsequently, consumption tax on ordinary cosmetic products for beauty and
cosmetic purposes has been abolished, while the tax item “cosmetics” has been renamed
“high-end cosmetics”. In this adjustment, cosmetics of the high-end beauty and cosmetic
category and skincare category are defined as having a dutiable price of RMB10/ml (g) or
RMB15/piece (sheet) and above. The consumption tax rate on cosmetics imports has
been lowered from 30% to 15%. The import tariff for skincare products has been reduced
from 5% to 2%.

10. The 2015 version of the Safety and Technical Standards for Cosmetics consists of
eight chapters, namely: Summary, Requirements on Cosmetics Prohibited and Restricted
Ingredients, Requirements on Permitted Ingredients, Physical and Chemical Testing
Methods, Microbiological Testing Methods, Toxicological Testing Methods, Human Safety
Testing Methods, and Efficacy Evaluation Methods in Humans. In the publication, the
general safety and technical requirements for cosmetics have been refined. Revisions
have also been made to the lists regarding prohibited/restricted and permitted
ingredients as well as to the physical and chemical testing methods in the cosmetics
inspection and evaluation methods.

11. According to the Regulations on the Administration of Cosmetics Labelling, which

went into force on 1 September 2008, a complete table of ingredients must be shown on
the labels of cosmetic products. The provisions further clarify the labelling requirements
for cosmetic products, including the content allowed or prohibited to be stated in the
labels, and the format of such labels.

12. China is soliciting public comments on the draft of Administrative Measures for
Cosmetics Labelling, which concerns the following aspects. Adding Chinese labels will no
longer be allowed for imported cosmetic products and all cosmetic products targeting the
Chinese market should be packaged with product information in Chinese. In addition,
labels for imported cosmetics must specify the name and address of the accountable
entities, manufacturers and authorised manufacturers in China. An accountable entity in
China shall take responsibility for product safety in the Chinese market. The list of
expressions forbidden for use has also been modified. To use terms such as “sensitive”,
“nano”, “additive-free”, “absolutely natural”, “pure natural plant”, “ecology” and “organic"
in cosmetics labels, sufficient documentation should be provided to substantiate such
claims during registration or record filing.

13. The Instructions for Consumer Goods – General Labelling of Cosmetics (GB
5296.3-2008) which came into effect on 1 October 2009 provides that all locally
produced cosmetics or imported cosmetic products to be registered for inspection and
distribution on the mainland must truthfully indicate on the product package the standard
Chinese names of all added ingredients in the cosmetic product.

14. According to the Naming Requirements for Cosmetics, which was implemented on 5
February 2010, the name of a cosmetic product should be concise, easy to understand
and in line with the customs of the Chinese language. It must not contain anything which
may mislead or deceive consumers. The Cosmetics Naming Guidelines , which were issued
to complement the naming requirements, provide a list of expressions allowed or
prohibited when naming cosmetic products. Eleven types of expressions are forbidden for
use in the names of cosmetic products, namely: arbitrary expressions, such as “special
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effect”, “total effect”, “powerful effect”, “miraculous effect”, “super effect”,

“extraordinary”, “skin renewing”, “wrinkle removing”. Expressions that falsely claim a
product is “absolutely natural”; expressions that explicitly or implicitly indicate the
medical effect of a product, such as “anti-bacterial”, “bacteria-inhibiting”, “bacteria-
removing”, “detoxifying”, “anti-allergic”, “scar-removing”, “hair-growing”, “hair-
regenerating”, “fat-reducing”, “fat-dissolving”, “body-slimming”, “face-slimming”, “leg-
slimming” are also controlled. Names of celebrities in the medical field, such as Bian Que,
Hua Tuo, Zhang Zhongjing and Li Shizhen; medical jargon; and six other types of
expressions are forbidden.

15. The new Administrative Measures on Organic Product Certification (AQSIQ Decree
No.155) came into effect on 1 April 2014. This document is compiled in view of the
Organic Product Certification Catalogue which took effect on 1 March 2012. According to
this catalogue, cosmetic products no longer fall within the 127 product types listed in the
organic product catalogue. Only for those products included in the catalogue can
certification agencies accept certification requests from producers and processors. For
products which were previously certified but now excluded from the organic product
catalogue, their certificates will automatically become invalid upon expiry. Under
mainland rules, products without organic certificates may not display such markings as
“organic product” on their packages and labels. Cosmetic products, therefore, cannot be
offered for sale as “organic” items.

16. As stipulated in the Circular on Matters Related to Cosmetics Production Permit issued
by the CFDA, cosmetics produced from 1 July 2017 onwards must use new packaging
logos labelled with information on the corresponding cosmetics production permit while
the “QS” logo ceased to be in use.

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