23 July 2018
China’s Cosmetics Market
I. Market Overview
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 RMB186.7 billion and RMB34.4 billion, respectively, in 2017, achieving year-on-year growth of 10.3% and 21.3%, 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)|
Source: National Bureau of Statistics of China
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: these 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 in compact, portable sizes.
- Cosmeceuticals: consumers have growing awareness of products that combine cosmetic and pharmaceutical features, such as spot lightening cream, acne treatment lotion and acne ointment.
- Green/natural cosmetics: contain natural or nutritional ingredients, such as aloe and vitamins.
China’s skincare-products market is trending towards the high-end. Euromonitor figures show that though the retail-sales value of high-end skincare products was still below that of mass-market fast-moving alternatives in 2017, the market share of the former has been rising gradually to 31% in 2017 from 27% in 2012. Consumers favour major international brand skincare products, and spending habits are switching from price-focused to quality and brand driven.
China’s domestic cosmetics brands performed very well in 2017, 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.
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’.
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.
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 aware 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.
The men’s cosmetics sector, particularly skincare products, exhibits strong growth. According to estimates by Euromonitor, the male skincare products market expanded by 6.9% year-on-year in 2017 as male consumers become increasingly receptive to men’s skincare and make-up products. In 2017, males accounted for 51.2% of the mainland’s 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 such as 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.
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 a market share of about 20% in the mainland at present. In Europe, the US and Japan, cosmeceuticals have a 50-60% share. It is believed that China's cosmeceuticals market has much room for development. As young consumers begin to concern themselves with the ingredients and quality of products, consumption of cosmeceuticals tends to start at increasingly early ages. 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 Cosmetics Hygiene Supervision, no medical jargon or claims of medical efficacy should be used in cosmetics items’ packaging or instructions.
In the cosmetics market, consumers’ attitudes have 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.
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.
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 such as 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 Cosmetics Hygiene Supervision and have not applied for cosmetics production and sales permits.
China’s imports of major cosmetic products in 2017 are summarised as follows:
|HS Code||Description||2017 (US$ million)||YoY change (%)|
|33030000||Perfumes and toilet waters||257||41.2|
|33041000||Lip make-up preparations||440||101.3|
|33042000||Eye make-up preparations||131||37.3|
|33049100||Powders, whether or not compressed||139||44.8|
|33049900||Others (including preparations for the care of the skin, suntan preparations, etc.)||5,131||43.2|
|33052000||Preparations for permanent waving||3||-8.3|
|33072000||Personal deodorants and antiperspirants||6||74|
Source: Global Trade Atlas
II. Market Competition
According to the statistics of China Food and Drug Administration (CFDA), which is now under the State Administration for Market Regulation (SAMR), the number of enterprises qualified to produce cosmetics in China at the end of June 2018 was 3,880. 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.
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 Extra Control series from Herborist and the Herbal Skin Whitening series from Pehchaolin.
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.
A number of mainland cosmetics producers, such as Chinfie, CMM, Houdy, Longrich, Herborist and Chando, are quickly catching their international counterparts and have built up reputations in the domestic market. Some long-established domestic brands such as 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 relaunching these upgraded and repackaged items at much higher prices. In the past, domestic brands emphasised value for money and mostly targeted 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.
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 including Tongrentang, Herborist and Sanjiu have also ventured into the cosmeceuticals market and are gradually recognised by consumers.
Children’s skincare products is a sector with huge potential and an increasing number of international childcare heavyweights are eyeing the China market. Frog Prince, Pigeon, Yumeijing, Giving and Johnson & Johnson are major players in the children’s market. Competition is expected to become increasingly intense.
III. Sales Channels
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. Department stores, supermarkets and specialty stores are now 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.
The ‘dedicated counter’ is a major traditional sales channel for cosmetics, adopted by most world-renowned brands. Dedicated counters generate great returns 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 such as Herborist are able to compete with these giants.
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.
Direct selling is a means of trading cosmetic products through distributors’ personal networks. Direct selling companies will award 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 Amway, Perfect, Longrich and others.
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.
Cosmetic products can also be distributed through various types of beauty parlours, such as traditional, pampering and therapeutic; large and medium-sized high-end beauty spas; franchise chain stores; and grooming and hairdressing parlours, etc.
The retail concept of ‘cosmetics supermarket’ or ‘one-stop shop’ is gaining attention, with the entry of players such as Watson’s, Sephora of France and Sasa.
Online cosmetics shopping has seen rapid growth, with some mainland consumers 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.
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. Some foreign brands are establishing their presence in the mainland market through online shopping platforms. In fact, online sales of the make-up and personal-care industries are growing at rates 11 times and eight times the respective rate of growth of sales in physical stores.
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 2018-19 are as follows:
|2-4 September 2018||China International Beauty Expo (Guangzhou)||China Import & Export Fair Complex, Guangzhou|
|19-21 October 2018||Shanghai International Beauty, Hairdressing & Cosmetics Expo||Shanghai Everbright Convention & Exhibition Center|
|25-27 October 2018||Chengdu Beauty Expo||Chengdu Century City New International Convention and Exhibition Center|
|6-8 May 2019||China International Beauty Expo (Shanghai)||National Exhibition & Convention Center, Shanghai|
|20-22 May 2019||China Beauty Expo (CBE Shanghai)||Shanghai New International Expo Centre|
IV. Import and Trade Regulations
The Detailed Rules for the Implementation of the Regulations on Cosmetics Hygienic Supervision 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 that 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.
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 www.standardcn.com and the Standardisation Administration of China (SAC) website to look up relevant standards.
To further liberalise trade and meet consumer demand, effective 1 July 2018, the State Council has cut most-favoured-nation (MFN) tariffs for 1,449 items of imported daily consumer goods, including garment, shoes and hats as well as cosmetics and household appliances, among others. In particular, the average tariff rate for cleaning products and for cosmetics such as skincare and haircare products has been slashed to 2.9% from 8.4%.
Import tariffs of selected cosmetic products in 2018:
|33030000||Perfumes and toilet waters||3|
|33041000||Lip make-up preparations||5|
|33042000||Eye make-up preparations||5|
|33043000||Manicure or pedicure preparations||5|
|33049100||Powders, whether or not compressed||5|
|33049900||Others (including preparations for the care of the skin, suntan preparations, etc.)||1|
|33052000||Preparations for permanent waving||3|
Source: Customs Import and Export Tariff of the People's Republic of China 2018
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.
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.
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 that 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 effect’, ‘total effect’, ‘powerful effect’, ‘miraculous effect’, ‘super effect’, ‘extraordinary’, ‘skin renewing’, or ‘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’, and ‘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.
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 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, quantity/weight, specification and origin should also be provided.
The new Administrative Measures on Organic Product Certification (AQSIQ Decree No.155) came into effect on 1 April 2014. According to the Measures, 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 that 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.
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.
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 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.
As stipulated in CFDA’s Circular on Matters Related to Cosmetics Production Permit, cosmetics produced from 1 July 2017 must use new packaging logos labelled with information on the corresponding cosmetics production permit while the ‘QS’ logo ceased to be in use.
On 8 March 2018, the CFDA announced that the pilot scheme of allowing the import of non-special use cosmetics on a filing basis will be extended to 10 pilot free trade zones in Tianjin, Liaoning, Zhejiang, Fujian and Henan. From 8 March 2018 to 21 December 2018, non-special use cosmetics imported for the first time through these 10 pilot free trade zones will be admitted on a filing basis instead of an approval basis, provided that the registration address of the responsible person in China is within the pilot free trade zone concerned.
More details can be found on the SAMR website.