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China’s Cosmetics Market Flourishes Amidst Regulatory Challenges for Foreign Brands

In the midst of China’s economic uncertainties, one sector is shining brightly: the cosmetics industry. As Chinese consumers emerge from nearly three years of pandemic-related mask mandates and lockdowns, they are shifting their spending towards personal care products like lipstick, perfumes, and moisturizers. However, cosmetics companies from France, Japan, South Korea, and the United States, despite significant investments in China, are struggling to capitalize on this booming market due to stringent regulations imposed during the pandemic.

A Broader War

The economic dispute between China and Western cosmetics companies is primarily about money rather than national security or technological innovation, in contrast to other trade conflicts. For many French companies, China represents between 30 and 35 percent of their total revenues, emphasizing the economic significance of this market. The United States is also keen to expand exports of personal care products, recognizing the industry’s potential.

One of the major regulatory challenges foreign cosmetics companies face in China is the requirement to disclose all ingredients and precise quantities used in their products. Additionally, companies must upload information about ingredient suppliers and assembly locations to a Chinese database. The fear among foreign companies is that divulging these details may enable low-cost Chinese manufacturers to replicate their products, posing a significant threat to intellectual property.

Another contentious requirement is the mandate to test certain products on live animals before they can be sold in China, a practice that many global cosmetics companies have abandoned due to ethical concerns. Moreover, the unrealistic timelines for compliance add further complexity to the regulatory landscape, making it difficult for smaller players to meet these demands, prompting some to pause sales in China until more practical and cost-effective solutions emerge.

In response to these challenges, the European Union and 11 cosmetics-exporting nations, including the United States and Japan, are pushing China to reconsider and repeal some of these regulations. French President Emmanuel Macron and France’s Finance Minister Bruno Le Maire have actively raised the issue during their visits to China, seeking to engage in dialogue and find common ground. As a positive step, a working group is being established to develop common standards, with meetings scheduled in Paris by the end of the year.

Nothing New

China, as the second-largest beauty market globally, has always posed challenges for foreign companies. Historically, animal testing was a mandatory requirement for most cosmetics, but China has recently eased this requirement for some products, especially those not making health claims. However, animal testing remains compulsory for “special cosmetics,” which include products with sunscreen, antiperspirants, hair dye, or skin lighteners. Efforts are being made to reduce animal testing, with companies like Unilever working with Chinese authorities to transition to paper-based risk assessments.

Despite these hurdles, foreign cosmetics companies are losing market share to domestic competitors in China. While retail sales of cosmetics in China have risen, overall imports have declined significantly, impacting international brands. The rise of domestic brands is attributed to growing acceptance among Chinese consumers, with locally produced cosmetics gaining popularity.

Additionally, China’s duty-free hub in Hainan has faced a crackdown on traders, impacting sales for international beauty brands. Regulatory red tape and potential product backlogs in China may also contribute to the decline in imports.

Despite these challenges, the Chinese cosmetics market is set to continue its growth trajectory. By 2027, McKinsey estimates that China will account for around one-sixth of global beauty retail sales, solidifying its position as a key player in the cosmetics industry.