In the midst of China’s struggling economy, the cosmetics industry is thriving. After experiencing years of mandatory mask-wearing and frequent lockdowns during the pandemic, many Chinese consumers are now indulging in cosmetics, such as lipstick, perfume, moisturizers, and personal care products, instead of making big-ticket purchases like apartments. However, while China’s cosmetics companies are flourishing, multinational cosmetics companies from France, Japan, South Korea, and the United States, which have made significant investments in China, are missing out on this growth.
Cosmetics imports into China have been stifled due to regulations that the country imposed on foreign manufacturers during the pandemic. While China’s trade conflicts with the West over semiconductors revolve around national security and technological innovation, the dispute over cosmetics is primarily about money. France’s finance minister, Bruno Le Maire, emphasized the significance of the Chinese market to French companies, stating that it represents between 30 and 35 percent of their total revenues.
China introduced new rules in 2021 that require companies to disclose every ingredient used in their products, along with the precise quantities. They also need to upload information about their ingredient suppliers and assembly locations to a Chinese database. Foreign companies are concerned that sharing this information could lead to Chinese manufacturers copying their products at a lower cost. Additionally, another contentious mandate is that certain products, like hair dyes and sun creams, must be tested on animals before being sold in China. Many global cosmetics companies have stopped this practice.
Large companies like LVMH and L’Oréal have the resources to meet these regulatory demands, but smaller players are halting sales to China until a less time-consuming and expensive method to meet the requirements is found. Led by the French government, the European Union and 11 cosmetics-exporting nations, including the United States and Japan, are urging China to repeal many of these requirements. Talks have been held, and France’s President Emmanuel Macron and France’s finance minister have raised the issue with Chinese leaders. A working group has been established to establish common standards, but it’s uncertain whether these discussions will lead to a resolution.
China is the world’s second-largest beauty market after the United States, yet doing business there has always been challenging for foreign companies. For years, China mandated animal testing for most cosmetics, even if the products had been proven safe and sold by brands elsewhere. However, the country dropped the animal test requirements a decade ago for many products made in China and, in 2021, for imported cosmetics that don’t make health claims. Nevertheless, animal testing is still required for “special cosmetics” like sunscreen and hair dye.
Recent statistics show that foreign cosmetics companies have been losing market share to domestic competitors in China. Retail sales of cosmetics in China increased during the first half of the year, but overall imports fell. Chinese consumers are increasingly accepting domestic brands, and Chinese-born beauty brands have experienced significant growth in the past few years, accounting for a significant portion of skin care and makeup retail sales. Despite the regulatory hurdles, China’s beauty market is expected to continue growing and account for a significant portion of global beauty retail sales by 2027.