New Ingredients, Online Search Drive China’s Beauty Industry

Multinational companies launching new formulas are driving beauty sales in China. Still, the market hit a speed bump in the third quarter. As a result, “polarizing” seems like the right word to describe the performance of China’s beauty market now. On the one hand, the retail sales of cosmetics made the headlines in recent months, hitting record lows with YOY growth rates of 2.8% in July and 0% in August, according to China National Statistics Bureau (CNSB). On the other hand, CNSB’s latest statistics also show that overall, strong growth is tangible, achieving 17.9% during the first three quarters of this year, largely thanks to significant performance of many large manufacturers and premium brands in the market.

The reason behind such polarization is complicated, and largely attributed to a combination of tightening regulations and supply chain disruptions upstream as well as shifting consumer appetites for beauty and wellness, and increasing confidence in the local culture downstream. The overall situation is evolving, but here’s a review of the trends and issues driving the world’s second largest beauty market.


Taking Roots in New Ingredients

With the rise of the ingredient/efficacy-centric trend in China, ingredients are the centerpiece of product innovations. Facilitated by the latest regulations on cosmetic ingredient management, the industry is now seeing a sudden increase in the new ingredient applications with National Medical Product Administration (formerly China Food and Drug Administration).

Compared to eight approved during 2008-2020 by Chinese authorities, four new ingredients already have completed the registration and notification process since June, according to Cosmetic Ingredients Notification Information publicized by National Medical Product Administration (NMPA). These ingredients are:

• N-Acetylneuraminic acid (NANA, SA) as humectant;
• N-Lauroyl-L-Alanine as detergent (supramolecular amino acid);
• Beta-Alanyl Hydroxyprolyl Diaminobutyroyl Benzylamide as skin protectant; and
• Tissue Culture of Saussurea Involucrata as antioxidant.

All four are under a three-year “Safety Monitoring Period,” during which they are allowed for cosmetic applications, but the allowance will be revoked if any safety issues arise. After the three-year period, the materials will be listed in Inventory of Existing Cosmetic Ingredients in China (IECIC 2021).

It is interesting to note that the four new ingredients are all from local biotech or pharmaceutical companies. But by reading through this April’s announcement of National Institutes for Food and Drug Control, it is notable that among 37 cosmetic new ingredients accepted by the authority to be approved, 20 are from international companies, including Hydroxyphenyl Propamidobenzoic acid by Symrise, Methyl Aminomethyl Cyclohexylamine Carboxyl-amine HCL by Shiseido and Rhodiola Rosea root extract by Estée Lauder.

What’s happening on the ingredient side also reflects consumer demand for natural/plant-based materials with traditional Chinese twists. Take N-Acetylneuraminic acid, for example. While this newly-approved ingredient itself is produced with fermentation biotechnology, it is known as an essential component (Sialic acid) in edible bird’s nest—an expensive delicacy with well-recognized skin care benefits.


Starting with Children

In alignment with the three-child policy introduced earlier in China, NMPA introduced Supervision and Administration Provisions on Children Cosmetics on October 8 after releasing the draft for public consultation in June. Taking effect Jan. 1, 2022, the regulation sets much stricter rules on cosmetic products for children ages 12 and under. It covers all aspects of product manufacturing and operation management ranging from registration and notification, labeling, sampling inspection, to post-market surveillance.

On the product claims and marketing side, the new regulation for the first time clarifies that the terms of “edible” and “food-grade” are not acceptable in children’s cosmetic products, including toothpaste. And if suggesting suitable for all demographics or family members, the product shall be subject to this new regulation.

On the product formulating guidelines, the draft regulation clarifies that children’s cosmetics shall focus on four major types of functions: cleansing, moisturizing, sweat-absorbing/cooling and drying, and sun care. And the key points are that in the formularies:

• The types of ingredients should be reduced, and the safety, stability, functionality and compatibility of used ingredients shall be assessed based on children’s physiology, especially fragrances and flavors, colorants, preservatives and surfactants;
• The ingredients are not allowed for the purpose of anti-freckle/whitening, anti-acne, hair removal, deodorization, anti-dandruff, anti-hair loss, hair dyeing and perming; and
• Only ingredients with a history of safe use can be used. Those in the Safety Monitoring Period or with uncertain safety profiles for children are not allowed.

Regulations aside, there’s strong consumer demand for baby/children care products. The average annual growth rate in China’s baby/children care market is over 30% compared to 9% for overall GDP during the past five years. The gains are attributed to the huge population base, albeit with declining birth rates. Furthermore, young parents (25-30 years old) seem willing to spend more on their children, according to some industry reports.

When it comes to the specific baby/children care categories, skin and hair care (particularly cleanser and moisturizer) sunscreen and body care remain most in demand. Meanwhile, children oral care sales are up significantly, with the online sales growth outpacing sales for adults.


Top Searches Tell All

Beauty trends are critically dependent on the local regulatory environment. For example, the government recently took aim at false and misleading beauty claims.

Regulators also cracked down on “toxic idol worship” in the entertainment industry. The latter is expected to have much wider implications on fandom culture in China. These media idols promote products for a numerous of beauty brands.

Still, regulations alone don’t provide a full picture of the market environment. The latest beauty report by Baidu, China’s largest search engine, sheds light on what’s ahead.

Based on its TGI data from January to July 2021, in first-tier cities, where consumers tend to be adventurous when it comes to beauty care, the top 5 TGL are: V-line face lift, serum, beauty device, anti-aging and eye care. When it comes to purchasing decisions, the consumers’ top considerations are: product category/type, brand, reputation/word of mouth, application methods and functionality. In addition, ingredients and suitable skin type are particularly concerning for purchasing.

The dynamic between hot and cold spots in China’s cosmetic market are shifting; the major directions, however, are more or less in line with the global ones, despite all these twists and turns.

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Ally Dai
Freelance Writer
allisondai@126.com
allydai73@gmail.com
 
Ally Dai is a freelancer/independent consultant based in Shanghai. She has covered the beauty industry for more than 15 years. Previously a senior editor and industry researcher, she now works on content creation with publishing houses, event organizers and PR companies in the personal care and life science industries.