Longer supply chains and more regulations provide clues as to where China’s cosmetic market is headed in 2022. The latest news that caught my attention is about supply chain disruption. ZhiBen, a local indie brand positioned as skinimalism, is trending in China for different reasons. Its bestselling product, Soothing & Recovery cleansing balm, has been out of stock for more than a month. November sales exceeded 100,000 units. In a statement issued last month, the company blamed the delays on customs clearance procedures for its imported ingredients.

Against the backdrop of global supply chain shortages, ZhiBen’s case just demonstrates how damaging this is to China’s cosmetic industry. Described as a “tsunami-like disruption” by some local players, the supply issue has wreaked havoc in the beauty industry. Hardest hit are small and medium local brands that rely heavily on overseas ingredients for product differentiation claims.

Further complicating the issue are the latest regulatory changes, particularly the Platform of Cosmetic Ingredient Safety Information Registration which was issued Dec. 31, 2021. Under the new ingredient submission guidelines, cosmetics registrants, filers or the domestic responsible person, can submit related safety information of cosmetic ingredients provided by the ingredient suppliers via the platform. This information includes basic information, brief introductions of production process, key requirements of quality control, evaluation results of international authority, usage requirements in other industry and limitations of risky materials. A submission code containing the specific information on ingredient manufacturer and quality specification will be issued to a successfully submitted ingredient—similar to an ID. 

The long-term benefits of this new registration requirement are well recognized. Aiming to improve cosmetic traceability and safety, it simplifies the application process. An ingredient submission code, rather than pages of documents, can be readily cited by the applicants in their registering or filing formularies containing the corresponding ingredient. However, short-term pains seem inevitable for many brands and manufacturers. They must update the submission every time there is a change, be it the ingredient itself or the supplier. This time-consuming procedure makes it much harder to switch a supplier even when the shortage occurs.


Livestreaming: A Dead Issue?

Ingredient supply aside, another shortage has come rather unexpectedly: livestreamers. It is particularly concerning for beauty e-commerce. It all started in mid-December when a popular livestreamer was fined for tax evasion. Viya, widely considered China’s “livestreaming queen,” could sell anything and everything—including a rocket launch in 2020. But Viya has fallen back to Earth, getting fined an unprecedented 1.34 billion yuan ($210.16 million) for tax evasion, according to a Dec. 20, 2021 statement issued by the local taxation authority. All of Viya’s social media accounts have been suspended and her live-streaming services canceled.

Despite being the most high-profile tax evader, Viya was not the only one caught up in China’s recent crackdown which initially targeted the entertainment celebrities. Back in November, two other top livestreamers were also charged with tax evasion. One is Cherie who is the No. 3 live-streamer behind Viya and Austin Li.

Following the charges against Viya, many beauty brand executives were heard murmuring “let’s pray for Li not to fall, otherwise we will fail to reach this year’s sales target.”

Li is extremely well known for his incomparable ability of selling cosmetics. Regardless of prayers, the relationship between brands and streamers is becoming increasingly conflicted. Arguments ensue over the pricing system and buyers’ information access. Regarding pricing, in November, L’Oréal ran afoul of Viya and Li over a “deepest discounts” promise that failed to materialize during Double 11 pre-sales. It led to a major public outcry with Viya and Li boycotting L’Oréal Paris. The beauty giant ultimately apologized and offered compensation to consumers who paid nearly double for the same facial masks during the streamers’ sessions.

This case actually sheds some light on two major issues faced by the brands leveraging livestreaming in China: eroding profit margins and tightening public/regulatory scrutiny. While still regarding livestreaming as an integral part of online marketing and selling, brands here are trying to diversify. As a result, they’ve identified new capable streamers who charge less. At the same time, brands are aggressively creating their own livestreaming services, so-called “self-livestreaming,” in the hope of retaining consumers for repurchase and increasing their loyalty via real and timely users’ interaction.


Bad Product Claims

Livestreaming is a cloudy marketing issue. But product claims are quite clear-cut, according to regulators. The National Medical Products Administration (NMPA) regulates cosmetic registrations. In January, NMPA issued the following statement: “Following the earlier bans on cosmetics of exfoliation acid/acid peel, eyelash growth booster, children makeup, food-grade/edible, cannabis, stem cell, EGF, aesthetic medicine/pharmaceutical/medical device, two new ones are strictly prohibited: General cosmetics (previously “Non-special use cosmetic”) containing SymWhite 377 (Phenylethyl Resorcinol), and any cosmetic product claiming or indicating the use for pregnant women or mothers.”

The former aims to clamp down on the misuse of whitening actives in general cosmetics, which is not allowed for skin whitening/brightening. Because 377 is generally recognized as an effective whitening active among many local consumers, it has been leveraged by many products categorized as general cosmetics to indicate the whitening effect. For the latter, cosmetics for pregnant women are now classified as “cosmetics with new function.” Therefore, they require more safety and efficacy evaluations in addition to those for current special use cosmetics, according to NMPA.

The regulatory and marketing landscape is constantly evolving in China. Although never an easy thing for brands. Many local companies are rethinking the role of R&D and focusing more on technology in order to navigate the current situation. 

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Ally Dai
Freelance Writer
[email protected]
[email protected]
 
Ally Dai is a freelance writer/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.