On 30 September, 2016 China Ministry of Finance and State Administration of Taxation announced a revision on the consumption tax for imported cosmetics items. Effective from 1 October, 2016, consumption tax rate for cosmetics items is lowered to 15% from previous 30%. Major changes on the consumption tax for general cosmetics and upscale cosmetics items are set out as follows:

Consumption tax on general cosmetics (with imported/ex-factory price at less than 10 yuan /ml(g) or 15 yuan/piece) will be removed.

Consumption tax on upscale cosmetics(with imported/ex-factory price no less than 10 yuan /ml(g) or 15 yuan/piece) will be cut from 30% to 15%.Upscale cosmetics include high-end color make-up, beauty products, premium skincare and packaged cosmetics products.

With the country seeing sluggish economic results,it focuses on simplifying the cosmetic and beauty industry to make way for a smoother and more efficient accreditation process. The overall aim is to encourage domestic and international brands to bring their product lines to China.

Korea Bans Cosmetics that could Use Alternative Tests

South Korea will ban animal tested cosmetic products either manufactured in the country or imported, including consignment manufacture, from February 2017.

However, the ban, announced a few days ago, applies where alternative tests have been accepted by the Ministry of Food and Drug Safety (MFDS).

The basis for the ban is the revised Cosmetic Act,passed by the National Assembly on 31 December 2015,which was put forward by the Assembly’s Health and Welfare Committee on 26 November.

The bill was announced with a one year suspension period and will finally be enforced from 4 February 2017.

The decision came earlier than some expected and follows the example set by a number of other jurisdictions.

The EU has banned the sale of cosmetic products tested on animals since 2013, after extensive investment in research into non-animal test methods. Countries such as Brazil, Argentina and Turkey followed suit in 2015.

South Korea’s ban includes exemptions: animal testing will still be permitted for endpoints, such as repeated dose toxicity, skin sensitization and skin and eye irritation, for which there is currently no alternative test accepted by the MFDS.

China Restricts Korean K-beauty lnfluence

Distribution agreements and commercial relationships between China and South Korea’s cosmetics, beauty and personal industries have suffered a significant setback as China imposes stricter broadcasting rules.

Reports from Chinese media have suggested that South Korea’s plans to install a new anti-ballistic missile defence system are responsible for the nation’s decision to impose restrictive broadcasting rules on the home of K-pop and K-beauty.

Both entertainment and cosmetics brands have already seen a drop in shares, as the sectors are heavily prominent in China.

On 22 November 2016, The Financial Times announced that even though South Korea’s Kospi index increased by 0.9%, a host of leading cosmetics retailers saw their shares drop. Korea Kolmar, Tonymoly and Cosmax BTI were among these, along with lG Household Health Care which plummeted 5.8% and Amorepacific, down by 3.5%.

A ban on TV drama productions and interviews with Korean-based K-pop and social media personalities throughout China may have an ongoing and detrimental effect on the financial landscape of Korean cosmetics and beauty companies.

Cosmetics Design Asia highlighted several developments in South Korea and from its brands that strengthen its relationship with China and wider regions.

Chinese online retailing giant Alibaba and South Korea’s largest ODM Cosmax have recently signed a distribution agreement between the two countries in a bid to increase trade, while TonyMoly, a leading K-beauty retailer, has forged ahead with new plans to build a manufacturing plant in Jiaxing, Zhejiang province,China.

South Korea has also recently signed a free trade agreement with six Central American countries to expand Korea’s cosmetics and beauty presence.

As retailers outside of Korea, such as US-based Peach lily, exclusively specialise in Korean-inspired cosmetics and beauty innovations, brands looking to enter or grow in the Chinese marketplace may experience significant obstacles in light of China’s broadcasting regulations both in China and wider marketplaces, particularly if these extend to digital streams and social media.

In June 2016, the Chinese government stated that all foreign content and inspired content had to get official approval prior to broadcast, indicating the country’s willingness to refuse broadcasting specific content.

China’s Cosmetics production License Deadline Approaches

Chinese cosmetics manufacturers must exchange or obtain a Cosmetic Production license before 31t December 2016 to continue manufacturing activities.

The new Cosmetic Production license, which will now be accessed via local Food and Drug Administrations(FDAs), consolidates and replaces the old system.

Previously, cosmetics manufacturers would have to obtain a Cosmetics Production license, known as a National Industrial Production Permit, from Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) and a Hygiene license, called a Sanitary Certificate of Cosmetics Manufacturer.

The China Food and Drug Administration (CFDA)announced the update on 15 December 2015, giving companies a year to complete the application process and receive the Cosmetic Production license. From 1st January 2016, new manufacturers have been able to apply for the license and existing manufacturers have been able to exchange their old licenses.

Companies that fail to make appropriate provisions and complete their application by 31 December 2016 will be prevented from carrying out any manufacturing activities.

Packaging need-to-knows

Once the consolidation process is complete, the CFDA will eradicate the requirement to display a QS label on cosmetic packaging. The Cosmetics Production license does not contain any requirements relating to the use of QS labels. The label, which since 2005 has been compulsory on all cosmetics products, will therefore no longer feature on cosmetic product packaging.

The CFDA states that from 1 July 2017, domestic manufacturers in China must only use new packaging that satisfies the rules stated in the Cosmetics Production license.

However, packaged products that adhere to the preceding regulations can be available for purchase until they reach their expiration date. After that date, they must be replaced with packaging that complies with the new regulations.

Application process and considerations

Manufacturers applying for the new production license must submit the initial application and materials.Once received, a format check will be conducted and it is at this point that an application is either refused or accepted.

If it is accepted, then the FDA will carry out an onsite inspection to ensure compliance. If satisfied, the manufacturer will receive a certificate confirming that it has successfully obtained the cosmetics production license.

Chemical Inspection and Regulation Service (CIRS), a product safety and chemical management consulting firm,highlights the FDA’s aim to simplify the existing process through consolidating cosmetics licenses.

To provide additional guidance, China also released information on “The Key Inspection Points of Production license of Cosmetic”, outlining good manufacturing practices relating to cosmetics production.

In a bid to encourage the adoption of ISO 22716:200,which provides guidelines for the production, control,storage and shipment of cosmetic products, companies that fail to comply with these may find it challenging to achieve certification.

Monitoring the entire manufacturing system is also high on the agenda for the Chinese cosmetics industry as the regulation emphasises the need for quality management. Manufacturers must abide by a number of software requirements that monitor the complete process from raw material purchases, production,inspection, storage and sales. It also outlines the need to implement a traceability system into its manufacturing operations.

Safety and Technical Standards for Cosmetics Enters into Force from Dec 1

After almost a year grace period, Safety and Technical Standards for Cosmetics (STSC) officially enters into force from Dec 1 2016. From Dec 1 2016, manufacture and import of new cosmetics not complying with STSC 2015 is prohibited. The following product information must strictly comply with STSC 2015 as well:

Warning, application conditions and ingredient list on labels and packaging;

Formula;

Quality control specification and product technical specification;

Testing reports;

The online platform for companies to submit formula modification also closes on December 1 meaning that companies wishing to notify any changes in product formulation after this date must comply with new requirements which will essentially mean complying with new product registration requirements.

An important point for industry to recognize is that a new requirement in the STSC is that the concentration of cadmium in products shall be less than 5 mg/kg (cadmium threshold has not been mandatory in the past). Although presently there is no need to add the item to quality control specifications and product technical specification, given the new maximum threshold it is certain that testing will be mandatory sooner or later. Companies are recommended to test cadmium now in order to avoid subsequent testing and requirements to amend product registration dossiers with new information. Cosmetics manufactured/imported already are permitted to be sold until expiration date.

Shanghai Jahwa Replaces Boss Again

A leading company with famous consumer brands,Shanghai Jahwa United Co. ltd. said it had replaced its top leader for the second time in only three years.

The company announced that Wenjian Xie, the company’s chairman and chief executive officer since 2013, had resigned from all his positions “due to personal reasons”. Dong liu, currently vice president of Ping An Trust Co ltd, will become Jahwa’s new chairman.Dongfang Zhang, formerly CEO of Vinda International Holdings ltd, has been appointed as the new CEO.

Although the company’s announcement attributed Xie’s resignation to personal reasons, industry analysts pointed out that its recent sales decline is closely related to changes in senior staff.

Public accounts show that Shanghai Jahwa made a total operating income of 4.28 billion yuan in the first three quarters of this year, down 7.14%. Net profit slumped 45.17% to 433 million yuan.

Xie boasted at the beginning of his tenure that Jahwa’s sales income would exceed 12 billion yuan by the end of 2018, which implied that the company would grow by a minimum of 23% every year. However, the sales growth rate during the three fiscal years from 2013 to 2015 was only 11.74%, 19.38 % and 9.58% respectively, which means that the 12-billion-yuan target is now unreachable.

The 118-year-old company has been a well-established brand among Chinese households for its signature product, Six Gods Floral Water. Its Herborist brand was the first Chinese domestic skin care product to enter overseas markets in 2008. Jahwa became a role model for State-owned enterprise reform in 2011 by introducing a major investor, Ping An Trust.

Frequent changes in the top management team have been regarded as one major reason of Jahwa’s sales decline. Wenyao Ge, who had served the company for nearly three decades, had to resign from the chairman position in 2013 due to dissent from Ping An Trust.

Ironically, Ge wrote in his personal Weibo account in late October that Ping An chose the wrong person to be his successor. Besides, he urged Ping An and administrative bodies to conduct an audit and investigate on Xie.

The recent sales decline can also be attributed to the increased cost in the expansion of distribution channels,brand building, new product research and investment,as well as the recruitment of more staff, according to liping Wang, senior analyst with Shenwan Hongyuan Securities.

Shiseido Expands Global R&D at China lnnovation Center

Shiseido, the long-standing skin care, hair care and cosmetics and fragrance company has upgraded the center’s R&D potential by expanding the site and increasing its number of researchers.

The 969 m2site area, located in Zhangjiang High Technology Park, Shanghai, was founded on 21 October 2015, with the new building opening on 1st November 2016.Its opening ceremony was held on 11 November 2016.

Over the last year, Shiseido has transferred its marketing function for the Chinese market from Japan to China to provide independent and effective operations that appeal and target the Chinese cosmetics, beauty and personal care markets directly.

These marketing activities, which include research and planning, formula design, product design, product assurance and production will now take place from the China office.

The company has nine innovation centers located in five countries worldwide and hopes these expansion efforts will help increase innovation and consumer appeal.

Shiseido China Research Center, otherwise known as China Innovation Centre, was established in Beijing in 2001.

For 15 years, China Innovation Center has researched numerous trends, consumer behaviors and activities on make up habits as well as skin and hair to develop products that accurately meet consumers’ needs in China.

Since the setup of the Shanghai branch in October 2015,China Innovation Center has been supporting the R&D efforts for products of Urara, Pure Mild and Aquair brands.

In order to reach its Vision 2020 goals, the company is increasing its investment into R & D to harness innovation in its products globally.

Regional market surveys to pursue in-depth research on consumers’ skin, behaviour and attitudes will be conducted at the expanded China Innovation Center and the innovation centres in South East Asia, the US and Europe to provide informed and up to date insight.

Collectively, the nine innovation centers will work more closely with local marketing teams to establish an improved understanding of how local consumers receive information and make purchasing decisions.

Shiseido will increase the number of research personnel worldwide from the current level of approximately 1,000 to 1,500 by 2020 and raise the R & D-to-sales ratio from the current 1.8% to 2.5% in 2020 to ensure it can successfully structure its global R & D objectives.