In China’s bleak economy, one business sector is booming: cosmetics.

After enduring nearly three years of mask mandates and frequent lockdowns during the pandemic, many Chinese consumers wary of expensive purchases like homes are now splurging on lipstick, perfume, moisturizers and other personal care products.

But cosmetics companies from France, Japan, South Korea and the United States that have invested heavily in China are missing out on much of the action.

While China’s cosmetics companies are booming, cosmetics imports are falling due to regulations the country has 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.

“I’m not talking about peanuts,” said Bruno Le Maire, France’s finance minister. “For many French companies,” he added, “China represents between 30 and 35 percent of their total sales.”

During a visit to China last month, U.S. Commerce Secretary Gina M. Raimondo said the United States wanted to expand its exports of personal care products. “No one can claim that health and beauty aids compromise our national security,” Ms. Raimondo said.

Under rules China introduced in 2021, companies must disclose every ingredient in their products and the exact amounts used. You must upload the addresses of all ingredient suppliers, as well as the location where the ingredients are assembled, to a Chinese database. Foreign companies fear that revealing these details could allow cheap Chinese manufacturers to copy their products.

Among China’s most controversial regulations is that many products, such as hair dye and sunscreen, must be tested on live animals before they can be sold to Chinese consumers – a practice that many global cosmetics companies have stopped.

“It’s not just the requirements that are demanding, but also the timelines within which things have to be done – they’re unrealistically short,” said Gerald Renner, director of technical regulatory affairs at Cosmetics Europe, an industry association.

Large companies such as LVMH or L’Oréal have the resources to meet regulatory requirements. However, some smaller suppliers are pausing sales to China until there is a less time-consuming and costly way to meet requirements.

Led by the French government, the European Union and 11 cosmetics-exporting countries, including the United States and Japan, are urging China this year to lift many of the requirements. French President Emmanuel Macron raised the issue with Chinese leaders during his visit to the country in April. Mr Le Maire reiterated this when he visited Beijing in July, saying the concerns had been “at the heart of discussions” with his Chinese counterparts.

Mr Le Maire said he and Vice Premier He Lifeng of China had agreed to set up a working group to create common standards to meet in Paris later this year. However, there is no guarantee that the talks will resolve the dispute.

China is the second largest beauty market in the world after the United States. But for a long time it was difficult for foreign companies to do business there.

For decades, China has required animal testing for most cosmetics, even those proven safe and sold by other brands. The brands have either quietly tested their products on animals in China or refrained from importing them.

China abolished animal testing requirements a decade ago for many Chinese-made products and in 2021 for imported cosmetics that do not contain health claims.

But China still requires animal testing for “specialty cosmetics,” which include products containing sunscreen or antiperspirants, as well as products like hair dye or skin lighteners. According to Jason Baker, senior vice president of PETA Asia, these animal tests involve forcing animals to swallow or inhale a test substance or applying it to the skin or eyes. Rabbits, guinea pigs and mice are most commonly used.

Michelle Thew, the executive director of Cruelty Free International, an advocacy group, added that China tops the list of countries that use animals in testing and research for various purposes, with about 20 million animals per year – with Japan and the United States following far behind .

The international beauty and personal care industry is supporting efforts to reduce animal testing for products sold in China for both domestic and foreign manufacturers. Unilever, which makes Dove and Vaseline and owns skincare brand Dermalogica, said it had been working with scientists and Chinese authorities to gradually eliminate the need for animal testing for imported cosmetics.

“The transition from animal testing to paper-based risk assessments is undoubtedly positive,” said Carl Westmoreland, director of Unilever’s Center for Safety and Environmental Security. “There may be more paperwork, but we see it as a big step forward.”

The Chinese government’s regulator, the National Medical Products Administration, did not respond to a list of questions faxed Aug. 8. The State Department declined to address the issue.

Recent statistics show how quickly foreign cosmetics companies in China have lost market share to domestic competitors. Retail sales of cosmetics in China rose 8.7 percent in the first half of the year compared to the first half of 2022. However, overall imports fell 13.7 percent.

The difference between rising sales and falling imports reflected gains for factories in China, many of which are owned by Chinese companies. Hangzhou-based Proya Cosmetics reported a 35 percent increase in sales in the first half of this year compared to last year.

“The acceptance of homegrown brands is increasing,” said Chris Gao, Chinese cosmetics analyst at CLSA, a brokerage and investment firm in Hong Kong.

While LVMH and L’Oréal said they were seeing growth in their sales in China, both declined to comment on shrinking imports.

China’s customs data shows that imports of cosmetics, toiletries and perfumes from France to China, which reached $5.4 billion last year, fell 6.2 percent year-on-year in the first half of this year. Cosmetics imports from South Korea and the United States fell by 22.2 percent and 19.8 percent, respectively.

A crackdown by authorities on traders at the Hainan duty-free center has also hit beauty sales at international players such as La Prairie and Shiseido. Regulatory red tape aside, some foreign companies may be importing less because they already have a backlog of products in China.

As China’s duty-free stores flood their shelves, homegrown beauty brands are growing in popularity. China-born beauty brands have grown significantly over the past three years, accounting for 27 percent of retail sales in skin care and makeup among the top 10 brands, according to data from Euromonitor International, a market research firm.

And China is expected to continue to grow as a market. By 2027, consulting firm McKinsey estimates that China will account for around a sixth of global cosmetics retail sales.

Li You contributed to the research.

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