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government-trade

Beauty Firms Battle China’s Regulatory Maze

Increasingly complex rules have slammed the door shut to one of the most vibrant markets in the world for up to a year.

By
with contributions from Lara Farrar
Chinese dragon
Appeared In
Special Issue
WWDStyle issue 01/21/2011

During his three-day visit to the U.S., Chinese President Hu Jintao should have built in some time for shopping. The latest beauty launches would have made a great souvenir — especially since the innovations are unlikely to be available in China for quite some time due to a maze of increased government regulations.

This story first appeared in the January 21, 2011 issue of WWD.  Subscribe Today.

For beauty firms trying to launch products in China, the increasingly complex rules have slammed the door shut to one of the most vibrant markets in the world for up to a year.

The central government is making a concerted effort to tighten product safety controls. And after a string of recalls and black eyes — the most bruising, perhaps, was baby formula contaminated with melamine — China’s tough stance on safety is welcome news to consumers worldwide. But the country’s recent revisions of its Cosmetics Hygienic Management Rules have left a number of global beauty firms scratching their heads as they try to figure out how to comply with the new standards, a murky process that requires a good deal of time and money and promises a very uncertain outcome.

The State Food and Drug Admin-istration of China began formally implementing the revisions in April, and the regulations apply to all beauty companies that import products manufactured outside of China and also to any “special-use” products — namely, hair dyes, skin whiteners, sunscreen and antiaging products — manufactured in China. Therefore, a Chinese company manufacturing these special-use products is subject to the same scrutiny as foreign importers.

A spokesperson for the SFDA said the organization is working with beauty firms to help them grasp the changes. “When the SFDA drafted up the regulations, the administration arranged many seminars and workshops with cosmetics companies and experts,” stated the SFDA in a written response to WWD. “The administration also took advice from the public during the process. The SFDA published a guide book to echo the regulations. Before the regulations launched, the administration also arranged the training for cosmetic companies.”

Nonetheless, the ambiguity surrounding the regulations and how to comply with them has dramatically slowed new product approvals.

Companies estimate it will take at least a year to get new products approved, or longer if new ingredients need to be registered as well. The cost per approval is estimated at 2 million yuan to 3 million yuan, or roughly $300,000 to $455,000 at current exchange.

The regulations derail beauty firms’ plans to launch a product in China at the same time the new items roll out to the rest of the world. They also threaten to slow down the innovation pipeline to China as companies weigh the cost of complying with the regulations against their bottom lines.

But given the growth trajectory and might of the Asian superpower, beauty companies aren’t about to issue a direct challenge to China over the regulations, however onerous they may seem. Beauty companies declined to speak on the record about the new rules, emphasizing, as more than one executive said, that the issue at hand is “very sensitive.”

But quietly and through industry trade groups, beauty firms are calling for more explicit instructions detailing what is required to comply with pre-market registration requirements.

At $18 billion in size, according to market research firm Kline & Co., China’s beauty and personal care market is too big and growing too rapidly to risk retribution. The Chinese market, which accounts for 6 percent of global beauty sales, has grown an average of 11 percent each year since 2005, said Kline & Co.

Cosmetics must be preapproved, or licensed, prior to hitting the market. Industry sources said the practice of requiring pre-market approval for products that are not considered special use has significantly increased the workload and financial cost for non-Chinese beauty firms.

What’s more, each shade — whether for foundation, lipstick or eye shadow— has to be analyzed and reviewed separately.

 

“Suddenly, the Chinese government wanted dossiers on each product, including every shade of lipstick and eye makeup,” said one industry executive, who requested anonymity. “These dossiers were very substantial and they didn’t seem to bear a relationship to what are the risks of the products. The government was also not very explicit or transparent about what they were looking for.”

The regulations have created a cloud of confusion for beauty companies and apparently for the SFDA’s staff. According to industry observers, the implementing guidelines for the regulations issued in April were so vague that SFDA reviewers simply stopped approving products altogether. The monthly process of new product approvals was at a standstill from April through September.

In October, some 20 products were approved. Beauty products have to be reregistered every four years, a requirement prior to the changes in April. But beauty firms have grumbled that even once-approved products up for renewal were not getting approved over the six-month stretch between April and October.

Industry sources estimate that, prior to the “lock down,” up to 2,000 products had been approved each month in China. Companies are beginning to report momentum has been building since the SFDA has issued more implementing guidelines and that it is beginning to get new products approved. But there is still a tough road ahead.

As one industry observer noted: “Companies have been trying to comply [with the regulations], but in some cases, there was so much confusion over what was necessary that companies were afraid to submit product registrations. In other cases, companies did submit registrations the best they could and were rejected. They may have been rejected for not giving enough information about new ingredients or not having first gotten the new ingredient approved, but there was no guidance as to how to go about that. It turned into a very difficult situation.”

The comments bring up another regulation currently vexing beauty firms: The SFDA requires all new ingredients used in a beauty product be approved and registered before the company’s finished product is submitted for registration. The catch is that the Chinese government has not provided clarity on what constitutes a new ingredient. There currently is no master list of approved ingredients, although the SFDA told WWD it plans to “announce a raw material list this year.” Several companies reported they are using the Personal Care Products Council’s 2004 INCI Dictionary as an informal reference, although the Chinese government has not stated that it serves as a criteria for determining whether an ingredient is considered new.

While companies wait for the SFDA list, there has been much confusion over what constitutes a new ingredient: Is it new if it’s new to China, if it’s been used in cosmetics in other markets or if it’s been approved by other countries’ regulatory organizations? Answers to these questions are difficult to come by, and proving an ingredient’s safety requires lab work and toxicological evaluation.

Driving the sweeping changes in China is a series of public-safety scares. For instance, in 2007, a number of countries, including the U.S., warned citizens to avoid toothpaste made in China over concerns that several brands contained diethylene glycol, a chemical commonly used in antifreeze. Concerns also surfaced over pet food contaminated with melamine — a chemical used to make plastic — and a number of toys were recalled due to high levels of lead. The following year, China’s safety protocols were called into question again after melamine was found in powder baby formula.

In an effort to tighten safety protocols, in 2008, oversight of the cosmetics and personal care industry was shifted from the Ministry of Health to the SFDA, which oversees pharmaceuticals. Therefore, beauty companies said the SFDA is looking at cosmetics, seen as consumer products by the rest of the world, with the same scrutiny used to analyze pharmaceuticals, which require rigorous pre-market approval.

“Since the new regulator took on this role, SFDA started the process of strengthening the management by drafting, reviewing and revising the various regulations. Meanwhile, due to the several cosmetics crisis — such as traces — in recent years, the regulator was under high pressure to strengthen the legislation,” said Maggie Xie, senior business manager of the European Union Chamber of Commerce in China.

Industry trade organizations, including the EU Chamber of Commerce and Personal Care Products Council, have been working to help multinational beauty firms navigate the regulations.

“The Personal Care Products Council has been actively engaged with its members on Chinese regulatory and trade matters,” said Francine Lamoriello, the PCPC’s executive vice president of global strategies. “We have had numerous meetings and communications with Chinese officials to explain our positions, to provide them with technical guidance and expertise and to encourage reform.” The hope is that China will move away from its focus on preapproval and burdensome testing and more toward manufacturers’ responsibility and government supervision.

But few anticipate the barriers to pre-market approval to lessen anytime soon. “Nobody can expect that this will be magically wrapped up by summertime,” said one source. “Somehow, over the next three or four years, this will be worked out.”