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The Korea Herald
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THE INVESTOR
March 29, 2024

Industrials

China tightens regulations as Korean cosmetics ride high, for now

  • PUBLISHED :January 30, 2017 - 16:34
  • UPDATED :January 30, 2017 - 16:34
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[THE INVESTOR] The Chinese government is strengthening regulations on the management of imported cosmetics, creating uncertainty for Korean cosmetics firms that have been sustaining growth through popularity among Chinese shoppers.

These measures are the latest in a string of moves by the Chinese government seemingly aimed at the booming Korean cosmetics industry. Industry watchers speculate the protective measures are designed to put pressure on Korea, which has agreed to deploy a US Terminal High Altitude Area Defense anti-missile battery despite Chinese opposition.

Korean cosmetics exports last year grew 44.3 percent on-year to $3.97 billion. Over one-third of the total, $1.45 billion, was made up of exports to China, according to the Korea International Trade Association,

The Shanghai arm of the Korea Trade-Investment Promotion Agency said the Chinese Food and Drug Administration announced earlier this month that it would be changing the system for managing cosmetics coming in through Pudong Xinqu in Shanghai.

Under the new system, products imported through Pudong will be subject to three months of additional supervision before receiving final approval for sale in the Chinese market. In effect, the Chinese government is retaining the rights to pull imported cosmetics, including those from Korea, off the shelves if they are found to fall short of regulatory standards.

The changing system will also share CFDA‘s documentation with other agencies such as China Inspection and Quarantine, which can also raise issues with imported products.

“If any problems arise, immediate measures such as a block on import and sales, as well as a recall will be taken. To prevent damages arising from blocks and recalls after distribution, (importing companies) must exercise more caution in preparing documentation and following protocol,” KOTRA announced.

If more heavy-handed protectionist measures are taken by the Chinese government, it could strike a blow to Korean cosmetics companies, which depend highly on Chinese shoppers both in China and here in Korea.

The success of Korean cosmetics among Chinese tourists shopping at Korean duty-free stores and department stores was also credited for keeping up sales at Korean cosmetics powerhouses like Amorepacific and LG Household & Health Care.

With a product portfolio focusing on premium cosmetics lines that appeal to Chinese shoppers such as Whoo and SU:M 37, LG H&H had its most successful fourth quarter on record in 2016. According to the company, luxury cosmetics sales grew 40 percent last year to make up nearly 70 percent of all cosmetics sales.

A report from HMC Investment Securities earlier this month estimated that LG H&H’s performance had a 22.5 percent dependency on the Chinese market, with duty-free channel sales accounting for 17 percent.

Amorepacific‘s fourth-quarter performance, to be announced this week, is also expected to show growth driven by overseas sales and duty-free sales at home. Analyst Regina Hahm for Mirae Asset forecast that Amorepacific’s fourth-quarter sales would reach 1.36 trillion won ($1.17 billion), marking an 11.4 percent on-year increase, with domestic sales rising just 6.2 percent.

Hoping to alleviate the high dependency on China, both Amorepacific and LG H&H have announced they will be pushing for overseas expansions. Amorepacific signed a deal with Alshaya Group, one of the largest distributors in the Middle East, to expand into that region later this year. Meanwhile, LG H&H will be expanding in the Southeast Asia region as well as the US.

By Won Ho-jung/The Korea Herald (hjwon@heraldcorp.com)



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