CHINA¡¯S COSMETICS INDUSTRY
In 2003, China was the second largest cosmetics market in Asia after Japan and the eighth largest in the world. The market for cosmetics in China is expected to grow at an annual average rate of 13% through the rest of the decade. By 2010, the market is projected to reach 300 billion yuan (US$36.15 billion). According to Chinese government figures, last year, sales of cosmetics in China reached 52 billion yuan (US$6.27 billion), up 14.4% over 2002.
The sector is characterized by a great many domestic manufacturers, of which there are over 3,700 in China, a third of which are located in Guangdong. While the number of cosmetics makers is large, most are small and only active in local or downscale markets only. Competition in the China market is intense and likely to get tougher. According to the Ministry of Commerce, cosmetics are among 600 commodity types whose supply exceeded demand during the second half of 2003.
Virtually every global cosmetics player has entered the China market in the guise of equity joint ventures, wholly foreign- owned enterprises (WFOEs) and acquired local manufacturers. The Ministry of Commerce reports that there were over 400 Sino-foreign joint ventures and wholly-owned subsidiaries in China engaged in the manufacture and/or sale of cosmetics in 2003. Foreign brands account for about half of sales in terms of volume but nearly 90% of sales in terms of value.
IMPACT OF WTO ACCESSION
Under the terms of its accession, China agreed to reduce high import tariffs of 45% for foreign cosmetics to under 15% by the end of 2005. It also pledged to allow cosmetic companies to resume direct sales, banned by the State Administration for Industry and Commerce (SAIC) in the name of ¡°normal economic order and social stability¡± in April 1998. This measure severely impacted the business model of several leading international cosmetics firms. The Chinese government has committed itself to lifting the ban on direct sales by the end of 2004 and the Ministry of Commerce and SAIC are currently drafting new rules.
China exported over 67,000 tons of cosmetics worth US$330 million in 2003, up 17% over 2002.