16 Policies Influencing China Cosmetics Industry in the Next 10 Years

Li Baolin

China Information Center of Daily Chemical Industry,China

From the fundamental law to work instructions,policies have a profound influence on the rise and decline of one industry.In 2020,under the joint influences of the global pandemic affecting the fate of mankind,Sino-US trade friction,conclusion of RCEP,nationwide poverty alleviation and various policies,all industries are on the same boat and cosmetics industry is no “exception”.Along with the promulgation of Regulations on Supervision and Administration of Cosmetics,WeChat business is“officially recognized”,live commerce enters the second half,and national policies and cosmetics industrypresent a staggered and interlaced situation (in chronological order).

1 Catalogue for Guiding Industry Restructuring(Version2019)–plastic microbeads will be phased out

On January 1,2020,theCatalogue for Guiding Industry Restructuring (Version2019)released by the National Development and Reform Commission takes effect officially,wherein the obsolete category stipulates that:“daily chemical product containing plastic microbeads will be banned from production by December 31,2020,and be banned from selling by December 31,2022.” On April 10,the National Development and Reform Commission issued the Catalogue for Plastic Products Which Production,Sales and Use are Banned or Restricted (Draft for Comments),which explicitly stipulates that “daily chemical product containing plastic microbeads”refers to “shower and washing cosmetics (including bath lotion,facial cleanser,hand sanitizer,soap,shaving foam,scrub cream,shampoo,hair conditioner,cleansing water /oil) which play the function of scrubbing,exfoliating and cleaning and intentionally contain solid plastic particle with particle size smaller than 5 mm,and toothpaste and tooth powder”,beauty makeup isexcluded.

Since 2020,many provinces and regions,such as Beijing,Jiangsu,Shenyang and Guangdong,successively issued new version of “plastic ban” to further ramp up the management of plastic pollution.Along with implementation of relevant policies of these regions,plastic microbeadsare facing the fate of being phased out fromdaily chemical industry of our country.

2 Overall Implementation Plan for the Reform of Growth Enterprise Market and Pilot Registration System – boosting cosmetics enterprises to go public

On April 27,2020,the thirteenth meeting of the central committee for deepening overall reformreviewed and passed the Overall Implementation Plan for the Reform of Growth Enterprise Market and Pilot Registration System;on August 24,the registration system for growth enterprise market was officially launched.The Plan points out that:growth enterprise market is changed from its previous approval system to registration system; price limit is adjusted from 10% to 20%;the enterprise that does not generate profits will be flagged at its initial public offering in order to help investor avoid the risk of fluctuation in IPO price.The registration system relaxes the restriction for enterprises to go public,expeditesthe process of review and examination and lowers the threshold.Meanwhile,growing companies underpinned by authentic achievements will get more attention.After the reform of growth enterprise market,cosmetics enterprises are expected to brace for a wave of going public; meanwhile,cosmetics enterprises are also advised to pay attention to its own profitability,medium and long termperformance objectives,and insist on regular operation.

3 Regulations on Supervision and Administration of Cosmetics—an era of strict supervision for cosmetics industry

On June 29,2020,the State Council issued the Regulations on Supervision and Administration of Cosmetics (hereinafter referred to as new Regulations),which have come into force on January 1,2021.The new Regulations implement strict supervision and management on violation,take an inclusive attitude toward innovation,reorganize the management of cosmetics and raw materials for cosmetics,and include the toothpaste into the management category of general cosmetics.Furthermore,after the new Regulations are issued,many supporting management methods and standard documents were issued in succession.So far,Technical Code for Safety of Cosmetics has been approved,14 supporting management methods including theRegistration Management Method of Cosmetics,Supervision and Management Method of Production and Operation of Cosmetics are still seeking for comments,and there are 8 supporting codes and regulations will be released.

The new Regulations are hailed as supreme law,basic law and fundamental law,and promote orderly and sustainable development of the industry.This is the first reformation in 30 years since it was issued in 1989,this ushered in a new ear of strict supervision for cosmetics industry in China.

4 Announcement for the Offshore TouristsDuty-Free Shopping Policy on Hainan Island—duty-free stores in Hainan become “sweet pastry”

On June 29,2020,the Chinese Ministry of Finance,General Administration of Customs and State Administration of Taxation jointly issued the Announcement for the Offshore Tourists Duty-Free Shopping Policy on Hainan Island; from July 1,the offshore duty-free shopping quota per person per year has been increased from RMB30,000 to RMB100,000,with no limits on the times of purchase.The number of offshore duty-free shopping categories is increased from 38 to 45,and the dutyfree shopping limit of RMB8,000 per piece is cancelled.Under the influence of the policy,Hainan Free Trade Port attained12.01 billion yuan from sales of duty-free shoppingbetween July to October,with a year-on-year growth of 214%,wherein cosmetics stay on number one in terms of sales volume and quantity,RMB 5.82 billion and 1,078 billion pieces respectively; up to December 14,sales volume(including tax-inclusive amount) of four offshore duty-free stores surpassed RMB 30 billion.The implementation of the policy leads to that purchasing agents and imported cosmetics pour into Hainan,which imposes a profound impact on imported cosmetics sold by offline channel.

5 Supervision Method on Hainan Offshore Tourists Duty-Free Shopping by the General Administration of Customsof the People’s Republic of China—strictly cracking down on purchasing agent

On July 6,2020,the General Administration of Customs issued the Supervision Method on Hainan Offshore Tourists Duty-Free Shopping by the General Administration of Customs of the People’s Republic of China,which explicitly points out that the offshore tourist who is involved in purchasing on behalf of others for the purpose of making profit shall be handled by the Customs according to relevant laws and regulations,and should not be entitled to offshore duty-free shopping policy within 3 years since administrative sanction is made by the Customs.Furthermore,for offshore duty-free store which has been warned by the Customs for more than three times within a Gregorian calendar year,the Customs may suspend its offshore duty-free business for not longer than 6 months; in case of gross violation,the Customs may revoke its offshore duty-free store registration.

After the new policy is implemented,cosmetics purchasing agents in Hainan bear the brunt.Meanwhile,this policy also plays a guiding role in regulating the market,and possibly becomes a national supervision in the future,which is tantamount to severing the survival foundation of cosmetics purchasing agents at home and replacing with more energetic and vigorous business of dutyfree store.

6 Opinions on Supporting the Healthy Development of New Business Forms and Models and Activating Consumer Markets for Expanding Employment—WeChat business is “officially recognized”

On July 15,2020,the National Development and Reform Commissiontogether with 13 other government departments issued the Opinions on Supporting the Healthy Development of New Business Forms and Models and Activating Consumer Markets for Expanding Employment(“Opinions”),which explicitly points out “supporting diversified self-employment and time-sharing employment such as WeChat e-commerce and livestreaming”.From then,practitioners engaged in WeChat business and live streaming are officially recognized.After the Opinion was issued,WeChat business goes from savage growth into enhanced supervision and becomes regularized.Since then,WeChat business and live streaming are embracing for brand new development opportunity.While being “de-stigmatized” by the government sector,WeChat business and live streaming will be gradually included into the scope of supervision and be“officially recognized”,which will further enhance online sales channel of cosmetics.

7 Announcement on Adjusting Supervision Requirements for Partial Inbound and Outbound Cargo – streamlining import and export procedures

On August 28,2020,the General Administration of Customs of the People’s Republic of China issued “Announcement on Adjusting Supervision Requirements for Partial Inbound and Outbound Cargo”.The Announcement points out that:when declaring customs for imported cosmetics,it is unnecessary to submit scanning copy of approval documents in Customs system; for cosmetics that the state doesn’t implement hygiene license or registration,it is unnecessary to provide test report and safety assessment; supervision requirement for registration administration onenterprises that export the cosmetics is cancelled.In short,import and export procedure of cosmetics is simplified.

With the implementation of new policy,time for importing cosmetics is shortened,which is favorable for beauty makeup of international brand entering Chinese market rapidly and rollout speed of new arrival at home and abroad is improved synchronously.On the other hand,streamlining process is not equivalent to reducing the standard,the Announcement points out that cancellation of safety assessment data provided by the third party organization doesn’t return supervisory power to drug administration department,which is the outcome that the government optimizes internal management structure.

8 New version Patent Law of the People's Republic of China – maximum fines “counterfeit” cosmetics up to 5 million Yuan

The amended Patent Law of the People’s Republic of China was passed by the 22nd Session of the Standing Committee of the Thirteenth National People’s Congress on October 17,2020,and comes into force from June 1,2021.The new Patent Law increases the upper limit of statutory damages to 5 million Yuan and lower limit to 30 thousand Yuan;explicitly stipulates that protection duration for local design patent and design patent is 15 years; under certain conditions,the infringer shall cooperate in providing evidence of infringement.

Since then,unlawful costs of “counterfeit”cosmetics and difficulty in breaking the law increase,cosmetics enterprises spend less costs and face smaller challenge in safeguarding the rights and interests when confronting infringement act of the“counterfeits”,cosmetics enterprises which focus on brand building will get more legal protection,and the times when bad money drives out good money in cosmetics industry will be gone.

9 Anti-Monopoly Guidelines for the Platform Economy(Draft for Comments)—ending of “either-or” era of beauty makeup brand

On November 10,2020,in order to prevent and stop monopolistic practice in the field of internet platform economy,the State Administration for Market Regulation issued Anti-Monopoly Guidelines for the Platform Economy (Draft for Comments),solicited public opinions and pointed directly at the practices against fair competition,such as “eitheror”,“unfair price” and “using big-data analysis to price to the disadvantage of existing customers”.On December 24,the State Administration for Market Regulation placed Alibaba Group under investigation for alleged monopolistic practices pursuant to the law,and the main reason for the investigation is that Alibaba Group is suspected of being involved in“either-or” monopolistic practice.Anti-monopoly and anti-unfair competition will be conductive to promote the high-quality development of beauty makeup industry.Seeking public opinions on anti-monopoly policies and Alibaba being investigated for alleged monopolistic practices both reflect that the state holds a firm attitude to crack down on the monopolistic practice and herald the end of an era when cosmetics enterprises are forced to “take side” under the pressure of higher level e-commerce platform.

10 Conclusion of Regional Comprehensive Economic Partnership (RECP)—growth spurt of Japanese makeup

On November 15,2020,Regional Comprehensive Economic Partnership (RCEP) was officially concluded,RECP member states include ten ASEAN countries,China,Japan,South Korea,Australia and New Zealand,cover 2.2 billion population,and total GDP reaches 168,500 billion Yuan and regional export value 36,900 billion Yuan,and various economic indicators account for 30% of global total volume.Meanwhile,China and Japan reached bilateral tariff reduction arrangement for the first time.Official conclusion of RCEP means the“super economic circle” with the largest population,the largest economic and trade scale and the greatest development potential will emerge in Asia.In the field of cosmetics,along with gradual reduction of tariff,China will compete with main Asian countries; with the manufacturing division between Asian countries are becoming more clearer,domestic cosmetics enterprises will have the opportunity to expand overseas.It is predictable that Japanese cosmetics will usher in another wave of growth at home and Japan’s position in imported cosmetics market in China will be further consolidated.

11 Notice on Strengthening the Management of Network Show Live Streamingand E-Commerce Live Streaming—strict control of live commerce

On November 23,2020,the National Radio and Television Administration issued the Notice on Strengthening the Management of Network Show Live Streaming and E-Commerce Live Streaming,which puts forward a series of new requirements for live streaming in terms of platform and host.Once the host is involved in data fraud,the most severe punishment will be that the host will be banned from live streaming.Furthermore,all live streaming platforms must file on record in advance; in case of“creating festival” in live streaming studio,detailed information shall be filed on record at least two weeks in advance.Furthermore,live commerce is no longer the “l(fā)and beyond law”,has higher admittance threshold and becomes regularized and specialized;and the phenomena of live streaminghost selling counterfeit products and fabricating data will be effectively controlled.The channel of live commerce will be more transparent,the phenomenon that merchants are tricked by service fees paid to the live streaming host will be improved,and the chances that consumers buy fake cosmetics in live streaming studio will become less.

12 1961 Single Convention on Narcotic DrugsSchedule IVDeletion of Cannabis and Cannabis Resin—downgrading of cannabis control

At the 63th session of the Commission on Narcotic Drugs (CND) held on December 2,2020,the CND passed World Health Organization (WHO)recommendation 5.1 by a narrow margin,with a vote of 27 in favor,25 against and 1 abstention:to delete cannabis and cannabis resin from Schedule IV of the 1961 Single Convention on Narcotic Drugs,but they remain in Schedule I.It means that the medical use of cannabis is recognized in terms of international law,and control grade of cannabis is lowered,consumers’misunderstanding and taboos about further processed products of industrial cannabis are eliminated to a certain degree,which will benefit popularization and development cannabis cosmetics.

13 Announcement on the Pre-Tax Deduction of Advertising Expenses and Business Publicity Expenses –extension of 5 years for cosmetics advertising fees included in the costs

On February 9,2020,the Ministry of Finance and State Administration of Taxation jointly issued the Announcement on the Pre-Tax Deduction of Advertising Expenses and Business Publicity Expenses,which stipulates that “advertising expensesand business publicity expenses incurred by enterprises engaged in cosmetics manufacturing or sales,pharmaceutical manufacturing or beverage manufacturing (excluding wine making) which don’t exceed 30% of current sales (operating) income are permitted to be deducted; the excessive portion is permitted to be carried forward to subsequent taxable year and deducted.”

The policy has been implemented since January 1,2016.According to previous provisions,the deadline shall be December 31,2020.But according to above Announcement,the implementation period of the policy shall be from January 1,2021 till December 31,2025,namely the policy is extended for another five years.That means advertising expenses incurred bycosmetic enterprises can be included into the costs.The policy may help to incentivize highincome and high-profit cosmetics enterprises to spend more money on advertisement marketing and stimulate further economic recovery.

14 Bid-winning notice for Upgrading,Improvement,Operation and Maintenance Project of 2020 E-Commerce Tax Data Analysis and Application—farewell to click farming

On December 10,2020,the State Administration of Taxation issued bid-winning notice for Upgrading,Improvement,Operation and Maintenance Project of 2020 E-Commerce Tax Data Analysis and Application,the notice indicates that brand-new and upgraded e-commerce tax supervision system will be rolled out,and e-commerce tax supervision will be more stringent and become normalized.After upgrading,the State Administration of Taxation may compare financial and tax situation of online stores and further screen out tax wrongdoing of enterprise,then have a panoramic view of tax dodging and data fraud of online stores.

The industry of live commerce will bear the brunt of the implementation of e-commerce tax policy,and it is hopefully to eliminate the problems of click farming and data fraud from the source,then the industry of live commerce will bid farewell to savage growth.

15 Regulations on the Supervision and Administration of Medical Devices (Revised Draft)—rectification of cosmetics belonging to“medical device category”

On December 21,2020,the standing committee conference of the State Council reviewed and approved the Regulations on the Supervision and Administration of Medical Devices (Revised Draft),which strengthen the responsibility of enterprise and research institution on safety and efficacy of medical device,clarify approval and registration procedure,enrich supervision means,and supplement supervision measures such as product unique identification tracing and extended check.

On November 19,Shanghai Municipal Drug Administration issued the announcement of Guide for Filing of Class I Medical Devices of Shanghai Municipality as important guidance document of product registration and production registration of class I medical devices.The Guideexplicitly points out that multiple types like “facial mask type” and “moisturizing type” don’t conform to the requirements for registration,and relevant ingredients added in liquid dressing and ointment product should not be absorbed by the body.

As early as on January 2,the State Drug Administration has reminded consumers about the nonexistence of facial mask belonging to medical device category.Promulgation of the draft ramps up the punishment on unlawful act,and the guide provides specific and operable reference basis for administering relevant chaotic phenomena in the market at home.

16 Announcement on the Approval of Using 4 Raw Materials Including Ethyl Lauroyl Arginate HCL as Cosmetic Raw Materials – incoming of first batch of cosmetic raw materials

The announcement issued by the State Drug Administration on December 28,2020 approved using Ethyl Lauroyl Arginate HCL as cosmetics antiseptic,which is included into Chapter 3 Allowable cosmetic antiseptic in the Technical Code for Safety of Cosmetics(Version 2015); approved using 3 raw materials including Methoxy PEG-3 Methacrylate/Glyceryl Diisostearate Methacrylate Copolymer as cosmetic raw materials.After the promulgation of Regulations on Supervision and Administration of Cosmetics,this is the first time that the State Drug Administration approved new cosmetic raw materials.The source of cosmetic innovation largely depends on the innovation of raw materials,and diversity of raw materials is vital to the development of the industry.Since the first batch of four cosmetic raw materials have been approved for using,registration system for new raw material will be implemented gradually in our country,and raw materials are diversified,which undoubtedly will bring new development opportunities for the whole industry.

In 2020,the policies closely related with cosmetics industry sprung up one after another,frequent introduction and implementation and stringent degree of the policies are spectacular.On the whole,all policies promulgated play the role of rectifying chaotic phenomena,regulating the market,advancing with the times,improving standards,or adjusting development model in the context of macroeconomic pattern.From the long run and in the whole picture,it will benefit the cosmetics industry.In all,whether enjoying beautiful scene in a good day or making treacherous journey across stormy seas,the enterprises which runbusiness by rule and pursue innovation will always ride high under the baptism of policy.