Reclassification of Whitening Cosmetics: Golden Opportunity for Imported Whitening Cosmetics in Chinese Market

During recent post market supervision activities, the CFDA uncovered 6 kinds of acne treatment, whitening and freckle removing products containing prohibited substances (see CL Cosmetic News on Jun 25). Under Chinese regulations whitening products are classified as special use cosmetics according to CFDA’s new rule “Requirements for Management on Whitening Products”. This incident has come after a succession of similar cases and has sparked speculation that the CFDA is ramping up its supervision and enforcement over the cosmetics industry. Whether or not the trend is indicative of a concerted regulatory effort by the CFDA or simply a clustering of random events remains to be seen. It is however entirely certain that the stratification of the cosmetics industry will change greatly when enforcement of “Requirements for Management on Whitening Products” officially begins.  This new regulatory provision stipulates that manufacturers and importers of whitening products without approval certificate for special use cosmetics (SUC) will not be permitted to market their products from 30 June 2015 onwards.

Poor Quality Domestic and Imported Whitening Cosmetics Will be Subject to Increased Regulatory Enforcement by CFDA

Whitening products have become one of the most important categories in the Chinese cosmetic industry and occupy a market share of about 30%. The large profits associated with the market have unfortunately attracted a large number of racketeers and fraudsters. Both online and mainstream sales channels are flooded with fake products or products bearing fraudulent functional claims. Even products with real whitening efficacy are not completely safe and almost all products come with potential for serious side effects. ”Most whitening products in China contain lead and mercury contamination which pose serious potential health risks including hyperpigmentation and other serious skin damage if used for a long time.” says Liu Fengyan, nationally renowned resident dermatologist at Nanfang Hostipal, the best hospital in Guangdong province, China.

“The Kanebo safety crisis is likely a major contributory factor spurring CFDA to regulate whitening products as ‘special use cosmetics’.” notes Martin Hu, cosmetics regulatory expert of REACH 24H. “Meanwhile, the CFDA intends to overhaul the current market to safeguard consumers’ health and interests.” SUC regulatory requirements are far more demanding in comparison with non-SUC. The new regulations will force manufacturers of poor quality, substandard products out of the market creating space for new manufacturers and products.

Regulatory Selective Pressures: SME Manufacturers Face the Risk of Elimination

From 30 Jun 2014, domestic manufacturers of non-SUC applying for approval are only required to notify provincial FDA through an online platform. The online platform requires submission of the product formula and sales packaging prior to placed into the market(see CL news on Jun 10) . Domestic SUC require pre-market registration which is a significantly more costly and time-consuming requirement.

It usually takes more than one year for domestic manufacturer to register special use cosmetics. Pre-market regulatory requirements necessitate:

• 105-days products inspection,
• 80-days toxicology test,
• 25-days skin patch test,
• 58-working days production capacity verification,
• 125-working days application approval including acceptance and technical review.

For this reason the vast majority of manufacturers will be unable to meet the pending 2015 deadline. Missing the deadline means manufacturers will not be permitted to market their products forcing the majority of domestic manufacturers out of business.

In addition to the long duration, the cost of registration for domestic special use cosmetics is prohibitively high for many SMEs. The average price for whitening product registration is 20,200 yuan per product line. Most manufacturers have a diverse product portfolio which places a substantial financial burden on companies that have to register multiple products. This financial requirement weighs heavily on SME’s in particular, who rely heavily on whitening products as their main revenue source.

Golden Opportunity for Imported Whitening Cosmetics to Tap Into the Chinese Market

Imported whitening cosmetics are impacted far less by the re-classifying. Additional requirements are limited to obtaining administrative licensing, conducting human clinical trials and expert panel review. Martin Hu notes that it only takes 3-4 months more for imported SUC to be registered compared with non-SUC, and the cost for registration has also increased on a smaller scale compared to domestic enterprises. Thanks to these advantages, imported whitening cosmetics are far less likely to miss the 2015 deadline. With a large number of domestic SMEs set to close shop, there will be a huge niche created in the domestic market. Foreign cosmetics companies stand to benefit greatly from filing this supply vacuum and the next several years represent a great opportunity for foreign enterprise to enter China’s market and gain a larger market share.