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. Last Updated: 07/27/2016

China's Cosmetic Industry Booming

BEIJING -- At the Shiseido Beauty Center, well-dressed women who have bought 1,000 yuan ($118) worth of their products receive a free facial from elegant masseuses dressed in purple blouses and black skirts.

Across town, at the Number Three Daily Necessities Chemical Factory, two women in overalls rush to put small bottles below a machine spitting out face cream that retails for just three yuan.

They represent the two faces of China's booming cosmetics business, which has grown at an average of more than 25 percent a year since 1984.

Sales this year will total nearly $1.18 billion, up from $1.06 billion last year and about $23.5 million in 1982.

"Cosmetics started in China at the imperial court in the Sui Dynasty (AD 581-617)," said Wen Jie, executive director of the China Association of Refined Perfume and Cosmetics. "In the 1950s, during the reconstruction after the civil war, we promoted simplicity. In those days, the industry was very small. Now we have 2,200 factories nationwide, in all parts of China except Tibet," she said.

Such rapid growth and easy profits have attracted many local firms and foreign makers such as Procter and Gamble, Shiseido, Ponds and Wella to produce in China.

Wen said domestic sales of the 150 joint ventures are the equivalent of $106 million, about 10 percent of the market. State firms account for 40 percent, with the rest taken by rural firms and collective and private companies.

The duty on imported cosmetics is 120 percent, making such products only for the super-rich.

The industry has grown too fast, as far as the State Planning Commission is concerned. Earlier this month it listed cosmetics as one of 10 sectors in which people should not invest since there are already more than 1,000 products, many of them stacked in warehouses, unsalable. Wen said competition, already spreading to rural areas, is very fierce.

"This industry cannot be limited. It will develop on its own through natural competition. The firms that cannot survive will go to the wall," she said.

One of the main battlegrounds is the media, which profits handsomely from the heavy spending on advertising.

Chen Li, of the Li Yuan firm that owns the Number Three plant, said television is the key medium.

"Five seconds on peak time on Beijing television tripled to 150,000 yuan this year from last year's level and will rise to 200,000 in 1995," she said. A horizontal advertising column in the popular Beijing Evening News costs $1,800.

Advertising accounts for 50 percent of the cost to bring an item to the market, Chen said, compared with 10 percent for production costs and 40 percent for packaging.

The Number Three plant has an annual output of $11.8 million, mostly skin care products. In 1983 it started production of the three-yuan face cream. Demand, particularly in rural areas of the northeast, has exceeded supply ever since, with the price almost unchanged since then, Chen said.

"We make just six fen ($0.007) profit on each small jar. Our firm is owned by the whole people, so we hold the price at close to its original level," she said.

"It is hard for us to compete with joint ventures and rural firms, which benefit from preferential policies that do not apply to us," she said.

Its most expensive product is eye shadow, selling for $4.70, less than half the cost of the products made by Shiseido's joint venture factory.

One of the staff at its beauty center said they keep a record of when a customer buys Shiseido goods at one of their counters in a Beijing department store. When the sum reaches 1,000 yuan, the customer qualifies for a free facial.

"Most of our clients are people working in hotels and service firms where they meet many people each day. How they look is very important," she said.