May 1 brought significant regulation change to the fastest-growing beauty market in the world: foreign brands can now apply to sell some of their products in China without testing them on animals, a trade barrier that has kept many western brands from fully entering the market.
For decades, global brands that wanted to promise their customers a “cruelty-free” production process — tapping into the clean beauty boom — have hesitated in the Chinese market, where animal testing can be required before products are imported and even after they are on sale. Brands that feared alienating existing customers elsewhere or undermining product claims typically chose one of two paths: claim to be 100 percent cruelty-free and avoid a market worth $57 billion, or specify the brand is cruelty free — except in China.
The recent regulatory shift was anticipated by industry watchers in recent years as the country started to loosen its stance on animal testing and invest in alternative methods to verify product safety. Beauty products in certain categories produced in China were already able to largely avoid pre-market animal testing since 2014. And an initiative from Cruelty Free International (the animal welfare group behind the Leaping Bunny certification) and regulatory compliance company Knudsen & CRC has helped a handful of foreign brands enter the market while retaining their cruelty-free status since 2019.
The change won’t have an instant effect, as the tricky approvals process will likely take six to eight months for brands to complete. Still, the regulation change is overall seen as good news for foreign brands, who will now have better access to China’s domestic market in a time of projected growth. For independent and emerging labels, especially from the US and UK in particular, securing regulatory approval could be a game-changing milestone. (Most conglomerate-owned brands are already present in the country.)
“Unlike other markets where there are only one or two multi-brand boutiques, China has many, many multi-brand stores which are flourishing and growing at an incredible pace, so it really does open up a lot more opportunities to reach customers that you’ve never found before,” said Julian Reis, the founder of SuperOrdinary, the distribution partner for brands including Drunk Elephant, The Ordinary and Olaplex in China.
Access is only one barrier, however. While China’s beauty regulations have simplified, entering the market will still prove to be a formidable challenge for foreign brands.
China has previously mandated animal-testing requirements as a safety measure, and the more brands that enter the market while proving their safety through other methods, the easier it may be to get approval in the future.
There have been prior workarounds, including careful claims that a brand itself does not test its product on animals in situations where they were susceptible to after-market testing by government or third-party groups.
But many foreign brands that want to avoid animal testing currently only enter the market through cross-border channels, such as Alibaba’s Tmall Global, whereby products are shipped to Chinese consumers from outside the mainland, or from bonded free trade zones within the country. That cross-border market’s size, however, is government-restricted and is approximately a tenth of the domestic market, said Gregoire Grandchamp, a Shanghai-based investor and co-founder of Next Beauty, a partner and investor for emerging beauty brands in China. Physical retail also still accounts for the majority of beauty sales in the country, so it offers only a piece of the overall market.
Even with the regulations lifted, trade barriers that will limit brands’ access to that market remain. Brands must navigate complex disclosure requirements, which Mette Knudsen, chief executive and partner at regulations consultancy Knudsen CRC, said are still much more stringent in China than they are in the US.
Brands will need to disclose safety documentation on raw materials, ingredients and suppliers, and prove that they have been approved for sale in their country of origin and earned a “Good Manufacturing Practices” certification, among other requirements. Newly-developed ingredients may still be barred, and categories that boast a certain efficacy, like sunscreen, will also continue to require animal testing.
“Some brands will be able to do it and some brands will not be able to do it,” said Grandchamp. “It can be an expensive process, and it can be a complicated process ... The more technical your product is, the more likely it won’t comply.”
The more technical your product is, the more likely it won’t comply.
If approval is refused, reformulating a product is expensive, and requires additional patents and registrations if a brand owns its own formula.
All of these steps are a heavy lift for brands, which are also required to set up a legal entity in China to sell domestically. Today, most newer brands launch with Chinese regulations in mind, said Grandchamp, even if entering the market is not in their short-term plan. Several businesses, including Knudsen CRC, act as guides for foreign beauty brands to navigate regulation changes.
“The big brands — they have hundreds of people working in this area helping them, but for smaller brands, it really could be complicated,” said Knudsen.
In the wake of the regulation change, industry watchers expect to see few immediate changes. Rather, brands will shift their long-term strategies and gear up for the approvals process.
Cross-border commerce will still be important for foreign brands, even as brands get approved to sell domestically, particularly because cross-border platform Tmall Global is a cheaper distribution channel than the main Tmall marketplace, as fewer brands sell on the former. It’s also a way for new entrants to the Chinese beauty market to introduce their brands and decide if they want to fully enter the arena and as a place to sell while they wait for approvals.
“The China market is a big market, it’s very, very expensive to operate a brand there,” said Reis. “Unless you have those learnings, you can make some missteps.”
He advises brands entering the Chinese market first direct 80 percent of their volume to online channels, and 20 percent to physical stores, and move to a 50-50 split over time as the brand is able to get more products authorised.
As more brands enter China domestically, it could put pressure on holdouts who previously opted out of entering China for financial or competitive reasons to make the move. Analysts expect more brands to decide to manufacture their products within China, if they have the resources to pull it off. In doing so, they can shield themselves from some of the growing tensions between China and the West.
Foreign brands that already sell in China will also need to adjust their strategies to stand out against new competitors and nab spots in increasingly powerful multi-brand retailers such as The Colorist and Harmay. Those that are more upscale will have a better chance: mass beauty is filled with domestic brands.
“The real competition for the brands now is going to be the local brands,” said Grandchamp.
Beauty brands expanding in China need to take a long-term view, however.
“The thought now that brands should rush in and go into brick and mortars is the wrong strategy,” said Reis. “If the consumer doesn’t understand the storytelling around your brand, it will fall on deaf ears.”
Those who offer Chinese customers compelling and differentiated product have much to gain by taking advantage of the new regulation sooner rather than later, however.
“It’s going to be a completely different market in the future,” said Knudsen.