SELLING IN CHINA COSMETICS & SKINCARE
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1 SELLING IN CHINA COSMETICS & SKINCARE F Cloud 9 International Plaza, No 1018 Chang Ning Rd, Shanghai, China
2 Table of Contents Preface 1 Booming Chinese Cosmetics Market 2 New Taxation Reform on Cross-border E-commerce 3 Adaptable, Competitive & Responsive 4 Classification of Cosmetics in China 5 Challenges of Selling Cosmetics in Chinas 6 How to import cosmetics into China? 7 Application for CFDA Cosmetics Certification 8 Shanghai Pudong Cosmetics New Filling System 9 Example: Sunscreens Test 10 Example: Sunscreens Labeling 11 CFDA Cosmetics Certification 12 Frequently Asked Questions 2
3 Preface China is the world's second-largest cosmetics consumer market and have enjoyed impressive double digit growth rates during the last decade. The high-speed growth of the cosmetics market are mainly driven by upgraded purchasing translating into a preference for imported skincare and make-up products.the present demand is primarily within mid- to high-end skin-care products; natural and "clean" products, as well as products targeting the male-segment. In addition, the make-up category is cathcing up and holds large growth potentials. Foreign cosmetics and skincare companies wishing to market their products in China will have to adhere to the Chinese regulations for cosmetics and skincare before entering the market. This requirement also applies for cross-border e-commerce. The CFDA product registration procedures for cosmetics and skincare are often straight-forward although a bit bureauratic. The aim of this booklet is to provide our client with insight into the CFDA registration and regulatory compliance of skincare & cosmetics imported into China. This booklet is part of a series dedicated to providing a road map to guide foreign exporters in the Chinese market. At Knudsen&Co, we see our business as helping our clients understand the puzzling maze of regulations related to not only general food import, but also to infant formula, health food, cosmetics and pet food import. In addition, we remain accurate and up-to-date on constantly changing Chinese regulations on food labelling requirements, taxa-tion, crossborder e-commerce, etc. 3
4 The Booming Chinese Cosmetics Market The cosmetics sector on the Chinese mainland has been growing at a tremendous fast pace in tandem with the rapid development of the Chinese economy in recent years. The table below shows the retail sales of cosmetic products of enterprises above designated size in the wholesale and retail trade in recent years. The for men segment is worth paying attention to, which based on a survey conducted by Kantar Worldpanel, male grooming products displayed a year-on-year growth of about 7 percent in China. Figures from this category is predicted to arrive at $15.5 billion at the manufacturers' level by International brands are clearly more favourable than domestic brands, with the latter taking up only some 10 percent of the market share. A substantial and sustainable opportunity is presented to multi-national and emerging foreign investors, characterised by a strong competitive market. The for men segment is worth paying attention to, which based on a survey conducted by Kantar Worldpanel, male grooming products displayed a year-on-year growth of about 7 percent in China. Figures from this category is predicted to arrive at $15.5 billion at the manufacturers level by YEAR RETAIL SALES (RMB BILLION) Source: National Bureau of Statistics of China CHINESE COSMETICS MARKET IS A GOLD MINE Fragmented market calls for differentiation and offers large profits. International brands are much more favored than domestic brands. COSMETICS PRODUCTS CAN NO LONGER BE IMPORTED TO CHINA WITHOUT THE CFDA CERTIFICATION The New Tax Policy on Cross-border e-commerce issued on 8 April 2016, which was later given a grace period until 11 May 2017, not only regulates the substitution of special parcel tax to custom duties, but also stipulates that Chinese market is shut down for cosmetics, health food, infant formula, etc. that have not yet obtained CFDA certification. CHINA COSMETICS MARKET REPORT,
5 New Taxation Reform on Cross-border E-commerce Bulk Import - Not Affected Daigou: To buy the products directly from the persons or company in the foreign countries - Affected Cross-border E-commerce: To buy the products from the e-commerce platform in China - greatly affected Haitao: To buy the products from the e-commerce platform overseas - Affected No import tariff when the single transaction value is below 2,000 RMB and annual transaction value does not exceed 20,000 RMB. The VAT and consumption tax will be charged 70% of the standard tax amount. Over the single value or the annual value, full tax will be charged as general trading. Transaction value Import Tariff VAT Consumption Tax Transaction value is less than RMB 2000 and accumulatively within the annual quota of RMB for each individual Chinese customer 0% 70% of the standard tax amount 70% of the standard tax amount Transaction value is more than RMB 2000 and accumulatively over the annual quota of RMB for each individual Chinese customer Payable at standard amount (eg: 10% for cosmetics) Payable at standard amount (17%) Payable at standard amount (eg: 15% for cosmetics from 1.Oct 2016) 5
6 On Sep 30, China Ministry of Finance and State Administration of Taxation announced that from Oct the consumption tax for cosmetics will be reduced to 15% from 30%. The applicable scope is changed to high-end cosmetics including highend make-up cosmetics, skin care cosmetics and cosmetic kits. High-end refers to products with a wholesale import price in excess of 10 RMB/ml (g) or 15 RMB/piece. TRADE PROPERTIES CLASSIFICATION OF COSMETICS BEFORE (CHANGED UP TO ) AFTER (CHANGED UP TO ) REMARKS General trade/ Bulk Import (Customs declaration) Individual belongings (CBEC, Daigou, direct mail) High-end cosmetics Consumption tax: 30% Duty: 10% Add value tax: 17% Total tax: 83.86% Consumption tax: 15% Duty: 10% Add value tax: 17% Total tax: 51.41% General cosmetics Duty: 10% Add value tax: 17% Total tax: 28.7% High-end cosmetics General cosmetics Imported tax: 50% Imported tax: 60% Imported tax: 30% Imported general cosmetics are not subject to consumption tax any more. For high-end cosmetics, the tax rate is reduced from 30% to 15%. These HS codes are included in the tax reduction: , , , , , and
7 Adaptable, Competitive & Responsive China is the most soaring yet complicated market for imported cosmetics products. To survive means staying adaptable to upcoming challenges, competitive in the highly fragmented market and responsive to more pronounced regulatory barriers. Analysing challenges per category yields advantageous position when selling in China. Skin care products Shampoos and hair care products Make-up products Products for children Sunscreen products Anti-ageing products Remain the fastest growing sector in Chinese cosmetics market. Close to saturation and enjoys slower growth rate. Gradually expanding into third-tier and inland cities which guarantees significant rising in sales. The market in general is not remotely saturated. Potential demand for products designed especially for children is large. Multi-function sunscreen products, sunscreen spray, after-sun repairing products are gaining popularity. Expand selling channels to fitness centres, SPAs, cosmetics surgery hospitals and sales will continue to boost in an increasingly ageing Chinese society. FACIAL MAKE-UP Female consumers aged from 15 to 25 tend to wear other facial makeup more because BB cream or CC cream are perceived as fulfilling their skin needs in one go, while also offering a more natural look. On the other hand, women aged over 25 tend to prefer foundation/concealer than other facial make-up to achieve an impeccable look, which requires that facial make-up offer stronger covering effects. Sports cosmetics Cosmeceuticals The needs for both sports and appearance call for sports cosmetics that are anti-odour, anti-sweat, anti-bacteria and of compact portable size. The combination of cosmetics and pharmaceutical features, namely cosmeceutical, anti-wrinkle creams and hair restorers for instance, are extremely popular in Japan. Chinese consumes, younger generation in particular, are gradually embracing the new concept. 7
8 Classification of Cosmetics in China Cosmetics products are classified into two categories by the CFDA, non special use cosmetics (non-suc) and special use cosmetics (SUC). Whether or not a product is of special use and whether it is imported and domestically manufactured determines the certificates it needs for selling in China. Detailed information is listed below. CATEGORY OBLIGATION CERTIFICATE AUTHORITY Imported non-suc Pre-market filing Filing certificate CFDA Imported SUC Domestic non-suc Domestic SUC Pre-market administrative licensing Pre-market online notification Pre-market administrative licensing Administrative license Filing certificate Administrative license CFDA Provincial FDAs CFDA Non-special use cosmetics (non-suc) Special use cosmetics (SUC) 1. Skin care products; 2. Hair care products; 3. Nail (toe) care products; 4.Make-up 5. Fragrance 1. Hair growth products 2. Hair dyes 3. Hair perming products 4. Depilating products 5. Breast beauty products 6. Slimming products 7. Deodorants 8. Freckle-removing products 9. Sunscreens 10. Whitening products Compared to the non-suc, SUC MEETS FAR STRICTER requirements for marketing, both domestic and overseas cosmetic companies are required to register with the CFDA and submit relevant documents. The registration for SUC is also more costly and time-consuming. Without administrative licenses SU prohibited to place in the market. 8
9 Challenges of Selling Cosmetics in China China Food and Drug Administration (CFDA) has released a notice (No ) on 23 December 2015 and announced the new cosmetics standard, Safety and Technical Standards for Cosmetics (2015 ver.), is already approved by the committee of Cosmetics Standard and it is now released. The Hygienic Standard of Cosmetics (2007 ver.) will thus be replaced since 1 December The Safety and Technical Standards for Cosmetics has amended the lists of prohibited and restricted substances in Hygienic Standard of Cosmetics. Prohibited List of substances Restricted List of substances Allowed List of preservatives Allowed List of UV filters Allowed List of colorants Allowed List of hair dyes 1388 items 47 items 51 items 27 items 157 items 75 items Circular of the Ministry of Finance, General Administration of Customs and State Administration of Taxation on the Tax Policy for Cross-border E-commerce Retail Imports (Cai Guan Shui [2016] No. 18) was jointly issued by Ministry of Finance, General Administration of Customs and State Administration of Taxation on 24 March 2016, targeting tax policy for cross-border e-commerce. 9
10 Circular of the Customs Tariff Commission of the State Council on Issues Pertaining to the Adjustment of Import tax for Imported Articles (Shui Wei Hui [2016] No. 2) was also issued by the Customs Tariff Commission of the State Council on 16 March 2016 to revise the classification of imported articles and to adjust corresponding import tax rates of imported articles. IMPLICATIONS OF POST-CIRCULAR PERIOD Trade barrier is perceived for foreign cosmetics influx, however, the earlier cosmetics products begin CFDA application process, the sooner they are allowed to sell in Chinese market. Given the growing popularity of foreign goods amongst Chinese consumers and the evident rise of domestic purchasing power, the 20,000 RMB annual limit per person is proven too low and raising the limit is widely discussed and expected. Cross-border e-commerce players or other channels vulnerable to the new taxation reform, such as VIP.com and Tmall, tend to offer subsidies for customers to cope with the regulatory changes. Q: Pinus nigra bud/ needle extract is considered new ingredient by the CFDA. What do I do? A: Either delete this particular ingredient or replace it with a similar one, e.g. Pinus Pinaster Bark/ Bud Extract. Q: Musk ketone is an allowed ingredient, yet the product fails to obtain the CFDA certification? A: The usage of musk ketone is restricted, the concentration should not exceed 1.4% in perfume, 0.56% in eau de toilette, and 0.042% in other cosmetics products. 10
11 How to Import Cosmetics into China? CFDA OBTAIN HYGIENE LICENCE/FILING LICENCE APPROVED BY CFDA For cosmetic products to be imported to China for the first time, foreign manufacturers or their agents must obtain and complete an Application Form for Hygiene Licence of Imported Cosmetics from the hygiene administration department above the local or city level of the importing place and submit their applications directly to the hygiene administration department under the State Council. THE TWO CIRCULARS which should have been effective from 8 April 2016, has been offered one-year grace period, until 11 May AQSIQ VERIFICATION CERTIFICATE FOR CHINESE LABELLING Normally, an application for verification of labelling for imported cosmetics should be submitted to a designated examination body 90 working days before reporting to the verification department. Imported cosmetic products may use printed Chinese labels on a temporary basis and the whole label should be affixed onto the original sales packaging box. The names and addresses of the dealer, importer, agent and contact person on the mainland who have legally registered in China must be clearly shown on the labels of the imported cosmetic products. KNUDSEN&CO has developed a comprehensive, authentic and well-tested database for cosmetics ingredients. We provide feasibility reports, ingredient guidelines and certificate application for foreign brands. 11
12 CIQ INSPECTION CERTIFICATE When goods arrive at Chinese ports, importers need to apply for an inspection from the local branch of the China Inspection and Quarantine Bureau (port CIQ). The importer needs to show the hard copy of CFDA license and submit the copy of the license, product formula, a compliance declaration, sample page of Chinese label, original label and translation version to port CIQ prior to inspections. The port CIQ will do a random sample check and conduct Physio-chemical and microbiological tests. CUSTOMS NOTICE OF CUSTOMS CLEARANCE With a Hygiene Licence, a Verification Certificate for Chinese Labelling and an Inspection Certificate on hand, an importer may obtain a Notice of Customs Clearance from the Commodity Inspection Bureau to proceed with normal customs declaration procedures. NON SPECIAL-USE cosmetics need to obtain Filing Licence SPECIAL-USE cosmetics need to obtain Hygiene Licence 12
13 Application for CFDA Cosmetics Certification Foreign companies are strongly suggested to appoint agents legally registered in China to handhold throughout the application process which unfolds in the following fashion. 1 Determine if your product is defined as cosmetic in China; 2 Check whether ingredients are permissible, restricted or banned; 3 Prepare the pre-market application dossier; 4 Appoint a Responsible Agent; 5 Label your product according to China rules; 6 Check your product claim; 7 Submit the application dossier for review; 8 Pre-market approval; CUSTOMS CLEARANCE only means the Chinese customs allows a specific batch of cosmetic products to enter China, not that those products can be placed on shop shelves for sale immediately. Product samples will be selected for random inspection and testing. The imported products may not be offered for sale unless reports indicate that they comply with relevant requirements. 9 CIQ Inspection; 10 In-Market Surveillance. Type of Cosmetics Estimated Time Spam Validity Period Non-special Use Cosmetics Special-use Cosmetics 6-8 Months 4 Years (Renew 4 Months before expiration) 9-14 Months 13
14 CFDA COSMETICS CERTIFICATION Application Dossier 1 Application form REGISTRATION PROCEDURE OF IMPORTED COSMETICS 2 product name ( trade and general), and nomenclature 3 Product formula APPOINT A RESPONSIBLE REVIEW AND LABEL 4 Quality safety control requirements (in Good Manufacturing Practice documents) 5 The original package, labelling, instruction for use, and China marketing package design, labelling and instruction for use. 6 The test report from CFDA appointed lab. CERTIFICATION AGENT FORMULA; PREPARE RELEVANT TECHNICAL DOCUMENTS TRANSLATE, REVIEW, AND SUBMIT CFDA 1 month 1 month 7 The safety evaluation report related to raw materials which is considered risk materials. 8 The agent authorisation letter and agent business license, and company seal 9 The regulatory compliance declaration for high risk raw materials which is come from mad cow disease district APPLICATION DOSSIER SAMPLE TESTING AT CFDA DESIGNATED LABS (CHEMICAL. MICROBIAL. TOXICOLOGY. ETC.) 3-9 months 10 The manufacturing and sales certificate in original country. 11 Description of Manufacturing process and technology. SUBMIT ADDITIONAL CFDA TECHINCAL REVIEW 1-3 months 12 One (1) piece of minimum package sample and other additional written documents. DOCUMENTS REQUIRED CFDA COSMETICS TOTAL CFDA cosmetics testings should be conducted at designated labs; fees and time span is listed below (subject to changes) CERTIFICATION ISSUED 6-14 moths 14
15 Class Item Samples (pcs) Non-special Use Cosmetics (Chemical test, Microbial test, Toxicology test) Special Use Cosmetics (Chemical test, Microbial test, Toxicology test, Function test, Human Trail) a) Hair Care b) Skin Care c) Make-up d) Nail e) Perfume a) Hair growth b) Body beauty c) Hair dye d) Hair perm e) Sunscreen f) Freckle Fade g) Hair removal h) Deodorisation a) 24 b) 24 c) 24 d) 24 e) 24 a) 48 b) 36 c) 24 d) 30 e) 48 f) 36 g) 40 h) 30 Pudong New Cosmetic Filing System On January 17, 2017, CFDA announced a new filing regulation which allows first-time imported non-special use cosmetics to obtain CFDA approval directly through the Shanghai Pudong filing management system. Come into force: Effective from March 1, 2017 to December 21, 2018 Opportunities: Offering a shortened application (filing) process of one month. As the grace period rapidly comes to a close, this could potentially make a product meeting the CFDA registration deadline. Restrictions: 1.Testing (including animal tests) and documentation requirements remain the same 2. Importation must be done solely through the Pudong Port 3. The responsible agent needs to be registered in Shanghai Pudong 4. The responsible agent is liable to product safety problem Recommendation from KnudsenCRC: 1. Carefully consider the benefits of a shorted filing timeline against the limitation of Shanghai Pudongrestricted imports. 2. Knudsen CRC recommend to prepare sample tests in advance as the testing time remains at 2-3 months 3. Knudsen CRC recommend to prepare the Chinese label in advance to take advantage of the saved filing time 15
16 Example: Sunscreens Test Major trends are witnessed in Chinese cosmetics market: customers pay more attention to UVA protection and multi-function (whitening, skin care, etc.); sunscreen spray and after sun repairing products are thriving in domestic market. Test Item Microbiological Test Mercury Lead Arsenic UV Filters Phenol and Hydroquinone Repeated Dermal Irritation Test Skin Sensitisation Test Skin Phytotoxicity Test Skin Patch Test SPF Value Water Resistrance PFA Broad-spectrum Test Category Microbiological Test Hygienic Chemical Test Hygienic Chemical Test Hygienic Chemical Test Hygienic Chemical Test Hygienic Chemical Test Toxicological Test Toxicological Test Toxicological Test Human Trail Human Trail Human Trail Human Trail Human Trail or Instrumental analysis 16
17 When measured PFA 16, product can be indicated PA++++ In the past cosmetics can only be indicated by SPF 20 and PA +++ even if the actual measured value is higher. Only indication of SPF before bath is not permitted Delete of marking integer of measured PFA When the CW (Critical Wave) 370nm, the product can claim broadspectrum. Sunscreen Cream Sunscreen Lotion Sunscreen Spray Others According to GUIDANCE ON COSMETIC TECHNOLOGY REVIEW CFDA accepts UV test report from overseas labs. Q: Is there a minimum value to claim 50+? or any SPF result of greater than 50 can be labeled 50+? A: 51 is minimum value to claim 50+. If a qualified test report shows the SPF value is more than 50, it can be labeled
18 Example: Sunscreens Labeling According to the Notice on the Labeling Requirements for the Efficacy of Sunblock issued by CFDA on 1. June 2016, the highest SPF value will be adjusted from SPF 30+ to SPF 50+ since the release of this Notice. Additionally, the PA labeling shall be no higher than PA++++ The SPF value of sunscreen products shall be labelled based on the following principles: In addition, on the basis of Technical Safety Standard for Cosmetics (2015), a restricted ingredient is not used as preservative in cosmetics, the function of the ingredient shall be indicated on the label SPF VALUE LABELING EXAMPLE 2 SPF 5 Actual testing value - 6 SPF 50 The labelling upper limit is actual testing value, and the lower limit is the lower value between lower limit on 95% confidence interval of actual testing value and the maximum integer multiples of 5 which is lower than actual value. In case the actual SPF value is 46, and the 95% confidence interval is between 43.6 and 48.5, the SPF value can be labelled as 43, 44, 45 or 46. SPF> 50, and the lower limit on 95% confidence interval of actual testing value is higher than 50 SPF> 50, and the lower limit on 95% confidence interval of actual testing value is lower than or equivalent to 50 The SPF value shall be labelled as 50+ The labelling upper limit is 50+, and the lower limit on the 95% confidence interval of actual testing value as the labeling lower limit. In case the actual SPF value is 55, and the 95% confidence interval is between 52.1 and 58.9, the SPF value shall be labelled as SPF 50+ In case the actual SPF value is 52, and the 95% confidence interval is between 50.0 and 55.0, the SPF value can be labelled as SPF 50+ or
19 CFDA Cosmetics Certification CFDA approved Hygiene Licence for special-use cosmetics CFDA approved Hygiene Licence for special-use cosmetics 19
20 Frequently Asked Questions WHAT HAPPENS AFTER OBTAINING CFDA CERTIFICATION? CFDA certification is the first step of selling in China. Goods arriving at Chinese ports are subject to inspection from branches of China Inspection and Quarantine Bureau. The hard copy of CFDA certification should be submitted, along with the copy of product formula, a compliance declaration, sample page of Chinese label, original label and translation version, etc. Random sample check, physio-chemical and microbiological tests are to be conducted by the port CIQs. The port CIQ will also review the Chinese label according to GB Certificate of inspection will be issued to goods successfully that have passed CIQ s inspections and ca be used by importers for clearing customs. WHERE CAN I FIND THE HS CODE FOR COSMETICS PRODUCTS? Harmonised System codes can be found in various websites, e.g. World Customs Organisation: hs-online.aspx WHERE CAN I FIND PRC S REGULATIONS RELATED TO 20
21 COSMETICS AND SKIN CARE CERTIFICATION? You can search for regulatory updates and official interpretation at the CFDA website Knudsen&co follows certification regulations closely and will timely post links on our website. HOW CAN KNUDSEN&CO HELP US WITH THE CFDA CERTIFICATION? Knudsen&Co offers one-stop service for selling in China. Not only do we work as CFDA certification agent, including providing feasibility report, legal&technical overview, dialogue with the CFDA, but we also expert at navigating foreign companies in the extremely complicated, fragmented yet promising Chinese cosmetics market. HOW CAN WE CONTACT KNUDSEN&CO? Official Website: knudsencrc.com Skype: knudsenchina Address: 24F Cloud 9 International Plaza, No 1018 Chang Ning Rd, Shanghai, China 21
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