China: Beauty Revolution – New Regulations Announced for Cosmetics

Industry Expertise

08/12/2020 by The Red Tree

This article was written by Mark Schaub, Effy Liu, Serena Guo and Tom Shi and first appeared on King & Wood Mallesons.

The cosmetics market in China is growing bigger each year. Data from China’s National Bureau of Statistics suggests total retail sales of cosmetics in China in 2019 exceeded RMB 299 billion and a year-on-year growth was almost 13%, which means that retail sales increased by approximately 40 billion over the year.[1] The size and growth of the Chinese cosmetics market has not gone unnoticed by the authorities. There is a significant increase in cosmetic product offerings and competition. To address issues such as product safety and quality, the PRC authorities finally passed new regulations to better regulate the cosmetics industry.

The Regulations on Hygiene Supervision of Cosmetics (<化妆品卫生监督条例>) (“Current Regulation”)[2] are very much ripe to finally bow out after almost thirty years of being the primary regulation governing the production of cosmetics and the operation of cosmetic companies. They will be replaced by the Regulations on Supervision and Administration of Cosmetics (<化妆品监督管理条例>) (“New Regulation”)[3] which was published on 29 June 2020 and will be enacted from 1 January 2021.

Main changes

We previously published articles discussing the main changes from the Second Draft of Regulations on Supervision and Administration of Cosmetics (<化妆品监督管理条例>) (“Second Draft”). The New Regulation made minor changes to the Second Draft. With a total of 80 articles across 6 chapters, the New Regulation is far more comprehensive than the Current Regulation which consists of only 35 articles.

Reducing red tape

Easier to Use New Cosmetics Ingredients in China

Currently, prior approval must be obtained from the National Medical Products Administration (“NMPA”) for the use of any new ingredient, either natural or synthetic, which has not already been used in the manufacture of cosmetics in China.

The New Regulation provides that new ingredients, except for higher risk ingredients which are antiseptic, sunscreen, colorant, hair dye, and freckle whitening among others will be admitted on a filing basis with the NMPA rather than requiring approval. High-risk new ingredients will still be subject to pre-use registration with the NMPA.

The applicant shall submit a new ingredient research report, research materials related to preparation process, stability and quality control standard as well as material for safety assessment during new ingredients registration or filing. Once the NMPA receives the materials, it shall transfer these materials to a technical review institution (“Review Institution”) and the Review Institution shall provide an opinion to the NMPA within 90 business days. The NMPA shall make a decision within 20 business days after receiving an opinion from the Review Institution. Registration and filing information related to new ingredient shall be announced to the public within 5 business days.

After registration or filing, the applicant shall report annually for a period of three years to the NMPA as to the use and any safety issues related to the new ingredients. If a new ingredient results in safety concerns during such three-year period then the NMPA may revoke its filing or registration. If the three years pass without incident then the new ingredient will be included in the catalogue of accepted for use in cosmetics production in China.

Easier to Import Non-special Use Cosmetics

Cosmetics companies have long been frustrated by restrictions on the import of non-special use cosmetics into China.

The New Regulation confirmed that non-special use cosmetics, either manufactured domestically or imported, only require filing with the competent NMPA.

This new policy will greatly simplify the process by which foreign cosmetics can be imported into the Chinese market. This will lead to the purchasing cycle for imported cosmetics being shortened and this will also lead to lower logistics and warehousing costs for foreign cosmetic companies.

Special Use Cosmetics are Becoming More Special

Special use cosmetics will still be subject to registration before being allowed to be manufactured or imported into China. However, the scope of what constitutes special use cosmetics in the New Regulation has been narrowed from 9 categories under the Current Regulation to 6 categories going forward. The special use cosmetics categories include: 1) hair dye products; 2) hair perm products; 3) spots removal and skin whitening products; 4) sunscreen products; 5) hair loss prevention products and 6) other products which claim a new function.

Products for hair removal, breast shaping, fitness, and deodorizing have been removed from the list and are now considered to be ordinary cosmetics and therefore only need a filing with the NMPA.

Simplified Licensing: Manufacturing License and Sanitary License Now Combined

Under the Current Regulation, the manufacturing of cosmetics requires two licenses: a Cosmetics Manufacturing License issued by the quality supervision authority; and a Cosmetics Manufacturer Sanitary License issued by the NMPA. The New Regulation states that these two licenses will be combined into one. Accordingly, cosmetics manufacturers will only need to apply to the NMPA for a Cosmetics Manufacturing License.

Safety first

Responsible Persons for Quality Control and Safety Assessment

The Current Regulation sets out only the most general of requirements for cosmetics manufacturers in that they are required to conduct a hygiene quality examination of products before market launch. The New Regulation requires cosmetics manufacturers, cosmetics filling persons and cosmetics registrants to appoint a responsible person in charge of safety and quality. The responsible person must have special knowledge of medicine, pharmacy, chemistry, toxicology, chemicals and/or biology and have at least five years working experience in cosmetics manufacturing or quality management.

The New Regulation also provides that applicants for cosmetics and new ingredient registration/filing must carry out a safety assessment. This assessment may be conducted by themselves independently or handled by a specialized assessment institution.

Supplementary Testing

The Chinese government has taken a tough stance against the illegal use of forbidden substances in cosmetics. The New Regulation provides the NMPA may carry out supplementary tests if current tests are considered insufficient to guard against adulteration or illegal use of restricted or forbidden ingredients in cosmetic products.

Proactive and diversified supervision approach

All Around Approach

The New Regulation provides a number of new methods by which the NMPA can administer and supervise cosmetic products and cosmetic manufacturers. It covers the whole manufacturing process, market entry and post-sale administration for the cosmetics.

Take Action against Overseas Manufacturers

The Current Regulation has attracted criticism for not providing legal grounds for the NMPA to take a more proactive approach to the regulation and supervision of imported cosmetics and overseas cosmetics manufacturers.

The Second Draft vests in the NMPA the power to carry out overseas on-site inspection in respect of manufacturers of imported cosmetics in order to ensure the manufacturers have met Good Manufacturing Practice (GMP) requirements and to ensure the registration or filing documentation submitted by importers are true and valid. However, this clause is removed in the New Regulation. We believe NMPA may still be empowered to carry out overseas on-site inspection once the Draft Management Measures for Overseas Inspection which was released for comments in December 2019 is enacted.

In addition to the traditional measures of administrative penalties in the case of production quality problems the New Regulation also enables NMPA to have more weapons in their arsenal to police problematic cosmetics manufacturers.

These new powers of the NMPA include the ability to issue safety warnings to the public, ordering mandatory product recalls, reviewing and copying relevant documentation (contracts, bills and ledgers etc.), sealing up and seizing potentially harmful cosmetics and ingredients, and closing down production or distribution sites involved in illegal activities. The New Regulation also sets forth a credit system established by NMPA for cosmetics manufacturers and distributors. Manufacturers and distributors with bad records will invite stricter supervision and be subject to increased numbers of unannounced spot checks.

Be Aware of Your Efficacy Claims

The New Regulation sets detailed principles regarding the labelling of cosmetic products. In particular, labelling for cosmetic products are prohibited from carrying medical terms or indicating any curative effect and the label must contain information related to the expiry date, content list, net content and other details. In addition, imported cosmetics shall have a Chinese label, either by directly printing the label on the product or add a sticker that shows a Chinese label.

Similar to the Current Regulation, the New Regulation also provides a series of principles that must be followed when advertising cosmetics products. These include a prohibition on the use of any false or exaggerating or misleading descriptions as to the efficacy of such products among others.

Additionally, claims of any function or efficacy of cosmetic products must be supported by sufficient scientific evidence, such as research data, assessment reports or relevant literature. Cosmetic manufacturers are responsible for such claims and must disclose a summary of the scientific evidence on designated websites.

Adverse Reaction Monitoring and Control

The New Regulation establishes an adverse reaction monitoring system for cosmetics. This system requires cosmetics manufacturers and distributors to report to the monitoring authority any reported adverse reaction to their products. After the gathering, analysis and assessment of all the materials regarding the adverse reaction, the monitoring authority will provide suggestions for steps to be taken.

With greater power comes greater responsibility

Third Party Obligations

China’s massive e-commerce market continues to grow at a staggering rate.

In this regard the New Regulation when read together with the new PRC E-Commerce Law increases the responsibility of cosmetics e-commerce operators and subjects them to stricter oversight and greater obligations.

Specifically, cosmetics e-commerce platform operators must ensure real-name registration and check necessary qualifications of cosmetics retailers that operate on their platforms. They must also promptly put a stop to any activities in violation of the New Regulation and report to the competent authority. E-commerce platforms that fail to perform abovementioned duties may be subject to fines of up to RMB 100,000.

Offline retailers are also subject to increased responsibility. Operators of centralized cosmetics stores and organizers of cosmetics trade fairs are also required by the New Regulation to meet a range of management obligations, including pre-entry examination as to the qualifications of the participating cosmetics operators, post-entry inspection of participating cosmetics operators on a regular basis and promptly stopping and reporting to the competent authority any activities that violate the New Regulation.

In addition, hotels and beauty salons that provide or use cosmetics when providing their services shall bear the same responsibilities as operators of cosmetics.

Increased Penalties

One of the major complaints after the circulation of the Second Draft was that harsh punishments were overkill. These complaints are becoming louder and many claim the increased penalties will turn cosmetics manufacturing into a high-risk industry. Under the New Regulation, certain penalties have been increased while others have been slightly reduced, but we believe the potential liability for breach of the New Regulation is as serious, if not more, than the Second Draft.

Compared to the Current Regulation the penalties provided for in the New Regulation are far greater. By way of example, under the Current Regulation, a manufacturer that produces cosmetics that do not meet applicable mandatory standards will be subject to the punishment of confiscation of the relevant products and illegal earnings and may be imposed a fine in the amount of 3 to 5 times of its illegal earnings. Under the New Regulation in addition to confiscation of the relevant products and illegal earnings, the manufacturer of the non-conforming cosmetics could also face confiscation of raw materials, packing materials, tools and equipment used for the manufacture and a fine of between 5 to 20 times of the value of the relevant commodity (depending on the exact value); be ordered to stop production and have its cosmetics licenses revoked. In addition, the individuals in charge and directly responsible may face personal liability which may include fines ranging from 1 times to 3 times of income that was obtained in the previous year and ten-year bans from working in cosmetics.

On balance it seems trite to brand the penalties under the New Regulation as being too harsh. Upon careful reading of the relevant provisions it appears clear that the New Regulation not only increases penalties but also provides much clearer guidance as to the application of different penalties depending on the severity of the actions and other factors. In this way although the New Regulation increases potential liability it does protect cosmetics operators by providing greater certainty as to what is considered a violation and also guidance as to how punishments will be meted out.

Summary

The New Regulation is passed in a similar form to the Second Draft with minor changes. For overseas cosmetics manufacturers, the New Regulation provides more market access; less red tape and more certainty. On the negative side, the New Regulation will increase obligations and expands the types of measures the Chinese authorities can take. However, none of the measures are highly surprising and the triggers for taking action are also reasonable. Few international manufacturers are likely to be anxious about such measures. It would be wise for overseas manufacturers to monitor the implementation of the New Regulation as they will not bring just increased levels of responsibilities but very welcome market access and clarity.

[1] National Bureau of Statistics of China: http://www.stats.gov.cn/tjsj/zxfb/202001/t20200117_1723391.html

[2] Regulations on Hygiene Supervision of Cosmetics, promulgated by the State Council on 26 September 1989 and came into effect on 1 January 1990.

[3] Regulations on Supervision and Administration of Cosmetics (Second Draft), drafted by China Food and Drug Administration (NMPA) under State Administration for Market Regulation (SAMR) and Ministry of Justice.

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