It is very important to understand the regulation and permit application procedure in order to work out a business plan and schedule.
Background: marketing status of China cosmetic market
According to the presentation by Mr Mu Min (representative of China Association of Fragrance Flavor and Cosmetic Industries) at the Cosmetic Regulatory Conference at PCHI 2010 in Shanghai, there were 3,189 cosmetic manufacturers in China as of February 2010. Compared to the number assessed in July 2008 (3,734), the figure has dropped by around 15%. For these 3,189 manufacturers, around half of them (1,453) were located in Guangdong Province. Of the others, there were 304 in Zhejiang, 252 in Jiangsu, 224 in Shanghai and 100 in Fujian. More than 80% of manufacturers were located in the south east coastal regions. It is commonly believed that the decline in numbers of cosmetic manufacturers is due to merger and acquisition. Industry consolidation and re-structuring are set to accelerate. Although the number of manufacturers dropped from 2008 to 2010, the annual sales volume of cosmetic end products kept increasing. The sales volume of the China cosmetic market in 2008 was around RMB130 billion. It reached more than RMB140 billion in 2009, which matches the prediction of the Food and Drug Administration that the China cosmetic market would maintain its double-digit growth in the coming years due to the government’s continuous efforts to boost domestic consumption. The annual per capita consumption of cosmetic products in 1988 was only RMB0.33, from which point it increased 300 times within 20 years. The annual per capita consumption of cosmetic products in 2008 reached RMB100. However, it is still far lower than that of developed countries, such as Europe, US or Japan. In other words, it is commonly believed that the China cosmetic market is far from saturation level and still offers investment potential for new cosmetic players. With the growth per capita of cosmetics consumption, the trend for imported cosmetics remains on an incline, both in terms of volume and quantity. At the same time, foreign cosmetic companies have gained a firm foothold in the high-end and luxury segments.
Cosmetic regulation and management in China
The regulation and supervision of the cosmetic industry can be divided into two parts:
• Cosmetic manufacturers hygiene supervision.
• Product hygiene supervision and license administration.
In order to manufacture cosmetic products in China, manufacturers should have both a cosmetics manufacturer hygiene permit and a cosmetics production license. The cosmetics manufacturer hygiene permit would be issued by the provincial departments of the Ministry of Health (MOH). The cosmetics production license would be issued by General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). According to Chinese regulation, it is illegal to manufacture cosmetic products without either of the above two permits. Besides, only enterprises with a business registration license can apply for the cosmetics manufacturer hygiene permit and cosmetics production license. In other words, all China cosmetic manufacturers should be owned by different enterprises. No cosmetic manufacturers are private. In China, there is no official cosmetic GMP standard. However, in order to improve the cosmetic hygiene quality and safety, there is the Cosmetic Hygiene Supervision Ordinance. Manufacturers can only apply for the cosmetics manufacturer hygiene permit successfully once they comply with Cosmetic Hygiene Supervision Ordinance. For the product side, the MOH issued the Hygienic Standard for Cosmetic in 2007, which clearly states the requirements for cosmetic end products and raw materials. Of course, the basic concept of China Hygienic Standard for Cosmetic is similar to that of 76/768/EEC or FD&C Act:
• Cosmetic products must not cause damage to human health when applied under normal or reasonably foreseeable conditions of use.
• Full responsibility of the manufacturers or importers.
• Safety testing: Manufacturers or importers are responsible for ensuring adequate testing for safety. Within Hygienic Standard for Cosmetic in 2007, there are different negative ingredient lists, including:
• Table 2. 1,208 forbidden substances plus 78 forbidden natural plant extracts.
• Table 3. 73 restricted substances (with max percentage usage and other restrictions).
• Table 4. 56 preservatives (with max percentage usage and other restrictions).
• Table 5. 28 approved sunscreen ingredients (with max percentage and other restrictions).
• Table 6. 156 colouring agents (with max percentage and other restrictions).
• Table 7. 96 hair dyes (with max percentage and other restrictions).
Cosmetic manufacturers should not use forbidden substances or over-use restricted substances for cosmetic production. Also, the microbiology index and chemical limit should be consistent with the Hygienic Standard for Cosmetics. Besides the Hygienic Standard for Cosmetic issued by the MOH in 2007, AQSIQ, MOH and Standardization Administration of PRC joined together in 2008 to draft “Instruction for use of Consumer Products - General labeling for cosmetics” (Standard No. GB5296.3- 2008). The standard was announced in June 2008 and became effective in October 2009. Based on the repeated requests from the China cosmetics industry, there was a grace period on the requirement to show full ingredients on cosmetic labelling. The requirement for showing the full ingredients list on cosmetic labelling was effective from July 2010. Since the official language of China is simplified Chinese, all mandatory information shown on cosmetic labelling should be in simplified Chinese, including the full cosmetic ingredients list. According to US Food and Drug Administration (www.fda.gov), the FD&C Act does not recognise the term “cosmeceutical”. Similarly, according to China Cosmetic Hygiene Supervision Ordinance, there is no definition of the term cosmeceutical. Although there is no definition of cosmeceutical, there is a category called “special-use cosmetic”. It includes nine different kinds of products: hair growth, hair dyeing, hair perm, moulting, breast enlargement, slimming, deodorant, spot-removing, sunscreen. Due to their specific function, specialuse cosmetics contain some specific ingredients and as a result the risk to hygienic safety is greater compared to that of general cosmetic products. Therefore, all special-use cosmetics should be registered and approved before being placed on the China market, no matter if it is imported or domestic.
Importing into China
In order to start a cosmetic business in mainland China, including import/export, sourcing, trading, sales and marketing, manufacturing, agency, or others, the first task should be business registration. This is because only enterprises with business registration licenses can conduct business activities in China. The Enterprise Registration Bureau of State Administration for Industry & Commerce of PRC would be responsible for handling and issuing a business registration licence. Unlike the EU or US, a pre-marketing approval system is used in China for cosmetic import monitoring and supervision. Any companies which import cosmetics to China, should in the first instance apply for an Import Cosmetic Hygiene Permit for their cosmetic products. Permits should be issued by the State Food and Drugs Administration (SFDA), who will be responsible for the acceptance of the application for hygiene permits for all imported cosmetics before the products can be lawfully distributed in the Chinese market. Each permit has its unique permit number which should be shown on the labelling of all imported cosmetics. Also, China Customs has the authority to request importers to show the hygiene permit during the importation process. Throughout the application process, two parties are involved in the application. The first one should be the foreign cosmetic company. This foreign company can be either a manufacturer or brand owner. If the foreign cosmetic company is a brand owner without a production line, the company may have to authorise contracted manufacturers for production. As per the memo issued by the MOH in 2008, the contracted manufacturers should be in ISO or GMP standard. The manufacturer’s ISO or GMP certificate is a necessary supporting document for permit application. The other party should be the Chinese legal reporting representative. The Chinese legal reporting representative should be an enterprise with an effective business registration license. Its role is to submit all the documents (hygiene permit application form, testing report, other legal documents as supporting) to the SFDA. Also, if the SFDA have any uncertainty regarding the application, the Chinese legal reporting representative would be responsible for providing an explanation. After the permit application, when there are any questions on quality, safety or even complaint related to the imported cosmetics, the SFDA would require the Chinese legal reporting representative to take up the responsibility, or even provide compensation. Both the name of the foreign cosmetic company and of the Chinese legal reporting representative should be written on the Import Cosmetic Hygiene Permit. According to SFDA memo #57, issued on 29 March 2010, one foreign cosmetic company can appoint only one enterprise as its Chinese legal reporting representative. And any Chinese enterprise can only accept the authorisation from one foreign cosmetic company. Power of attorney, with the signature of a local public notary is a necessary supporting document for permit application. SFDA finished upgrading their computer system in April 2010. In the future, a Chinese legal reporting representative would have its own username and password for the SFDA registration system. One, and only one, username and password would be arranged for each Chinese legal reporting representative. According to SFDA spokesman, the system would help the Chinese legal reporting representative to shorten the permit application process. But it takes time to prove. “Country of Origin” and “Certificate of Free Sales from Country of Origin” are other necessary supporting documents for permit application. As per my experience on permit application consultancy, if a cosmetic product has never been sold in its country of origin, applicants (product owners) would have difficulty applying for the Certificate of Free Sales from Country of Origin.
Testing
Product Testing Report is another key supporting document for the permit application. There is no doubt that a testing report with result stating “FAIL” will lead to failure of permit application. Heavy metal detection and microbial contamination are basic tests for cosmetic products. If the cosmetic product contains certain amounts of ethanol, microbial contamination can be waived. SFDA has the authority to conduct other specific testing, such as detection of a special forbidden ingredients, but it is not common. Animal testing is banned according to the European Cosmetic Directive and its amendments. But it is still compulsory in China marketing. Animal testing should be conducted, and the animal testing report should be one of the necessary documents for registration approval and permit application. In vivo efficacy testing and toxicological testing are not necessary for all cosmetic products. Only special-use cosmetic products would be required to conduct in vivo efficacy testing and toxicological testing. Based on the product formulation, usage and specification, different toxicological testing would be required. Not all testing laboratories can carry out cosmetic hygiene and safety testing. SFDA has recognised 14 laboratories for the purpose of hygiene and safety testing; five of them for human testing, four of them for sunscreen efficacy testing. Each of the 14 laboratories is located in China. A fundamental concept for the permit application is that applicants have the full responsibilities to prove the product’s hygiene, safety and quality. Therefore, applicants should prepare all the supporting documents for their permit application themselves. In China, cosmetic raw materials are also regulated under the pre-marketing approval system. Cosmetic products with non-approved raw materials are not allowed to be placed onto the China market. Permit application for import cosmetic containing un-approved raw materials will without doubt be rejected. The most recent list of the commonly used cosmetic ingredients was issued in 2003, by MOH. Different cosmetic associations are urging the SFDA for a new approved cosmetic ingredient list. All cosmetic products are formulated by combination of different chemicals. In order to prove and ensure safety of cosmetic end-products, the monitoring and supervision of raw materials has been put onto the schedule of the SFDA.
New system
In April 2010, the SFDA issued a draft amendment of a new policy for the new product registration and approval system. Within the draft amendment, applicants are required to estimate if the cosmetic end products to be registered contain any substances that might carry risk. These substances include, but are not limited to, the impurities from raw materials or the by-products during the manufacturing process. Applicants may issue a selfdeclaration letter when no substances with risk are thought to be present. If substances with risk are found in products based on applicant’s estimation, documents for risk and safety assessment, such as usage method of product, exposure level of substances with risk, testing method of that substances should also be submitted as support to the permit application. It will not be a simple job for most cosmetic companies, since it involves technical knowledge on several different sections, such as cosmetic formulation science, chemical engineering, toxicology, dermatology, analytical chemistry etc. Based on the amendment, I have sought advice from Mr Du Da-An, director of Centre for Disease Control and Prevention, Guangdong Province (GDCDC). He recommended that cosmetic companies set a safety factor of raw materials, especially for the maximum permitted concentration of impurities, and the conditions of use for raw materials. It would be useful to reduce the formation of any substances of risk in the end product. Also, it is necessary for a cosmetics company to set up a cosmetic ingredient database, including toxicological profile and chemical structure of different ingredients, product experience, exposure, etc., regarding the safety of the product. Also, Mr Du pointed out the most common impurities found in raw materials, as per the list below:
• Catalyst for chemical synthesis (it should be removed, but sometimes residue will remain).
• Intermediate chemical, transition chemical during chemical synthesis (it should be transformed into chemicals of final state, but sometimes residue will remain).
• Side-chemical, during chemical synthesis.
• Alkaloids, heavy metals, rare earth elements.
• Pesticide residues.
• Antifeedant.
• Solvents for plant extraction (it should be removed, but sometimes residue will remain).
Raw materials suppliers have the responsibility to ensure the quality of raw materials. But cosmetic companies should also take the responsibility for ingredient selection, monitoring and quality control of raw materials. Alongside product safety, in February 2010, SFDA issued a draft of “list of forbidden wordings for cosmetic product”. All wordings are in simplified Chinese but due to the cultural differences, some common wordings for cosmetic promotion in foreign countries are forbidden in China. The China cosmetic regulation system is complicated but in order to best accommodate risk management it is important to understand as much as possible.
Notes
• Hong Kong Cosmetic Technical Resources Centre (CTR) is a joint-venture established by CMA Testing and Certification Laboratories (CMA Testing) and International Cosmetic (Asia Pacific) Joint Development Centre (ICJDC) in 2006. CTR covers technical support, quality control, professional training, product development, production technology, market trends, regulations and license application for the cosmetic industry.