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"China is one of the most important countries for our overseas business operations; it is a huge market, backed by a population of about 1.3 billion, about 10 times Japan's population."
- Tadakatsu Saito, Director of Shiseido1

Steady economic growth over the last two decades has elevated the living standards of millions of Chinese citizens. In 2003, the urban disposable income per capita reached US$1,024 [see Exhibit 1]. This rise in disposable income has driven higher private consumption, translating into greater spending on personal care products in the burgeoning cosmetics industry. According to the China Association of Fragrance, Flavor and Cosmetics Industry (CAFFCI), in 2003, China had become the second-largest cosmetics market in Asia after Japan, and was the eighth largest in the world [see Exhibit 2].2 However, with a population of 1.3 billion, the Chinese cosmetics market was relatively untapped when compared with other major markets.3

This clear potential has not only attracted international cosmetics giants, but also led to the emergence of domestic cosmetics producers. This case examines the characteristics of China’s Cosmetics Industry, including demand factors, product development, production, distribution and major competitors in the arena.


China has a long history of manufacturing cosmetics, which can be traced back to the Jing dynasty (from 265 A.D. to 420 A.D.). The modern history of Chinese cosmetics originated from a Yangzhou brand “Xie Fu Chun”, which was established in Jiangsu province in 1830.4

Before 1949, almost all cosmetic products were hand-made at small-scale factories that were characterized by low output and little variety. The cosmetics industry stagnated between 1949 and 1979, because cosmetics were regarded as an extravagance, and were not advocated by the government at that time. In 1979, the “Open Door Policy” heralded a series of wide-ranging economic reforms. For instance, it permitted the development of private and semi-private enterprises to produce goods; attracted foreign investment; introduced free market pricing and liberalized foreign exchange conversion to an extent.

The Chinese cosmetics industry, thus, moved on to the fast track, experiencing wide ranging and rapid development. Cosmetics manufacturers mushroomed in Guangdong province and other coastal regions such as Shanghai. During the 1980s, cosmetics and toiletries became one of the most important segments of China’s light industry, and the number of cosmetics factories in China increased six-fold from 1982 to 1990.5
1 “Asian Cosmetics Market to Swell”,, November 21st 2003.
2 Global Cosmetic Industry, New York: Nov 2003, Vol.171, p45.
3 “Cosmetic Sales On the Rise in China”, China Daily, November 7th 2003.
4 Liu Botao. “Cosmetics Industry Development Report 2002”,, (accessed February 23rd 2005).
5 Nathalie Laidler and John A. Quelch. “Mary Kay Cosmetics: Asian Market Entry”, Harvard Business School Case.
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