China Economy Situation
China’s economy has experienced astounding growth in the recent decades catapulting it to be the second biggest economy in the world. The introduction of economic reforms in 1978 is widely attributed to be the major factor that drove the country to success making it world’s manufacturing hub, with the secondary sector representing the largest share of GDP. However, the tertiary sector became the largest in 2013 accounting for 46.1 percent share, while the secondary sector recorded 45.0 percent and were propelled by modernization. The country’s GDP has been on an upward gain over the years; for instance, USD 5574.2 in 2011 and USD 7590 in 2014, giving the residents a strong purchasing power. Average income differs across the country (between 26,140 ($4,211) to 102,268 Yuan ($16,475)), with Beijing being ranked the first with an average salary of 102,268 Yuan ($16,475) in non-private sectors. Strong government policy support structures and extension of affordable credit facilities to the citizens have been applauded for this quick growth.
2.2 China’s Economic Policy
The fast economic growth in the recent decades can be attributed to the country’s increased integration into the global economy and the government’s unparalleled support (Focus Economics). On the other hand, many challenges arose with the successful implementation of the economic model, including increasing environmental issues, escalating economic inequality, and an aging population. These challenges prompted the Chinese authorities to hold a meeting in 2013 and unveiled strategies for economic reform. The factors that were championed were to give the market a significant role in resource allocation, promoting market-oriented reforms in state-owned corporations, accelerating interest rate liberalization and exchange rate reforms. Some of the notable areas were the reforms in the Hukou household system of registration, farmer’s property rights, and social welfare, as well as the judicial and fiscal system. Additionally, the president initiated an aggressive anti-corruption campaign that targeted senior government officials.
2.3 Exports and Imports
The exponential growth of China’s economy was also promoted by export and import initiatives. The success was attributed to favorable global trade conditions and the 2001 accession to the World Trade Center (Focus Economics) giving it 26.9% growth annually in really goods and services exports during the 2002-2008 period. Even though the exports plummeted in 2009 due to the 2008 financial crisis that caused the reduced global demand, there was a strong rebound in shipments between 2010 and 2011 jumping from $267 billion in 2001 to $2.2 trillion in 2013, representing an average annual growth of 20.2 percent.
2.4 China Consumer Research
2.4.1 Population Research
By the World meters’ report, China is the most densely inhabited country in the world with 1.38 billion people in 2016. The the median age is 37.3 while the urban population is at 57.9 percent and is increasing each advancing year. The fraction of the elderly to the overall population is on an upward increase and is promoted by the “one child” policy and low mortality.
2.4.2 Consumer Research
CNBC report in 2015 indicated that there was a 6.9 percent growth in China and also showed that Chinese households are wealthy enough, have the purchasing power to indulge in various brands and preferences. There is also an increase in newly wealthy upper middle class that is not only buying appliances but also beauty products. The number of affluent middle class is projected to double to 100 million by 2020, which will be approximately 30 percent of all urban households. Comparatively, in 2010, this number was 7 percent and at the present stands at 17 percent, making it the biggest consumer group in the country. The population’s spending power is also estimated to go up from the current 44 percent to 60 percent by 2025, and this will also be catapulted by internet penetration. The country’s per capita consumption is anticipated to be $4,400 by 2025, compared to $32,000 in the US currently (World Bank).
Women are increasingly becoming influential in consumer demands and consumption in the country as they are financially autonomous. The rate of female employment has hit historical heights in the present times, with 38 percent of those employed holding high-level job titles (World Bank). For instance, of women deciding on household purchases, 86 percent of them are the central decision-makers when it comes to buying cosmetics. With the increased income, women can now spend extra money to enhance their appearance, health, and self-esteem. Studies in this area have pointed out that the demand for weight loss, fitness, beauty, and anti-aging products and procedures in China and other same tier countries continuing to rise. Skin care is estimated to take 60 percent of the whole beauty market, implying that Chinese women are taking skin care very seriously, particularly facial care, with each woman estimated to have and actively using 3-5 skincare products at one time.
The online retail penetration rate in China was at 29.5 percent in 2009 and 55.7 percent in 2014, and from the total population, 69 percent of female consumers prefer online purchases. With the strong purchasing power, the number of women, as the major buyers online continues to rise. The online shopping providers continue to increase, whether local or international, diversified or niche products and this provides an opportunity for cosmetic retailers to promote their businesses through this platform.
- INDUSTRY RESEARCH
4.1Global Beauty Market
According to research the estimated global skin care from 2012 to 2021 in USD is in 2012: 99.6$, 2013: 105$, 2014: 110$, 2015: 115$, 2016: 121$, 2017127$, 2018: 133$, 2019: 140$ and in 2020: 154$. Asia has the major market share globally, with South Korea in particular topping with cosmetic improvement. India and China have been speaking in opposition to beauty products experimented on animals.
According to the Euromonitor International, there are four main trends in skin care industry:
- Technology such as cleansing machines, anti-ageing and electronic face masks devices among other innovations, take firm hold of the beauty industry.
- Estée Lauder’s stated that niche is the new mainstream.
- The influence of Asia in cosmetics is projected to continue taking over
- Animal testing ban will expand further in Asia
There is an alarm about the effects of skincare components because about sixty percent of these manufactured goods are absorbed and deposited into the circulatory system.
4.2 China Beauty Market
Asia customers, China being the leading nation, are currently more inclined to natural resource based skin care products since they believe they are healthier and contain less chemical ingredients.
Trends in China Cosmetics Market:
- Male cosmetics rose to 8.5% in 2014
- The sale of cosmeceuticals (herbal cosmetics) has grown at an average annual rate of 10-20%
- Consumers are more self-governing in cosmetic decisions
- Consumers are more knowledge of the safety issues of cosmetic products
- All-natural DIY cosmetics are becoming more popular
- ORGANIC MARKET
5.1 Global Organic Market
Size and Opportunity
The demand for organic skin care products was more than 7.6 billion U.S. dollars by 2012 and may exceed 13.2 billion dollars by 2018, which is an expected rise of 9.9%.
5.2 China Organic Market
Over 80% of urban Chinese client’s care about their health by buying organic food and drink products. This means that there is a growing awareness of organic for self-protection.
Imported Organic/Natural Cosmetics Products situation
- Complexities of regulatory requirements for animal testing hamper the growth of cosmetic products
- Low availability of certified organic ingredients and natural extracts holds back sales in China. For instance, there has been a movement of ‘boycott China’ in Asia over animal testing claims
- Locally Produced Organic Products in China
China became the second largest organic product in the world, but after numerous food scares, its people have become disappointed with the communist regime’s inability to properly regulate the food industry, with the USA’s FDA refusing shipments from China.
Organic Monitor has listed the following issues of organic products produced in China:
- The “organic” label fails to account for the environmental contamination released by industrial wastewater in China.
- Frequent fraudulent categorization of organic products for a higher profit
- Organics are often certified by 3rd party vendors instead of the Certification and Accreditation Administration (CNCA)
- Lack of regulations is causing abuse and illegal doings in the market of organic products
- Corruption is widespread as the regime keeps covering up scandals by controlling the media and censoring internet exposes and promoting a facade of stability and prosperity.
5.3Definitions and Regulation
5.3.1 Natural Skincare Definition
Natural skin care has naturally available components like animal-derived products and minerals. These natural components are listed in Latin within the item for consumption, while the synthetic ones are listed by technical name. Over the 10,500 acknowledged ingredients, only a small fraction has been tested for harmless usage. From small percentage tested, some products have shown traces of cancer-causing products; others cause birth defects and others are reproductive toxicants. Unlike China, which terms any product that has a natural ingredient as “organic”, the US has no legal definition for the unregulated advertising terms “natural” or “organic” when it comes to cosmetics.
5.3.2Regulations of ‘Organic’
USDA’s Organic Labeling Categories
- 100% organic: pure organic components used
- USDA Organic: at least 95% organic components used
- Made with more than 70% organic ingredients: at least 70% organic components used
- Made with less than 70% organic ingredients: no “organic” term on the product
FDA’s Regulations of Organic
- FDA does not have a definition for the term “organic”
- The term “organic” is defined and regulated by the National Organic Program, which also provides the labeling standard from the percentage of organic ingredients found in a product.
- A beauty product is required to adhere to the laws and regulations of FDA if it is branded “organic”
Regulation of Organic in China
- Certification: All natural products must acquire Chinese organic documentation to lawfully sell in China.
- Cosmetics Products: China has no standards for its organic beauty products.