Cosmetics and Toiletries Industry in Hong Kong

Overview

• Hong Kong has a small cosmetics and toiletries manufacturing sector, with a number of companies producing mid-priced toiletries and perfumes under their own brands. Choi Fung Hong’s cosmetics and toiletries brands, such as Joseristine, are made in Hong Kong. Recently, a number of Hong Kong skincare brands such as JaneClare and The Preface have emphasised that their products are ‘made in Hong Kong’. Nevertheless, international brands dominate in Hong Kong’s mid- to high-end market.

• Mainland China is a huge market for imported cosmetics and toiletries. Under the “one country, two systems” arrangement, imports into Hong Kong are tax-free, making Hong Kong one of the main entrepôts for imported cosmetics on the mainland. Consequently, the value of cosmetics and toiletries re-exported from Hong Kong to the mainland has risen significantly in recent years.

• While whitening and anti-ageing products remain popular among Asian female consumers, demand for men’s grooming products and skincare has increased substantially in recent years. A number of international brands have tailored their skincare products to the male market.

Industry Features

The cosmetics and toiletries manufacturing sector in Hong Kong is small, with most manufacturers concentrating on the production of mid‑priced toiletries and perfumes, particularly for markets such as mainland China, Southeast Asia and the United States. These are usually produced under their own brands.

Most companies in the industry are traders, acting as agents to sell to mainland China, the US, Macao, Japan, Southeast Asia and the EU. Some Hong Kong spa and beauty salons also act as agents for cosmetics and skincare products looking to sell into Asia.

A number of traders have good connections, serving as useful links for selling professional product lines to beauty salons on the mainland. Hong Kong traders make good partners for foreign brands, given their market knowledge, skills, connections and integrity. They are also useful when it comes to handling entry procedures for goods being imported, with these tending to require the disclosure of confidential information, such as product formulae.

Export Performance ^{^}

^ Since offshore trade is not captured by ordinary trade figures, these numbers do not necessarily reflect all the export business managed by Hong Kong companies.

* No significant changes

^# As the UK has left the EU since 1 Feb 2020, EU figures do not include those of the UK.

Sales Channels

Most companies in the industry are traders who act as agents for international cosmetics brands looking to sell to mainland China, Macao and Southeast Asian markets. Hong Kong is home to a large number of experienced distributors, many of whom are well versed in regional market conditions and regulations. They are capable of acting as distributors for popular brands, targeting the general public and devising comprehensive marketing initiatives. Hong Kong’s cosmetics and toiletries manufacturers, such as Choi Fung Hong, tend to highlight the Hong Kong origin of their products, which are targeted at the retail markets in mainland China and Southeast Asia.

Large numbers of mid‑ and high‑end foreign brands have established sales counters in local department stores and opened outlets in shopping malls. Their experience stores at shopping malls provide customers with a learning platform for using their products. Many international cosmetics and toiletries brands have also set up offices in Hong Kong to assist in market development.

Speciality cosmetics chains are well developed in Hong Kong, with Sasa, Bonjour, Aster, Colourmix and Angel Beauty Bar taking the lead. These companies mainly sell international brands with deep discounts, offering private label products as well, and they are very popular among consumers. Health and personal care chains, such as Watson’s and Mannings, have shifted their focus more towards cosmetics and skincare products in recent years, selling mainly international brands. During the pandemic, many cosmetics chains in Hong Kong have developed their online channels and are selling their merchandise to local and global customers via e‑commerce.

Social media have become important marketing channels in recent years. Many cosmetics and skincare brands, including local ones such as The Preface and Miya’s Works, have begun to promote their products through social media, such as Instagram and YouTube. Some brands have even invited internet celebrities or key opinion leaders (KOLs) to review their products for marketing purposes.

Industry Trends

The world cosmetics market, especially the higher‑end segment, has long been dominated by a number of global giants such as P&G, Unilever, Shiseido, L’Oreal and Estee Lauder. Armed with technology and cost advantages and supported by global production plants, they occupy the top tier of the market. However, cosmetics from other brands, notably those from South Korea, have been gradually gaining popularity among Asian consumers in recent years. These products mostly come in a diverse mix at a price lower than those of international brands. They therefore appeal to the younger generation, who have lower income but a stronger appetite for novelty and a notable preference for product personalisation.

OEM production is not widespread in the cosmetics sector. This is largely due to the strict requirements for quality control and the desire to protect product formulas. Many manufacturers have set up their own R&D departments to develop unique formulas for their products. As mainland China has gradually grown into a major market, a substantial number of international brands have set up R&D bases on the mainland to develop specific products for mainland consumers and those in other Asian regions.

Several international suppliers have reached licensing agreements with supermodels and fashion brands to develop fragrances and cosmetics products. Some have also collaborated with top fashion brands to offer more personalised choices to consumers under their private labels, notably Anna Sui, Chanel, Christian Dior and Armani.

The growing importance of online sales and digital marketing has led to widespread concern about the impact of new retail formats on sales performance. In the meantime, the ease of online access to product information has posed a challenge to cosmetics brands seeking to maintain consumer loyalty. They are keen to publicise the unique values and concepts behind their products to gain the approval of consumers and retain their customer base for the long term.

As environmental protection has become a more important customer concern, many businesses are investing actively in green development. Specific measures include promoting low‑carbon production in their plants, adopting packaging materials that can degrade naturally or offering waste recycling services to customers.

CEPA Provisions

Following the implementation of the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III) in January 2006, all products of Hong Kong origin can be imported into the mainland with zero tariffs.

In December 2018, mainland China and Hong Kong entered into the Agreement on Trade in Goods under the CEPA framework to enhance the arrangements for CEPA Rules of Origin. With effect from 1 January 2019, all goods of Hong Kong origin enjoy zero‑tariff preference when imported into the mainland. The new Agreement on Trade in Goods allows products currently not covered by the CEPA Rules of Origin to enjoy tariff‑free treatment provided they comply with the general rule of origin requirement calculated on the basis of Hong Kong’s value‑added content.

The Agreement also allows companies the flexibility to choose between the original CEPA build‑up method or the newly introduced build‑down method in calculating the value‑added content in Hong Kong. For details about the rules of origin requirements, please refer to the Trade and Industry Department’s CEPA webpage.

General Trade Measures Affecting Cosmetics and Toiletries Exports

Since 1 July 2018, China has cut import tariffs on a range of consumer products. The average import duty on toiletries, cosmetics (including skincare and hair products) and certain medical/health products has been reduced from 8.4% to 2.9%.

In June 2020, China promulgated the Regulations on Supervision and Administration of Cosmetics. This new set of regulations took effect on 1 January 2021, replacing the Regulations on Hygienic Supervision of Cosmetics which had been in use for years. Under the new regulations, cosmetics are classified as special cosmetics or general cosmetics according to their risk level. Enterprises importing special cosmetics, that is, those used for hair dyeing, perming, spot removal, skin whitening, sun screening and preventing hair loss, must register first with the medical products administration department under the State Council. For general cosmetics, filing with the medical products administration department is required before importation. In 2021, following the implementation of the Regulations on Supervision and Administration of Cosmetics, the State Administration for Market Regulation and the National Medical Products Administration under it issued a number of administration rules, including the Administrative Measures for the Registration and Record Filing of Cosmetics, the Classification Rules and Classification Catalogue of Cosmetics, the Administrative Provisions for Cosmetics Labelling, the Provisions on the Supervision and Administration of Cosmetics for Children, and the Registration and Filing Procedures for New Cosmetic Ingredients.

Product safety and environmental issues are major trade concerns in many overseas markets. In the US, the Centre for Food Safety and Applied Nutrition of the US’s Food and Drug Administration (FDA) is the official body monitoring the safety of all imported cosmetics. Cosmetics exported to the US must comply with the provisions of the Federal Food, Drug and Cosmetic (FD&C) Act and the Fair Packaging and Labeling (FP&L) Act, as well as regulations published under the authority of these laws. In December 2015, the US Congress passed the Microbead-Free Waters Act, and a new provision was added to the FD&C Act to prohibit the use of plastic microbeads in rinse‑off cosmetics (including toothpastes). Full implementation of the new provision took effect on 1 July 2019.

The EU Regulation 1223/2009 (Cosmetics Regulation) came into force on 11 July 2013. This strengthens the safety of cosmetics products and streamlines the regulatory framework for all operators in the sector. A number of significant changes were introduced under the Cosmetics Regulation. These include the need for manufacturers to follow specific requirements in the preparation of a product safety report prior to placing a product on the market, as well as stipulation that only cosmetics products for which a legal or natural person has been designated within the EU as the “responsible person” can be placed on the market.

The new Cosmetics Regulation allows for the precise identification of the responsible entity and clearly outlines their obligations. There are also additional requirements on the chemical contents of cosmetics products such as colouring and preservatives.

In Japan, the Pharmaceutical Affairs Law was renamed the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices(PMD Act) in 2014. Application for a licence must be made for cosmetics to be sold in Japan. In applying for such a licence, a distributor must produce information on the sales and usage of the cosmetics overseas as well as their compositions and safety data. Principal distributors involving in procedures such as final packaging, preparing Japanese labels or warehousing imported merchandise must apply for a cosmetics manufacturing licence.

Product Trends

Cosmetics tends to have a shorter life cycle than many fast consumer goods. In mature markets, the average lifetime of cosmetics items can be as short as one month. Colours and shades play an important role, and these elements are heavily influenced by fashion trends, popular tastes and seasonal moods. These trends usually originate in large‑scale trade fairs in Europe, and spread to the US, then to Japan and other Asian regions, through trendsetter magazines. Cosmetics giants have a huge influence on these magazines. It is important for manufacturers to offer a wide selection of trendy colours and shades for each season.

In recent years, ‘cosmeceutical’ products have become popular. Cosmeceuticals are cosmetics that incorporate vitamins, herbal extracts and sometimes pharmaceuticals, such as vitamin‑C lotions, tea tree oil‑infused cleansers and collagen masks (collagen is used in the treatment of burns). Many medicinal beauty products highlight their anti‑ageing skincare functions.

Dermatology is incorporated into product development, and products catering for different skin types are available. Active ingredients being added to cosmetics include plant extracts and traditional Chinese herbs, especially among Chinese, Japanese and Korean‑made cosmetics.

Organic and natural cosmetics made from mineral pigments and organic plant extracts, which provide natural sunscreen or long‑lasting colour, and deliver a healthy‑looking radiant glow, are also gaining popularity. Unlike conventional cosmetics, none of these products contain artificial fragrances or oil by‑products, making them ideal for those with sensitive skin.

An increasing number of professional products with specific functions have emerged in recent years, in line with consumers’ increasing expertise in applying makeup. Such consumers pay more attention to the ingredients and properties of their cosmetics, and they match and apply them in more complex ways.

Many products are also moving towards beauty salon standards and claiming to deliver salon quality results. A number of at‑home body‑firming products represent attempts to compete with salon products. This trend may continue in the long term as the persistence of the slimming trend is still driving consumer demand for firming products. Men’s skincare products are also expected to become more specialised as the market matures.