Against the backdrop of the high-quality development of the industry, many cosmetics companies have been hesitant to proceed.
Recently, the Guangzhou Municipal Administration for Market Regulation issued a notice stating that it has cancelled the cosmetics production licenses of 23 cosmetics manufacturing companies, including Guangli Cosmetics Factory in Liwan District, Guangzhou, based on their applications. It is understood that these companies have all chosen to “voluntarily cancel” their licenses.
So, why have they chosen to voluntarily cancel their licenses? Is the industry about to experience a wave of factory closures?
23 companies voluntarily canceled their licenses, some of which had obtained their licenses less than half a year ago.
According to CHAILEEDO’s investigation, the majority of these 23 companies are small and micro enterprises, with registered capital ranging from 100,000 RMB to 33 million RMB. Among them, 19 companies have registered capital below 5 million RMB, accounting for over 82% of the total.
Among the 23 companies, 6 were established before 2010, with the earliest being Guangzhou Baiyun Lianjia Fine Chemical Factory (“Guangzhou Baiyun Lianjia”). It is reported that this company is an old factory under the cosmetics enterprise Danzi Group and has produced several well-known brands such as Danzi and Shuimima.
Of the 17 companies established in 2010 or later, the youngest is Shao Bo (Guangzhou) Biopharmaceutical Co., Ltd. (“Shao Bo Biopharmaceutical”), which was founded in September 2021. According to publicly available information from the National Medical Products Administration, Shao Bo Biopharmaceutical obtained its cosmetics production license on February 22, 2022, and the license is valid until December 26, 2026. In other words, the factory’s license still has about 3 years before expiration. According to the cosmetics regulation app, the company has only registered one essence oil product in 2022.
Furthermore, the company with the shortest duration of holding the license is Guangzhou Zhenzhili Cosmetics Co., Ltd. (“Guangzhou Zhenzhili”). According to publicly available information from the National Medical Products Administration, the company obtained its cosmetics production license on August 23, 2023, and it was canceled on January 18 this year, with a duration of less than half a year.
In terms of product categories, most of these 23 companies are engaged in both cosmetics production and sales. These companies have all registered multiple brands’ cosmetics products in the past. However, except for a few companies that have recent product registrations, most companies’ last product registrations date back to 2022 or even earlier. For example, Guangzhou Yicheng Biotechnology Co., Ltd. has not registered any new products since 2020.
In terms of product categories, about 60% of the companies focus on skincare, while the remaining 40% are mainly engaged in makeup, hair dye, hair care, and other categories. Additionally, many companies produce products in multiple categories, including makeup and hair care.
Some companies have a “blemished record,” while others are undergoing “upgrades.”
It is worth noting that among the aforementioned 23 companies, 8 of them have previously been fined for violating cosmetics-related regulations, and many of them are repeat offenders who have been fined multiple times.
For example, Guangzhou Liangxin Fine Chemical Co., Ltd. was fined a total of approximately 190,000 RMB by the Liwan District Market Supervision Administration in Guangzhou in September and October of last year for producing unregistered special cosmetics, producing cosmetics with inconsistent ingredient labels, and producing substandard cosmetics.
In addition to the above-mentioned companies, Guangzhou Bomeifen Biotechnology Co., Ltd., Guangzhou Debeifu Biotechnology Co., Ltd., Guangzhou Youshang Cosmetics Co., Ltd., Guangzhou Chengshun Cosmetics Co., Ltd., and other companies have also been fined by regulatory authorities.
Furthermore, four companies have been listed as dishonest persons subject to enforcement, defendants subject to enforcement, and subject to high consumption restrictions. They have also faced multiple lawsuits. For example, Guangzhou Suoruo Biotechnology Co., Ltd. has been listed as a dishonest person subject to enforcement and subject to high consumption restrictions. According to information from Qichacha, the company is currently involved in nearly 10 disputes, and it is the defendant in all cases. In addition, in November of last year, the company was fined 241,300 RMB by the Huadu District Market Supervision Administration in Guangzhou for producing products that did not meet the technical requirements stated in the registration materials. The company is currently listed as “abnormal business operation.”
Not only Guangzhou Suoruo, but also Guangzhou Huile Biotechnology Co., Ltd., Guangzhou Bomeifen, Guangzhou Zhenzhili, and other companies are also listed as having “abnormal business operations.”
Although most of these companies have a blemished record, not all of them voluntarily canceled their production licenses due to difficulties in adapting to market competition. According to CHAILEEDO’s understanding, some of the companies among the aforementioned 23 voluntarily canceled their production licenses as part of normal business adjustments.
For example, the voluntary cancellation of Guangzhou Baiyun Lianjia’s license was due to DANZ Group moving to a new factory. According to an engineer from the company, the old factory is no longer used, and all products under the DANZ Group are now produced in a modern new factory. CHAILEEDO has noticed that the current registrant companies for brands such as Wetcode and DANZ under the DANZ Group are Guangzhou Kenergy Cosmetics Research Co., Ltd., whose legal representative is Zhang Chubiao, the founder of the DANZ Group.
Furthermore, a staff member from Guangzhou Youshang Cosmetics Co., Ltd. stated, “The reason for the cancellation is that the factory can no longer meet the current business needs. Therefore, we have relocated the new factory to Qingyuan and will also establish a new factory in Foshan.”
Therefore, it can be seen that some factories may have been voluntarily canceled due to natural elimination caused by insufficient competitiveness, while others are undergoing upgrades and replacements.
“The factory is not exempt from the Pareto principle.”
In fact, according to the cancellation notices of cosmetics production licenses issued by regulatory departments in various provinces, approximately 170 companies have canceled their “Cosmetics Production Licenses” since January of last year, with Guangdong Province having the highest number of cancellations, reaching nearly a hundred. According to incomplete statistics from CHAILEEDO, in 2023, a total of 43 cosmetics companies went bankrupt, including some well-established companies with a history of over 20 years. The wave of factory closures and bankruptcies has been occurring one after another.
There is no doubt that since the implementation of the new regulations more than three years ago, it has been a painful period for both brand owners and factories. It’s a survival of the fittest, and those who are not suitable are eliminated. From the perspective of factories alone, the “Cosmetic Production Quality Management Specification,” which officially came into effect on July 1, 2022, is the yardstick for measuring whether a cosmetics factory meets the standards under the new regulations. This regulation clearly stipulates requirements for factory hardware facilities, traceability during cosmetics production, sample retention, and other aspects, and it is regarded by the industry as the Cosmetic Production Good Manufacturing Practice (GMPC).
According to CHAILEEDO’s investigation, some of the aforementioned companies have already stumbled over this regulation. For example, Guangzhou Kaiyang Cosmetics Co., Ltd. was investigated and found to have issues that did not comply with the requirements of the “Cosmetic Production Quality Management Specification Inspection Points and Determination Principles” (commonly known as the new “105 Points”), such as “The person in charge of quality and safety did not conduct audits and management of formulations, production processes, and material suppliers,” “The person in charge of quality management did not develop validation plans and reports for production processes and did not evaluate material suppliers,” and “The company’s employee training records are incomplete and do not reflect the assessment methods and results.”
Furthermore, according to the requirements of the “Cosmetic Production Quality Management Specification,” “For enterprises that obtained a cosmetic production license before July 1, 2022, if their factory facilities and equipment and other hardware conditions need to be upgraded and renovated, they must complete the upgrade and renovation by July 1, 2023.” It is evident that this is also one of the important reasons for many companies to relocate and undergo upgrading and transformation.
What can be observed is that under the new regulations, cosmetics factories are experiencing a significant polarization. Some industry veterans have stated, “The ‘Pareto principle’ is now appearing in the factory side as well. Some are being eliminated, while others are upgrading and growing larger. This wave of license cancellations may continue for some time.” This can also be seen from the above analysis: some companies are still being fined repeatedly for failing to adapt to the new regulations, while others are meeting the new requirements by upgrading to modernized factories.
In summary, for the cosmetics industry to move towards high-quality development, it is inevitable for non-compliant, incompetent, and companies with inadequate hardware and software to be eliminated. The batch of companies in Guangzhou that voluntarily canceled their cosmetics production licenses at the beginning of this year is a microcosm and a true reflection of the industry’s development.
