The medical beauty industry in China covers both surgical and non-surgical procedures and is the target of new regulations aimed at cracking down on misleading advertising and illegal practices. The state’s market regulator has also classified medical beauty ads as equivalent to medical advertising.
On August 27, 2021, the State Administration for Market Regulation (SAMR) issued guidelines categorizing medical beauty advertising as medical advertising. For this reason, beauty advertisers will need to acquire a special license before placing ads, which was previously reserved for medical advertisers. Amid an increase in public complaints and embellished ads, this move was anticipated.
To create more standardization and protect consumers, SAMR has drafted the “Medical Beauty Advertising Law Enforcement Guide”. Fighting against illegal and deceptive medical advertising and better supervising the sector is a priority for the state regulator.
These new guidelines are part of a small wave of new regulations released last year to regulate the industry. Earlier this year, the National Health Commission and seven other government agencies released a plan to tackle illegal medical cosmetology. The National Internet Finance Association clarified that financial institutions were prohibited from collaborating with illegal medical cosmetology organizations. The new regulations are expected to increase the quality of products and practices within the industry.
China’s medical beauty industry
As regulations are expected to become more stringent, some investors have expressed concerns. However, the medical beauty industry is largely booming. Industry refers to both surgical and non-surgical procedures.
Globally, the biggest players in the medical beauty industry are:
- Allergan-AbbVie (United States)
- Alma Lasers, Ltd. (Israel)
- Anika Therapeutics (United States)
- Baush Haealth (United States)
- Cutera, Inc. (US)
- Cynosure (United States)
- Fr. SpA (Italy)
- Fotona doo (Slovenia)
- Galderma (Switzerland)
- Johnson & Johnson (United States)
- Medytox, Inc. (South Korea)
- Merz Pharma GmbH & Co. KGaA (Germany)
- Sientra, Inc. (US)
- Sinclair Pharma PLC (United Kingdom)
- Syneron Medical, Ltd. (United States)
Along with Brazil, Mexico and India, China is an emerging player in the medical beauty market. China has one of the largest medical beauty markets in the world. China leads consumer spending on cosmetics and beauty care. With a compound annual growth rate of 28.7% in 2015, the market value is well above the global average according to Deloitte and Meituan. The increase in disposable income, medical tourism, the increase in the number of plastic surgeons and a growing awareness of medical procedures have all contributed to this.
In 2020, China established 5,150 new medical beauty establishments. Representing 17% of the global total, the market reached 197.5 billion yuan ($ 30.5 billion) in 2020. Over the next five years, China is expected to have the world’s largest medical beauty market.
Plastic surgery apps, such as the So-Young app (listed on the Nasdaq), suggest surgeries to users using AI technology and connect them to surgeons through a directory. In the first quarter of 2019, So-Young reported total revenue of US $ 30.7 million. It is expected that there will be a shift from traditional marketing avenues towards social media advertising and the use of online to offline (O2O) applications, such as MeiTuan Aesthetic Medicine, Tmall Aesthetic Medicine , GengMei and So-Young.
Over 30 percent of the medical beauty industry’s revenue is used for marketing. Profits from medical beauty companies are shifting upstream to manufacturers, where gross margins are typically over 70%. Meanwhile, medical beauty companies operate with net margins as low as six percent, with many close to making losses.
According to third-party studies, the reason for the low margins is the high costs of marketing and sales, the average cost to engage a customer is between 3,000 and 5,000 yuan. Frost & Sullivan reports that in medical beauty salons, sales and marketing expenses accounted for 25-35% of revenue in 2019.
Over the past 10 years, there has been an increase in non-surgical cosmetic procedures, with a clear preference for traditional surgical methods. In China, HA (hyaluronic acid) injections and botox constitute the majority of non-surgical procedures.
In 2020, non-invasive procedures dominated the medicinal beauty market, accounting for a revenue share of 52.5%. The Chinese market for HA fillers is currently dominated by foreign brands. These are Allergan (United States), LG (Korea), Q-Med (Switzerland) and Humedix (Korea). The main Chinese brands are Bloomage, Imeik and Haohai. In China, domestic brands of injectable cosmetics grew at a CAGR of + 32% in 2014 and 2018, which is higher than the CAGR of + 19% of foreign brands.
Impact of COVID-19
The COVID-19 pandemic has significantly affected the medical beauty market, with the beauty market in particular facing challenges in supply and manufacturing chains. The market is facing negative growth in the short term, with many beauty centers being temporarily closed and challenges arising in the provision of services during closings. However, with the resumption of daily life, consumption increases again. COVID-19 has also helped accelerate the process of digitalization of the medical beauty market.
According to the Deloitte China Life Sciences & Health Care (LSHC) team and Meituan, based on their report released this year, there were seven listed companies that held A shares in the medical beauty industry. (A-shares are generally only available for trading with mainland Chinese citizens.) Huadong Medicine, Shuanglu Medicine, Xinhuajin, and Guanhao Biotech are involved in upstream technology or products. Meanwhile, Lancy Group, Good Master and Suning Global are involved in medical beauty institutions.
In June 2016, clothing company Lancy Group purchased two Chinese brands of medical beauty products. These were Milan Boyu and Jingfu, totaling six institutions. In January 2018, they were able to acquire 100% stake in Xi’an Gaoyisheng Aesthetic Medicine Hospital for 267 million yuan. They integrated large surgical hospitals and smaller clinics in Xi’an and Chengdu through a system they developed.
Between July and November 2016, Chinese retailer Suning Global acquired twelve medical beauty hospitals in addition to investing in the Gengmei app.
In August 2017, Chinese investment bank GTJA invested 200 million yuan in the 1 + N chain model of Xichan Plastic Surgery. They also invested 100 million yuan in Huahan plastic surgery in June 2018.
Market forecasts and inventory status
By 2022, the plastic surgery market in China is expected to reach 300 billion yuan ($ 46.54 billion). Data from iResearch shows that the growth rate of China’s medical beauty industry between 2015 and 2019 was one of the highest in the world.
Medical beauty stocks performed well in the first half of 2021. Six companies peaked on June 1 while 13 companies hit their annual highs. Aoyuan Beauty Valley, healthcare company Huadong Medicine and Jinfa Labi have made high value and profile acquisitions, driving up stock prices. Majority shareholders were able to offload this year, with nearly half of the sector’s shareholder companies liquidating billions by reducing their stakes.
At the end of May, rumors circulated of a regulatory crackdown and stock prices in the sector fell. In August, two regulations were announced (on medical risks and finances), which affected the medical beauty industry and negatively affected stocks. Shares of one of the largest manufacturers of hyaluronic acid, Shanghai-listed Bloomage Biotechnology Corporation Ltd., fell 2.3% in August. Imeik Technology Development Co. Ltd., listed in Shenzhen, fell 4.44%.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors in China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the company for assistance in China at [email protected]
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, USA, Germany, Italy, India and Russia, in addition to our business research facilities along the Belt & Road initiative . We also have partner companies helping foreign investors in the Philippines, Malaysia, Thailand and Bangladesh.