The medical beauty industry in China covers both surgical and non-surgical procedures and is the target of new regulations to crack down on misleading advertising and illegal practices. The state market regulator has also now categorized medical beauty advertisements as equivalent to medical advertising.
On August 27 2021, the State Administration for Market Regulation (SAMR) released guidelines categorizing medical beauty advertising as medical advertising. Because of this, beauty advertisers will be required to acquire special licensing before placing adverts, which was previously reserved for medical advertisers. Amid a rise in public complaints and embellished adverts, this move was anticipated.
To create more standardization and to safeguard consumers, the SAMR has drafted the “Medical Beauty Advertising Law Enforcement Guide”. Cracking down on illegal and false medical beauty advertisements and supervising the sector better is a priority for the state regulator.
To comply with the new regulations, medical beauty advertisers will need to obtain a license to advertise, and adverts will need to follow regulations, making sure they do not cause ‘appearance anxiety’ or advertise products not yet approved by the drug administration department. Companies will also not be able to disguise adverts as interviews or reports.
These new guidelines are part of a small wave of new regulations issued in the last year to regulate the sector. Earlier in the 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 barred from collaborating with illegal medical cosmetology organizations. It is expected that the new regulations will increase the quality of products and practice within the industry.
Since regulations are expected to get stricter, some investors have expressed concerns. However, the medical beauty industry is largely booming. The industry refers to both surgical and non-surgical procedures.
Globally, the biggest players in the medical beauty industry are:
Alongside 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 tops for cosmetic and beauty treatment consumer spending. Growing at an annual compound growth rate of 28.7 percent in 2015, the market value is far higher than the global average according to Deloitte and Meituan. This growth is expected to continue, with an estimated CAGR of 7.7 percent from 2018 to 2023. The rise in disposable incomes, medical tourism, a growth in plastic surgeons, and a growing awareness of medical procedures has contributed to this.
In 2020, China established 5,150 new medical beauty institutions. Accounting for 17 percent of the world’s total, the market reached 197.5 billion yuan (US$30.5 billion) in 2020. In the next five years, China is predicted 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 with surgeons via a directory. In the first quarter of 2019, So-Young announced a total revenue of US$30.7 million. It is expected that there will be a shift away from traditional marketing avenues towards social media advertising and the use of online-to-offline (O2O) apps, such as MeiTuan Aesthetic Medicine, Tmall Aesthetic Medicine, GengMei, and So-Young.
More than 30 percent of the medical beauty industry’s revenue is used for marketing. Medical beauty companies’ profits move upstream to manufacturers, whereby the gross margins are usually over 70 percent. Meanwhile, medical beauty companies operate with net margins as low as six percent, many close to making losses.
According to third-party studies, the reason for the low margins is the high costs of marketing and sales, with the average cost of engaging a customer being between 3,000 and 5,000 yuan. Frost & Sullivan report that at medical beauty institutions, sales and marketing spending accounted for 25 percent to 35 percent of revenues in 2019.
In the past 10 years, there has been an increase in non-surgical aesthetic procedures, with a clear preference arising over traditional surgical methods. In China, HA (hyaluronic acid) injections and botox make up the majority of non-surgical procedures.
In 2020, non-invasive procedures dominated the medicinal beauty market, accounting for a revenue share of 52.5 percent. China’s HA filler market is currently dominated by foreign brands. These are Allergan (US), LG (Korea), Q-Med (Switzerland), and Humedix (Korea). The top Chinese brands are Bloomage, Imeik, and Haohai. In China, domestic cosmetic injectable brands grew at a CAGR of +32 percent during 2014 and 2018, which is higher than the +19 percent CAGR of foreign brands.
The COVID-19 pandemic has affected the medical beauty market significantly, with the beauty market in particular facing challenges in supply and manufacturing chains. The market is facing some short-term negative growth, with many beauty centers being closed temporarily and challenges arising in providing services during lockdowns. However, with the resumption of daily life, consumption is increasing again. COVID-19 has also helped to speed up the process of digitalization of the medical beauty market. Internet-based platforms have decreased high customer acquisition costs and aided decision-making for customers by decreasing information opacity.
According to Deloitte China Life Sciences & Health Care (LSHC) Team and Meituan, based on their report released this year, there were seven listed companies that had A-shares in the medical beauty industry. (A-shares are generally only available for trading to 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, attire company Lancy Group purchased two Chinese medical beauty brands. These were Milan Boyu and Jingfu, totaling six institutions. In January 2018, they were able to acquire 100 percent equity in Xi’an Gaoyisheng Aesthetic Medicine Hospital for 267 million yuan. They have integrated large surgical hospitals and smaller chain clinics in Xi’an and Chengdu via a system they have developed.
Between July and November 2016, Chinese retailer Suning Global acquired twelve medical beauty hospitals besides investing in in the Gengmei app. In August 2017, Chinese investment bank GTJA invested 200 million yuan into Xichan Plastic Surgery’s 1+N chain model. They also invested 100 million yuan into Huahan plastic surgery in June 2018.
By 2022, the plastic surgery market in China is expected to grow to 300 billion yuan (US$46.54 billion). Data from iResearch shows that the growth rate of the China medical beauty industry between 2015 and 2019 was one of the highest in the world.
Medical beauty stocks were doing well in the first half of 2021. Six companies peaked on June 1 while 13 companies hit their yearly highs. Aoyuan Beauty Valley, healthcare company Huadong Medicine, and Jinfa Labi made high-value and profile acquisitions, pushing stock prices up. Majority shareholders were able to offload holdings this year, with nearly half of the companies in the sector’s shareholder liquidating billions by cutting their stakes.
At the end of May, there were rumors about a regulatory crackdown so stock prices in the sector fell. In August, two regulations were announced (on medical risks and financials), which affected the medical beauty industry and affected stocks negatively. Shares of one of the largest manufacturers of the hyaluronic acid, Shanghai-listed Bloomage Biotechnology Corporation Ltd., fell 2.3 percent in August. Shenzhen-listed Imeik Technology Development Co. Ltd. fell 4.44 percent.
An anticipated move, the SAMR has now categorized beauty advertising as medical advertising, but that shouldn’t dissuade investors as it could trigger positive developments. China’s medical beauty market is growing at a faster pace than the global market, driven by higher consumer disposable incomes and acceptance of what industry watchers label ‘aesthetic medicine’. Consumer groups in the country fall across diverse categories by age, gender, spending capacity, region, etc. Foreign investors should note that medical beauty in China includes both surgical and non-surgical options, with the latter finding more favor with the market. The experience of the pandemic has also forced the industrial supply chain to become more agile and reshape as several offline institutions were unable to function as normal. Now, access to market and target advertising, among other things, are becoming more efficient through digitization initiatives, such as proliferation of vertical apps, self-media, and integrated e-commerce channels.
Despite anxieties about regulatory tightening, China’s medical beauty industry has invited investor interest from both within and external players. 2019-2020 witnessed the integration of middle and lower stream companies and the clear emergence of top companies with capital market listing across all segments of the industrial value chain. The regulatory tightening will likely accelerate industrial reforms leading to technological sophistication, higher quality focus, professional specialization of aesthetic medicine practitioners, elevation of medical beauty establishments, and adoption of global best practices in the Chinese medical beauty industry. This will complement and promote the growth of more premium offerings and push the industry towards a mature phase of development.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into 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 firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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