(Yicai) Nov. 17 -- The Chinese cosmetics market has remained weak despite rebounding this year, and with too many foundries, many small and mid-sized businesses had fewer orders in the peak season, with most facing operational issues, according to industry insiders.

Only 20 percent of Chinese cosmetic companies are growing well, and the rest are struggling to survive, Lin Chun, president of the Guangzhou Cosmetics Industry Association, told Yicai. Many SMEs are on the verge of closing, Lin noted.

One reason why SMEs are struggling is that there are too many manufacturers, according to industry insiders. China had 5,512 cosmetics makers at the end of last year, data from the National Medical Products Administration showed.

Another reason is that most cosmetics foundries in China are low-end and labor-intensive, with great room for improvement in production scale, processing equipment, research and development capabilities, and management, the insiders noted.

The peak season for cosmetic shipments every year is after the National Day holiday, but only two of Guangzhou Bokali Biotechnology's 10 production lines have been operating normally recently, Xu Kang, head of the company, said to Yicai.

Lu Chen, owner of another cosmetics business, noted that in previous years his firm could deliver enough goods to load one or two trucks a day in peak season, but now it is hard to fill up even one over several days because of slack orders.

The market changed significantly during the Covid-19 pandemic. Sales at Bokali reached more than CNY20 million (USD2.8 million) in 2020 but shrank to just over CNY15 million in 2021, and CNY10 million last year, Xu noted. "Business remains difficult this year despite the recovery,” he added.

China's cosmetics industry has been picking up this year, according to figures from the National Bureau of Statistics. Retail sales rose 8.6 percent in the six months ended June 30 from a year earlier, after having an annual drop for the first time in 10 years in 2022, down 4.5 percent from the year before.

“Business has been quite difficult in the past few years, much more difficult than I could have imagined,” said Liu Qin, head of Bencao Future Biotechnology. A lack of big orders, clients wanting lower prices, and rising rent and labor costs along with other higher expenses halved the firm’s revenue and led to a 30 percent drop in profit this year from last, Liu noted.

Most clients of original design manufacturers are emerging brands that update quickly, leading to large fluctuations in the number of customers and unstable cooperation, said Lu Chen, a worker at a cosmetics ODM business. “It’s possible that all of our clients will disappear overnight,” Lu said.

Editor: Martin Kadiev