Regulatory Headwinds Take Luster Off Beauty Industry Stocks

Twin regulatory headwinds for China’s booming “medical beauty” industry — one focused on financial and another on medical risks — have battered associated stocks.

Regulators are bearing down on the potentially risky practice of lending cash to people to undergo cosmetic medical procedures, then bundling those loans into asset-backed securities traded on Chinese exchanges, Caixin has learned.

The Shanghai and Shenzhen stock exchanges have barred loans tied to cosmetic procedures — usually taken out by consumers — from asset-backed securities traded on the bourses, according to a person familiar with the new rules, which will be applied to new issues.

In a separate development, the National Medical Products Administration, the country’s top drug and medical devices regulator, said in a notice (link in Chinese) that chemical peeling, a popular beauty procedure in which a chemical solution is applied to the skin to remove off the outer layers, should only be performed by trained professionals at qualified hospitals or clinics.

The regulator asserted that chemical peeling treatments — which commonly use one or more types of acid — can potentially cause serious harm. It reiterated that over the counter cosmetics are banned from claiming or implying medical benefits and should avoid inappropriate marketing terms such as “skin renewal” to prevent misleading consumers. An iResearch report (link in Chinese) stated that there are more than 80,000 businesses unlawfully operating medical beauty procedures in the country in 2019, and two out of every three cosmetics injection products are illegal.

Skin treatments such as chemical peels are one of the three main categories of “medical beauty” procedures available in China. The other two are plastic surgery, and the broad category of injectable procedures, which include the injection of plastic “fillers” beneath the skin, according to an industry analyst.

Hong Kong-listed Sisram Medical Ltd. and Shanghai Fosun Pharmaceutical Group Co. Ltd. were among the worst hit, with shares of both plunging more than 12% on Wednesday. Sisram stabilized Thursday at HK$17.62 ($2.26), while Fosun Pharmaceutical recovered some of its losses to close up 2.15% at HK$61.65.

Shares of Shanghai-listed Bloomage Biotechnology Corporation Ltd. (688363.SH), one of the world’s largest manufacturers of the hyaluronic acid often used in cosmetics and beauty treatments, dropped 2.3% to close at 212.02 yuan ($32.73) on Wednesday before slipping a hair more Thursday, while Shenzhen-listed Imeik Technology Development Co. Ltd. (300896.SZ) was down 4.44% to close at 623 yuan.

“There have been many disputes in the medical cosmetology industry, and once you get involved with loans linked to medical aesthetics, it’s even riskier,” an industry insider told Caixin, adding that the industry is being viewed as the next target for scrutiny following the regulatory tightening of the country’s tutoring sector.

Two months ago in June, the National Health Commission and seven other government agencies published a plan (link in Chinese) for a crackdown on illegal medical cosmetology services this year, while the National Internet Finance Association issued a notice (link in Chinese) barring financial institutions from working with illegal medical cosmetology organizations and providing related financial products and services to the customers of these organizations.

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According to a Deloitte report, China’s aesthetic medicine market is expected to grow from 177 billion yuan in 2019 to 311 billion yuan in 2023. As for the chemical peeling treatments market, it boomed to nearly 900 million yuan between May 2020 and May this year, a report released in June from Beauty Data.ai showed.

However, China’s aesthetic medicine industry, particularly in the field of cosmetic surgeries, has seen various cases of fatalities and emergencies resulting from negligence, with one of the most recent cases being the death of an influencer on July 13 following a liposuction procedure two months earlier in Hangzhou, Zhejiang province. An investigation (link in Chinese) found that the clinic had lacked expertise, took improper steps during the operation and failed to act in a timely manner during post-surgery follow up assessments.

“Our city will learn from this incident and strengthen the management of medical institutions and ramp up efforts on the rectification of the chaos in the medical beauty industry,” Hangzhou’s health commission said in a statement.

Contact reporter Kelsey Cheng (kelseycheng@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)

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