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Cablegate: Guangdong's Cosmetic Makers Sees Stronger Safety Regulation

VZCZCXRO7642
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0487/01 2240933
ZNR UUUUU ZZH
R 110933Z AUG 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7499
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAUSA/DEPT OF HHS WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 02 GUANGZHOU 000487

SENSITIVE
SIPDIS

STATE PASS CONSUMER PRODUCTS SAFETY COMMISSION RICH O'BRIEN/INTL
PROGRAMS
STATE PASS USTR CHINA OFFICE
STATE PASS HOMELAND SECURITY COUNCIL
STATE PASS IMPORT SAFETY WORKING GROUP

E.O. 12958: N/A
TAGS: ETRD EIND TBIO ECON PGOV CH
SUBJECT: Guangdong's Cosmetic Makers Sees Stronger Safety Regulation
for Exports, Not for the Domestic Market

REF: 07 GUANGZHOU 966

(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.


1. (U) Summary: The Chinese government's regime for protecting
consumers from unsafe cosmetic products has strengthened in the last
year -- foreign consumers that is. Executives in Guangdong's
cosmetic manufacturing industry point out that government testing
and inspection of export products has increased but this has not
necessarily been the case for products sold on the domestic market.
In addition, some warn that intense price competition may be leading
some manufacturers to cut corners when it comes to product quality.
Manufacturers complain that the regulatory structure is too
complicated, coordination between agencies is still lacking and some
products may fall through the cracks in the oversight system. End
summary.

A Stronger Product Safety Regime...for Some
-------------------------------------------

2. (SBU) Chinese government agencies have tightened testing and
inspection regimes that monitor the safety of cosmetic exports over
the last year, but, according to multinational and local
manufacturers, little has changed in terms of monitoring products
sold on the domestic market. Lisa Wu, Manager of Regulatory,
Compliance, and Analytical Science for Colgate-Palmolive
(Guangzhou), told us that Colgate sees firsthand the disparity that
exists in the treatment of its products for the two markets. She
noted that Colgate maintains a much closer relationship with
Guangdong's China Inspection and Quarantine (GD CIQ) office, which
is responsible for monitoring product quality for exports, than with
the provincial Technical Supervision Bureau (GD TSB), GD CIQ's
domestic counterpart, even though most of the products it makes here
(about 60 percent) are destined for the local market. According to
Wu, GD CIQ takes samples from every shipment, but GD TSB visits the
Colgate plant only twice a year.

3. (SBU) Echoing Wu's comments, Bill Li, Procter and Gamble's (P&G)
Associate Director for Regulatory & Consumer Relations in greater
China, noted that over the last twelve months, his firm had observed
much stricter regulation of products intended for foreign markets,
with GD CIQ testing nearly every shipment. In contrast, Jiang
Shenxiao, the manager of Guangzhou Pure Cosmetic Co, Ltd., which
sells only to the domestic market, said that he had not observed any
stricter government regulation of his company's products in recent
years.

Price Competition Leading to Product Quality Shortcuts?
--------------------------------------------- ----------

4. (SBU) At the same time, some producers warn that fierce price
competition may be leading some manufacturers to cut corners on
product quality. Liu Dong, the manager of Colornow Cosmetics
Limited, a Guangzhou cosmetics manufacturer, explained that his
company is finding it difficult to expand domestic sales due to
fieQindustry competition. Liu argued that Colornow takes product
quality seriously, pointing out that it sends every new product to
SGS, an internationally renowned third-party testing company, and
employs sophisticated, but costly, testing equipment. However, he
believes that smaller manufacturers would be unwilling to make a
similar investment in quality assurance.

5. (SBU) Guangzhou Pure Cosmetic's Jiang also commented that intense
competition among international brands and thousands of domestic
brands could affect quality. Although he asserted that his company
had not sacrificed product quality, he noted that there was strong
pressure from increasing costs for labor and raw materials to
consider doing so. Jiang said that his company had reduced staff
and eliminated some salary increases in order to cope with these
rising costs.

Complicated Regulatory System Causes Headaches...
--------------------------------------------- ----

6. (SBU) Guangzhou's cosmetics makers complain that the complex web

GUANGZHOU 00000487 002 OF 002


of regulations and regulatory agencies that oversee product quality
for the industry is not only confusing but also counterproductive
because so many agencies perform similar functions. Several
executives pointed out that they must get both a production license
from TSB and a sanitation license from the Guangdong Food and Drug
Administration even though the procedures are similar and subsequent
inspections by the two agencies are virtually identical. P&G's Li
commented that the central government should recognize that it has
limited resources and thus should streamline the whole process to
achieve its product safety goals. He commented that the recent
merging of State Food and Drug Administration (SFDA) into the
Ministry of Health was a step in the right direction, but there was
still a lot of overlap among different agencies.

7. (SBU) Several companies highlighted regulations on labeling and
advertising as particularly problematic, especially those governed
by the Administration for Industry and Commerce (AIC). According to
Colgate's Lisa Wu, AIC is not adequately equipped to test the
validity of advertising claims. Even if the claims are supported by
clinical studies conducted by third parties, AIC often rejects them
and issues fines, she said. She remarked that AIC had been slower
to adopt a customer service mindset than other government agencies.
Moreover, some executives expressed suspicion that AIC officials
received bonuses based on the fines they levy.

...and Creates Cracks and Loopholes
-----------------------------------

8. (SBU) With so many agencies and little coordination, it is not
surprising that some things will fall through the cracks and that
loopholes will emerge -- which is exactly what happened in the case
of toothpaste and beauty salons. AQSIQ has classified toothpaste as
a cosmetic product since 2007. However, the Ministry of Health,
which oversees the local FDA offices, does not. Guangdong FDA
officials confirmed to us that because they do not classify
toothpaste as a cosmetic, they are not responsible for regulating
and supervising its manufacture. Nevertheless, they told us that
the agency had strongly recommended that toothpaste be classified as
cosmetic because current government oversight for the product was
not sufficient.

9. (SBU) Colornow's Liu pointed out that a similar problem existed
in the regulation of products sold at beauty salons. He said that
supermarkets and beauty salons served as the two major retail
channels for hair products in China. Supermarkets strictly control
the labeling and packaging of products, but beauty salons actually
have much lower standards, according to Liu. He believes that this
disadvantages consumers and the government should invest more in
monitoring products sold through salons.

GOLDBERG

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