Cablegate: Guangdong Cosmetics Manufacturers Reacting to Consumer

DE RUEHGZ #0966/01 2420041
R 300041Z AUG 07




E.O. 12958: N/A
SUBJECT: Guangdong Cosmetics Manufacturers Reacting to Consumer
Product Safety Concerns

1. (U) SUMMARY: Cosmetics manufacturers in southern China are
acutely aware of heightened consumer product safety concerns. One
manufacturer told congenoffs that local authorities lack capacity to
enforce safety and quality standards. However, some firms are
taking steps on their own to help foreign customers feel more
confident in their products. END SUMMARY.

Cosmetics Makers Trying to Clean Up Their Act

2. (SBU) In an August 29 meeting, Ren Jie, the owner of Guangdong
Irene Cosmetics Co. Ltd, told us that the cosmetics industry in
China had been shocked by the flurry of consumer product safety
problems and had since made changes to improve their quality
assurance processes. According to Ren, Irene Cosmetics, with revenue
in excess of USD $10.6 million, is China's largest perfume exporter
to the U.S., and the fourth largest exporter of perfume to the U.S.
in the world. Ren noted that officials with China's Administration
of Quality Supervision and Inspection and Quarantine (AQSIQ) were
taking product safety issues very seriously because they feared
losing their jobs should problems arise under their jurisdictions.
Ren believes that quality control in the industry will improve in

Talking the Talk, But Can They Walk the Walk?
3. (SBU) Despite heightened concerns, Ren told us that the capacity
to enforce safety and quality standards was still lacking. He
explained that AQSIQ's local subordinate office, the Guangdong Entry
and Exit Inspection and Quarantine Bureau, is supposed to test every
batch of export products but is unable to do so because it is
severely understaffed. Irene Cosmetics takes it own product samples
and sends them to the agency. Ren said AQSIQ doesn't bother to check
his firm's export containers, allowing him to export on his good

Raising Quality to Meet Customer Demand

4. (SBU) Ren cited an example of how Irene Cosmetics has improved
product quality in response to a request from a U.S. client. The
firm introduced an additional purification process for the alcohol
used in perfumes after a request by the company that sells Brut. The
U.S. client requested this enhancement stating that the outdated
equipment used in China's domestic alcohol manufacturing did not
produce sufficiently pure alcohol. Irene Cosmetics initiated a
secondary purification process combining a chemical and a boiler
distillation step. Ren highlighted his advantage over competitors as
the only Chinese perfume manufacturer with an alcohol boiler on the
factory's campus.

Colornow Strives For U.S. Export Business

5. (SBU) The owner of Colornow Cosmetics Co., a small Guangdong
based cosmetics firm, manufacturing mostly hair products, is also
acutely aware of the consumer product safety concerns as he strives
to secure orders from U.S. buyers. Frank Fang, Colornow's owner,
told congenoff that over half of the firm's output is exported to
international markets, but he has yet to export goods to the United
States. Colornow is currently in the final stage of selection to
fill a bath gel order for Target. The factory has passed the
facility inspection, the testing of the first batch of product, and
now hopes to receive the order this November. Fang feels that a few
bad apples have made it hard on small manufacturers like him, who,
he says, maintain high quality standards for reasons of national
pride and because they simply have too much to lose.

6. (SBU) However, Fang also indicated that some smaller export
customers do little due diligence and testing of products made by
Chinese manufacturers. He described how he had met foreign trade
partners through internet forums. Some of these customers made an
initial inspection visit but thereafter used a testing agency to
ensure product quality and safety.

Trusting Suppliers

7. (SBU) Colornow places a high degree of confidence in single
supplier of ingredients. Croda Ltd, a global specialty chemical
company headquartered in the UK, is Colornow's only supplier for
almost all of its inputs. Fang commented that many other local
cosmetics producers also rely on Croda. He told congenoff that Croda
is well known in China, actively promoting their products by hosting
events usually attended by 100-200 business people. He deems Croda,
with their worldwide production bases and international
certifications to be trustworthy. However, Mr. Fang admits that has

GUANGZHOU 00000966 002 OF 002

no idea where Croda's ingredients are produced and performs only
limited testing on the ingredients they supply.

The High Price of Quality Control Failure
8. (SBU) Colornow became sensitive to the importance of product
quality standards after a bad experience with a new product shipped
to the Netherlands. His customer rejected the shipment because it
was defective. Fang cited improper humidity and temperature control
in production as the cause. It was an expensive lesson, as Fang had
to compensate the client. Since then he has been assessed and
certified by SGS, a leading third-party inspection company that
follows U.S. FDA standards, and he has attained ISO 9001:2000
certification. In addition, his firm pays to have its products
tested by SGS periodically to make sure that they meet international

Different Standards May Be Harmful to Chinese Consumers
--------------------------------------------- ----------
9. (SBU) Both cosmetics manufacturers indicated that there was a
double standard in production and product safety standards for
domestic goods versus those for export. In addition to frequently
changing taste in packaging and preference for larger sizes among
western consumers, Irene's Ren explained that safety standards were
much higher for cosmetics sold abroad. When asked where his greatest
concern lies in cosmetic product safety, he identified skin
whitening creams, a staple in any Chinese cosmetics aisle, as the
greatest risk. Ren said that the active ingredients in these
products are most likely unsafe and could cause health problems and
skin damage. Because of these concerns, he no longer produces any
products with skin whiteners. Colornow's Fang explained that
because Chinese customers perceive foreign products to be of higher
quality, his firm's professional line of hair care products sold
exclusively in China are conspicuously packaged and labeled
completely in English. The Chinese directions for product use and
ingredients list are discretely printed on the inside of the box.


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