K-beauty sector cautiously optimistic on trade with China

The Korea Times

The Korea Times

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Mon, December 4, 2023 | 15:28

Industry

K-beauty sector cautiously optimistic on trade with China

Posted : 2017-11-24 10:55

Updated : 2017-11-24 19:19

Actress Jun Ji-hyun appears for a cosmetics ad in Beijing subway station in this Nov. 15 file photo, in a departure from the past several months when chilly Seoul-Beijing relations over THAAD stalled active exchange. /Yonhap

By Kim Ji-soo

Since Korea's installation of a U.S. Terminal High Altitude Area Defense (THAAD) last July, the nation's relationship with China has been tense. In particular, trade between the two nations has stalled as China banned various consumer goods and services from Korea, such as cosmetics and entertainment and halted group tours here.

But a few recent signs have made both Chinese consumers who are fans of K-products and services and Korean manufacturers optimistic. A cosmetics billboard ad featuring top Korean actress Jun Ji-hyun appeared in Beijing recently. Likewise, workers in the cultural content and food industries said they are seeing more Chinese tourists in their localities. One travel agency said it recruited a group tourists from Shanghai, who will arrive in Jeju Island late November.

It's been a while since China overtook the United States as Korea's largest export market. Statistics show that China accounts for about a quarter of Korean exports. While trade between Korea and China has experienced friction throughout the decades, the most recent friction has impacted "hallyu"-related products and services the most. For example, in Korea's trade account, audio and video services saw a surplus of only $179.9 million in the first half of 2017, down 23.2 percent from the second half of 2016.

Meanwhile, K-beauty companies are coping with the trade issues by trying to find new markets. Top cosmetics original design manufacturer Cosmax saw its sales in China decline from the second quarter this year, although according to PR official Seo Yun-won, the company expects to bounce back in 2018.

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The trade issues have not deterred Cosmax from its pursuit of the world's No. 1 cosmetics market, the United States. It recently acquired American cosmetics manufacturer NuWorld Beauty for 56 billion won ($50 million) as part of its efforts to increase worldwide sales to 3 trillion won by 2020.

"By acquiring NuWorld Beauty, which is the third largest cosmetics producer in the United States, we are hoping to realize the goal of making 200 billion won in sales in the United States three years earlier than forecast," Seo said. Also, with NuWorld Beauty's expertise in makeup and its factory in Solon, Ohio, Cosmax said it will be actively targeting the Latin American market, which is an emerging cosmetics market, along with Southeast Asian nations.

On Oct. 31, Korean cosmetics company It's Hanbul said in a press statement that the China Food and Drug Administration green-lighted production at its factory at the Cosmetics Industrial Zone in Huzhou, China, after applying for entry into the zone in 2015. The company will produce its signature products, including Prestige Cream D'escargot, which is made with snail mucin. An It's Hanbul PR official Choi Yeong-hwan said while the approval is not necessarily a sign of the thawing of the Korea-China relations, it is a necessary final step in the company's plan for expansion.

But analysts continue to have a mixed outlook on Korea-China trade, saying the current trade issues will affect various sectors and companies in Korea differently.

"Overall, trade with China, especially exports, has not been affected, as Korea's exports from January through October this year rose 13.2 percent. China still imports intermediary goods, but of course, cultural goods and services and some consumer goods have been affected," said Lee Sang-jae, chief economist at Eugene Investment. With Chinese President Xi Jinping more firmly in power, his affirmation for better bilateral ties may well translate into amicable trade measures, he said.

But this year's trade issues with China have also served as a juncture for Korean manufacturers to rethink their overwhelming dependence on the Chinese market. "Diversification should always be an ongoing goal, but it does not mean a reduction of exports to China per se," said Lee Geun-tae, an economist of the LG Economics Research Institute. Overall, the challenge for Korean firms is to change the perception of China as an export market for intermediary goods to a production base for Korean products, because Chinese consumers are aging and Chinese real estate prices are rising.

"Diversification would be good, but China is still growing solidly," said Lee of Eugene Investment, adding that Korean companies may want to continue to compete in the biggest and fastest-growing market.

janee@ktimes.com