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Investors bet China’s cosmetic surgery industry is next on regulators’ hit list

Chinese language enterprise & finance updates

For proof of China’s $50bn obsession with beauty surgical procedure, look no additional than a “little purple ebook”.

That’s the English translation of Xiaohongshu, the beauty-focused ecommerce and social media app well-liked amongst younger Chinese language ladies on which the hashtag #PreAndPostOp has garnered greater than 290,000 posts. Lots of them flaunt before-and-after photographs of overhauled jawlines, plumper lips and reconstructed cheekbones.

However because the begin of July, the market worth of the nation’s three greatest publicly traded medical aesthetics firms has fallen by a 3rd, representing a collective lack of greater than $17bn, regardless of the recognition of beauty procedures.

That shift in investor sentiment suggests the times of China’s youth going underneath the knife in pursuit of facial perfection is perhaps numbered, as President Xi Jinping tries to reshape the nation’s cultural and enterprise panorama as a part of a “common prosperity” drive.

Funding financial institution Citic estimated gross sales revenues in China’s aesthetic medication market have been greater than Rmb330bn ($51bn) in 2020. However analysts warn that the business might take a heavy blow if Beijing concludes that the sector’s unfavourable social affect is on a par with personal tutoring and online gaming — industries the place strict rules have incinerated the dominant teams’ market values in current months.

“It’s completely doable we may even see one other business disappear,” mentioned Mark Tanner, managing director of China Skinny, a advertising and marketing firm.

State media have stepped up criticism of the business for selling the idolisation of bodily appearances and piling additional distress on younger folks already self-conscious about their appears to be like.

In a commentary printed on Tuesday, social gathering mouthpiece the Individuals’s Each day warned that beauty surgical procedure business promoting had “crossed the regulatory backside line”. The paper warned in opposition to advertisements that includes before-and-after photographs of Chinese language celebrities designed to “lure in shoppers” and referred to as for “standardised regulation of this profitable new business immediately”.

Line chart of Share price change (%) showing China's aesthetic medicine stocks underperform

Tanner, a veteran analyst of China’s magnificence sector, mentioned that many within the nation would greet a crackdown on beauty surgical procedure positively. “[If] everybody isn’t so ‘good wanting’, then there may be not as a lot strain so that you can spend your hard-earned financial savings and do the identical,” he mentioned.

Investor unease has mounted alongside well being officers’ issues over the proliferation of unlawful surgical procedures carried out by unlicensed clinics, which have drawn stern reproof from Beijing over “look nervousness” and “younger-age surgical shoppers”.

Final month, exchanges in Shanghai and Shenzhen banned structured debt merchandise linked to client loans for beauty procedures.

Merchants attempting to find regulators’ subsequent goal have homed in on So-Younger, the Nasdaq-listed app that lets customers charge their very own facial options, draw up plans for tweaks and discover plastic surgeons. The ratio of brief curiosity in So-Younger relative to whole share turnover — a measure of bets in opposition to the corporate — has surged in current weeks as its inventory has tumbled to a document low, down greater than half this yr.

“The market is correct to be cautious right here”, mentioned Brock Silvers, chief funding officer at Kaiyuan Capital. Silvers mentioned a disappointing restoration in consumer spending in China this yr had helped hobble the shares of beauty surgical procedure firms, whereas the most recent indicators from Beijing “can’t bode properly for near-term progress prospects”.

Column chart of Value of China's aesthetic medicine market (Rmb bn) showing China’s cosmetic surgery sector had been tipped for roaring growth

Officers have additionally expressed unease about tendencies in Chinese language magnificence requirements. Go Youn-jung, a 25-year-old South Korean actress, is the most well-liked mannequin for “copy surgical procedures”, which search to copy the options of celebrities, in keeping with So-Younger. Pre- and post-op footage on social media of males typically exhibit delicate options that resemble idols from South Korea and, more and more, China — a pattern state media have lambasted for supposedly undermining Chinese masculinity.

There are additionally indicators of rising public consciousness of physique picture sensitivities. Posts on social community Weibo with hashtags resembling #DoYouHaveAppearanceAnxiety and #SayNoToAppearanceAnxiety have been considered about 490m occasions and drawn tens of 1000’s of responses.

Some Chinese language youths welcome an business reckoning. “The schooling business has been hit so arduous [by regulators]”, Weibo consumer Camry wrote in a current submit. “Please take extra vigorous measures in opposition to the beauty surgical procedure business.”

A crackdown from regulators might undo years of fast enlargement within the beauty business and upset expectations for blockbuster progress. So-Younger has already been downloaded greater than 400m occasions in China since its launch in 2014, in keeping with Qimai Information, a supplier of on-line information providers.

Estimates of the worth of China’s aesthetic medication market range, however business analysts agree the sector has grown at a searing tempo that had been broadly anticipated to proceed. A report launched in January by Deloitte forecast the worth of licensed beauty surgical procedure companies in China to exceed Rmb310bn by 2023, a greater than 50 per cent enhance from 2020 and a greater than tenfold rise from 2012. Citic, whose estimates additionally embody unlicensed companies, projected the business could possibly be price greater than Rmb1tn by 2030.

However as expectations that regulators will intervene develop, investor issues have already unfold past public markets, laying aside personal funds usually desirous to throw cash at beauty surgical procedure start-ups.

“We had beforehand been wanting . . . into potential funding targets amongst cosmetic surgery or aesthetic medication firms,” a China-focused personal fairness investor informed the Monetary Instances. However within the face of a looming regulatory backlash, the fund has determined to take all the business “out of the equation” for future portfolios, the investor mentioned.

Reporting by Hudson Lockett in Hong Kong, Sherry Fei Ju in Beijing and Edward White in Seoul

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