Asia

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

BEIJING (FINANCIAL TIMES) – For evidence of China’s US$50 billion (S$67 billion) obsession with cosmetic surgery, look no further than a “little red book”.

That is the English translation of Xiaohongshu, the beauty-focused ecommerce and social media app popular among young Chinese women on which the hashtag #PreAndPostOp has garnered more than 290,000 posts. Many of them flaunt before-and-after photos of overhauled jawlines, plumper lips and reconstructed cheekbones.

But since the start of July, the market value of the country’s three biggest publicly traded medical aesthetics companies has fallen by a third, representing a collective loss of more than US$17 billion, despite the popularity of cosmetic procedures.

That shift in investor sentiment suggests the days of China’s youth going under the knife in pursuit of facial perfection might be numbered, as President Xi Jinping tries to reshape the country’s cultural and business landscape as part of a “common prosperity” drive.

Investment bank Citic estimated sales revenues in China’s aesthetic medicine market were more than 330 billion yuan (S$68 billion) in 2020. But analysts warn that the industry could take a heavy blow if Beijing concludes that the sector’s negative social influence is on a par with private tutoring and online gaming – industries where strict regulations have incinerated the dominant groups’ market values in recent months.

“It is perfectly possible we may see another industry disappear,” said Mark Tanner, managing director of China Skinny, a marketing company.

State media have stepped up criticism of the industry for promoting the idolisation of physical appearances and piling further misery on young people already self-conscious about their looks.

In a commentary published on Tuesday (Sept 14), party mouthpiece the People’s Daily warned that cosmetic surgery industry advertising had “crossed the regulatory bottom line”. The paper warned against ads featuring before-and-after photos of Chinese celebrities designed to “lure in consumers” and called for “standardised regulation of this lucrative new industry without delay”.

Tanner, a veteran analyst of China’s beauty sector, said that many in the country would greet a crackdown on cosmetic surgery positively.

“Everyone is not so ‘perfect looking’, then there is not as much pressure for you to spend your hard-earned savings and do the same,” he said.

Investor unease has mounted alongside health officials’ concerns over the proliferation of illegal surgeries carried out by unlicensed clinics, which have drawn stern reproof from Beijing over “appearance anxiety” and “younger-age surgical clients”.

Last month, exchanges in Shanghai and Shenzhen banned structured debt products linked to consumer loans for cosmetic procedures.

Traders hunting for regulators’ next target have homed in on So-Young, the Nasdaq-listed app that lets users rate their own facial features, draw up plans for tweaks and find plastic surgeons. The ratio of short interest in So-Young relative to total share turnover – a measure of bets against the company – has surged in recent weeks as its stock has tumbled to a record low, down more than half this year.

“The market is right to be cautious here”, said Brock Silvers, chief investment officer at Kaiyuan Capital. Silvers said a disappointing recovery in consumer spending in China this year had helped hobble the stocks of cosmetic surgery companies, while the latest signals from Beijing “can’t bode well for near-term growth prospects”.

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Officials have also expressed unease about trends in Chinese beauty standards. Go Youn-jung, a 25-year-old South Korean actress, is the most popular model for “copy surgeries”, which seek to replicate the features of celebrities, according to So-Young. Pre- and post-op pictures on social media of men often show off delicate features that resemble idols from South Korea and, increasingly, China – a trend state media have lambasted for supposedly undermining Chinese masculinity.

There are also signs of growing public awareness of body image sensitivities. Posts on social network Weibo with hashtags such as #DoYouHaveAppearanceAnxiety and #SayNoToAppearanceAnxiety have been viewed about 490 million times and drawn tens of thousands of responses.

Some Chinese youths welcome an industry reckoning. “The education industry has been hit so hard”, Weibo user Camry wrote in a recent post. “Please take more vigorous measures against the cosmetic surgery industry.”

A crackdown from regulators could undo years of rapid expansion in the cosmetic industry and upset expectations for blockbuster growth. So-Young has already been downloaded more than 400 million times in China since its launch in 2014, according to Qimai Data, a provider of online data services.

Estimates of the value of China’s aesthetic medicine market vary, but industry analysts agree the sector has grown at a searing pace that had been widely expected to continue. A report released in January by Deloitte forecast the value of licensed cosmetic surgery businesses in China to exceed 310 billion yuan by 2023, a more than 50 per cent increase from 2020 and a more than tenfold rise from 2012. Citic, whose estimates also include unlicensed businesses, projected the industry could be worth more than 1 trillion yuan by 2030.

But as expectations that regulators will intervene grow, investor concerns have already spread beyond public markets, putting off private funds normally eager to throw money at cosmetic surgery start-ups.

“We had previously been looking into potential investment targets among plastic surgery or aesthetic medicine companies,” a China-focused private equity investor told the Financial Times. But in the face of a looming regulatory backlash, the fund has decided to take the entire industry “out of the equation” for future portfolios, the investor said.

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