Accordingly, this segmentation means that the battle is heating up for Western companies to carve out a niche for their brands while the market is still relatively young, which in turn should lead to increased investment in marketing during the course of 2006.
The segmentation of the market means that now foreign and joint venture brands mainly dominate the top end and premium sections of the market, while domestic brands centralize in middle and low grade market by way of small profits but quick turnover, according to the latest report by specialists Research and Markets.
The scramble for the market has led to a huge influx of new products and brands, with over 1,300 skin care products now filling the shelves of Chinese retail outlets, a figure that is being added to on a weekly basis. Breaking this figure down, skin care sales in different regions account for 26-35 per cent of the total cosmetics sales, because the purchase rate and usage rate of skin care products in China are relatively high.
However, putting this into context and also reflecting the immaturity of the market, it is equally interesting to note that only five years ago, the market was limited to a handful of very simple domestic skin care brands and a smattering of high end brands.
Research and Markets statistics reveal that worldwide skin care sales are about $28.7 billion, accounting for over 15 per cent of total cosmetics sales. A look at the regional global markets reveals that Europe leads the way with a 31 per cent ($8.9bn) slice of the global skin care market, with Japan occupying 20 per cent and the US on 19 per cent.
Putting China's skin care sales into a global context, the figures reveal that, although it is proving to be highly dynamic, it is still relatively small, with global sales of $1.58 billion.
According the report, fierce competition has meant that domestic brands have been 'multi-polarized'. This means that some once famous brands have died out or declined to regional brands.
But in the face of this hardship two domestic companies in particular are bucking this trend. Shanghai Jahwa, Beijing Sanlu and Shenzhen Lisida, have focused on brand value and establishing a strong brand to make great progress in the market and have won a strong position in the middle and low grade markets, the report stresses.
Another point in favour of the multi-nationals is the fact that they have tended to concentrate on the upper and premium end of the skin care market. Bearing in mind that the spending power of the average Chinese consumer is continuing to grow exponentially, in line with the country's economy, it is likely that this end of the market will show more promise in the future.
And there are still more threats looming for the domestic players. The report's authors point out that as trans-nationals are using the Chinese market as a base to realize their worldwide expansion goals, the pricing and distribution network advantages domestic brands once had will disappear, leaving them open to even fiercer competition.
Of the international players, Proctor & Gamble has kept ahead of rival L'Oreal in the all-important skin care category, with sales of its Olay brand helping to buoy its position. This gave P&G a 13.4 per share of the mass market skin care category.
However, L'Oreal is catching up fast on P&G, having jumped from a 6.7 per cent share in 2003 to 11.3 per cent in 2004. This jump was achieved thanks to the purchase of the Mininurse and Yue-Sai domestic brands - a policy that many experts expect will continue to pay big dividends.
Although competition is likely to remain fierce for the mid-term, it seems that the purchasing power of the multinationals, combined with strategies such as buying up domestic brands, is likely to see them playing an increasingly dominant role in the China skin care market.