How AI and Social Commerce Are Redefining China's Beauty Market

While Estée Lauder’s heavy reliance on China contributed to a decline that erased more than $100 billion in market value from its 2022 peak, writing off the country entirely would be a mistake for beauty businesses.

China is the world’s second-largest beauty and personal care market, trailing only the United States, according to Euromonitor International, with sales reaching roughly 553 billion yuan, or $77 billion, in 2025. The beauty market also rebounded last year. KPMG estimates beauty retail sales in China rose 5.1% in 2025 following a 1.1% decline in 2024.

According to Adam Knight, co-founder of artificial intelligence-powered go-to-market consultancy Yaso, China is 18 to 24 months ahead of the West in collapsing the consumer journey into artificial intelligence-mediated interfaces. The door isn’t closed, but the playbook has been restructured.

Beauty Independent sat down with Knight to discuss the beauty opportunity in China, the categories most popular with Chinese consumers and why even brands not planning to enter the market should be paying attention to it.

What should brands know about today’s Chinese beauty market?

China is changing. The legacy routes to market in China have dried up or are no longer fit for purpose. A lot of the negativity you hear about China is coming from players whose margins have come under a lot of pressure. There is an alternative. Our thesis is that there needs to be a fundamental change in the way that business is done in China for foreign brands, more brand-centered, social commerce-focused that leverages the opportunities that the creator economy, livestreaming and the new channel ecosystem brings, but with a focus on a P&L that works.

The new defensive moat is AI-driven. You don’t have to be operating in China to be able to observe, respect and copy what is happening. The use of AI across the beauty industry, whether from an R&D, product development, supply chain and manufacturing, go-to-market or brand building perspective is light years ahead in China versus Europe and the United States.

We are trying to help brands to build that defensive moat. If you’re going to properly compete in China, you have to be taking advantage of these trends. At the very least, you should be watching what’s going on in China to understand how you can get ahead of the curve in your home market. If you are thinking about going to China, you need to be taking a very AI-first approach. If you don’t, you’re building for a market that has already been and gone.

What does “AI-first” actually look like?

There’s the consumer side: generative engine optimization, LLMs and how those are used by consumers. The rate of adoption among Chinese consumers for product and brand discovery is twice the rate of what we see in the U.S. Consumers are consulting everyday with their local LLMs. No ChatGPT, no Claude. They’ve got their own players.

DeepSeek’s a big one. People are consulting with these to make purchasing decisions. Understanding how you as a brand appear within those rankings and how you can optimize and manipulate that is a basic first step that every single brand that’s operating in China needs to do because it is rapidly becoming the primary driver of purchasing decisions. This shift highlights why data is becoming the ultimate competitive advantage in beauty, as brands must leverage real-time consumer insights to feed their digital funnels.

From the brand perspective, there’s a full spectrum of AI tooling. AI livestreaming that’s been going in China for several years is a significant portion of the livestreaming space already. You have big beauty players, big platforms that are operating hundreds of simultaneous livestreams, all AI-driven.

It’s not just having an AI anchor. That’s step one. The step beyond that is dynamic pricing, bundling and promotional opportunities. It’s creating personalized content and entertainment based on your perspective as a consumer. That’s not even AB testing, it’s ABCDE all the way through Z testing, simultaneously.

AI is figuring out what’s working, what’s converting best and then adapting from there. This stuff has already been deployed at scale in China. It’s not some niche thing that a few players are experimenting with. It’s already driving a double-digit percentage of sales in retail.

On the operational side, AI has a huge role in supply chain optimization and product development. If you’re not taking advantage of the operational efficiencies that can drive your margins, you’re not going to be competitive. When we’re talking about this with brands, there’s lower hanging fruit. Then, you prioritize as you become more ingrained in your AI strategies.

These are learnings that you can take back to your home market as well. I genuinely think that China is a Petri dish of experimentation. It’s not to say that everything that happens in China is going to roll out globally, but look at TikTok and how that is dominating. That’s a Chinese product. It was trialed and tested there and that business model is now rolling out globally, though the TikTok model puts a lot of pressure on your margins.

What can brands do about that?

Selling through livestreaming, the percentages [taken], unless you’ve got ultra efficient cost of goods, it can be a loss making effort. It can just be a marketing platform, but increasingly it’s the brand. This margin pressure is further compounded as China cracks down on livestream e-commerce tax evasion and quality issues, forcing brands to run highly compliant and efficient operations. If you’re a brand that has built with that model in mind, maybe has experimented in China and has made that work and copy and paste that to the U.S., you’re at a huge advantage.

As we start to see TikTok become one of the bigger, if not the biggest, player in the U.S., a lot of the brands who have been through the pain of making China work in terms of getting efficient and building the margin profile that are going to be in the best place to leverage the opportunity.

When is a brand ready for the Chinese market?

We’re selective about who we work with, partly because it’s not for everybody, partly because of our business model. We operate on a pure revenue share basis, so we take a lot of upfront risk in terms of the investment that we put in to get a brand off the ground, and we share in that future reward. As a result, we have to choose our bets.

We look at the category, where you sit within that competitively, price point, efficacy, the wider claims you make, the strength of the brand in terms of its potential resonance in China. We look at the business globally, how big are you, how fast are you growing, what’s your funding? What’s your ambition for China?

It can’t be something that you want to dip your toe and treat as a hobby. You’ve got to go in and be ready to suck up a little bit of pain in the short term for a longer term reward. If all of those stars aligned, there’s no other market like it. In terms of the top-line revenue growth that you can generate in China and if you can get the commercials right, the bottom line contribution margin, it’s a very exciting space.

If you could engineer a brand that you know would hit it out of the park, what would it look like?

There are priority growth categories that we see doing particularly well. Right now, the ones that I’m most excited about are haircare and fragrance. They’re both coming from a relatively lower base in the market. They’re light years apart from skincare in terms of overall market size, but the growth rate is significantly higher: 15%, 20%. In haircare, we’re seeing a skinification as we’ve seen elsewhere in the world, but Chinese consumers suffer a lot more from hair loss and hair damage than consumers elsewhere. Same with skin problems due to the environment.

There’s a growing appreciation for a haircare routine, understanding the formulations, the ingredients, how those can have a meaningful impact on your hair health. Within that, there’s a massive opportunity for the premium side of things. If you’ve got a serum, tonic or supplement that can help to tackle some of those problems from the root, that’s a great space.

On the more affordable, entry price point, there’s a fantastic opportunity for quality foreign brands that are the first step for a consumer away from your Unilever, P&G, supermarket products as you start experimenting with a slightly more premium product that you’re still using every day. Sub-$10, $15 is an interesting space.

Fragrance is an exciting space. There are some fantastic domestic champions now within the fragrance space in China, a lot of cool innovation from a product perspective, using local ingredients, but also packaging, in store experience. It tends to be a more premium space.

We love wellness. We’re working with a few supplements brands. The top end of the market and the more affordable end of the market are the places to look. Everything in the middle gets a bit murky. But if you’ve got a product that is clinically tested, does what it says, you can back that up with the data and you solve a genuine problem, the Asian consumer tends to suffer from more than the international market.

With the margin profile that a supplements business has, you’ve got a bit more to play with in terms of putting your foot on the gas pedal and tapping into the creator economy. Livestreaming can be a bit more difficult to sustain if you’re a skincare or color cosmetics brand where margins are tighter.

Are there any barriers to bringing an ingestible to the market?

There are two main routes to market in China: cross-border e-commerce and general trade. General trade is where you have to fully register the products, locally test them, relabel. We’re not doing that. At some point you have to tackle that because that’s how you get to $100 million in China. There’s no way to achieve that scale through cross-border alone.

If you’re launching for the first time and you’re trying to get to that first $10 million, even $20 million mark, cross-border is good enough. The regulatory is a lot less restrictive. There are certain prohibited ingredients, you couldn’t sell CBD, for example, but generally speaking, most OTC you will be able to sell in China without too many headaches. No testing on animals, no local product registration, no need to relabel.

From a consumer perspective, you might want to put some inserts in your packaging, but you don’t need to relabel. It’s very straightforward. Operate out of a bonded warehouse and move your product into there. If you can’t sell it, you can ship it back to your home market. We have a playbook now for getting this done. If you’re a brand that’s new to market and you want to sell into China, we can do that in a four-week process from a standing start to having a product in market and selling. About 50% of the brands we work with are completely new to market.