Shanghai Jahwa Group, a state-owned
cosmetics and household goods maker, plans to raise 5.1 billion
yuan ($797 million) by selling assets to fund expansion into
luxury products and the acquisition of foreign brands.

The group plans to sell some assets, including a 29 percent
stake in its Shanghai-listed unit Shanghai Jahwa United Co., to
a Chinese investor, Ge Wenyao, general manager at the parent and
the unit’s chairman, said in an interview in Shanghai yesterday.

Consumer spending continues to grow in China on rising
incomes and the nation is set to become the world’s third-
largest luxury market in five years, Bain Co. said May 3.
Mainland China will remain the fastest-growing market for luxury
goods in 2011 as sales rise 25 percent to 11.5 billion euros
($16.6 billion), the Boston-based consulting company said.

The stake sale will help free Shanghai Jahwa United, maker
of Herborist brand beauty products and GF men’s cosmetics, from
government-imposed constraints of investing only in the
industry, Ge said. “With a new major shareholder, we’ll be able
to broaden our business and to do whatever we want,” he said.
“We’ve been in the cosmetics market for so many years and its
growth potential is far from being fully unleashed.”

Shanghai Jahwa had a 1.6 percent share of China’s beauty
and personal care products market, which is expected to surge 58
percent to 255 billion yuan in 2015 from 2010, according to
London-based researcher Euromonitor International.

Overseas Acquisitions

After the stake sale, the group also plans to invest in
food, jewelry, watches and the boutique hotel sector, which have
higher margins, Ge, 64, said at the company’s headquarters in
Shanghai.

The group will also look to acquire overseas cosmetic
brands, he said. “Global rivals have grown quickly through
acquisitions. After the restructure, we will do that, too.”

Foreign companies have approached Shanghai Jahwa, including
an Australian company that makes natural essential oils, he
said, without elaborating.

Shanghai Jahwa United, whose shares have been suspended
since December as the company is in negotiations with investors
to sell its stake, aims to compete with foreign cosmetic makers,
such as Procter Gamble Co. (PG)

The company last year held a marketing campaign for
“Shanghai VIVE,” a high-end line founded in 1898. The
products, whose package is designed by Demos Chiang, great
grandson of Chiang Kai-Shek, include a moisturizer that sells
for 1,080 yuan and a perfume priced at 980 yuan. Chiang’s
Kuomintang, or Nationalists, fled to Taiwan in 1949 after losing
a civil war to Mao Zedong’s Communists.

The cosmetics maker made a profit of 276 million yuan on
sales of 3 billion yuan in 2010, the fifth consecutive year that
net income has grown, according to data compiled by Bloomberg.

To contact the editor responsible for this story:
Frank Longid at
flongid@bloomberg.net