The plan is to develop Chinese cosmetics for the domestic market first, then build an export market for beauty products designed and manufactured in China.

In January this year, the firm acquired Yue-Sai, a brand created in 1992 to produce make-up and skincare products for Chinese women.

'We are pushing the concept of Chinese beauty and Chinese products,' said Paolo Gasparrini, president of L'Oreal China, in an interview yesterday. 'We can develop the Yue-Sai brand and take it abroad, first in Asia and later to Europe and North America. If we set it up in the right way, it could become a global brand, aimed at everyone, like our Japanese brands.'

The new 3,000-square-metre laboratory will be in Pudong on the site of the Yue-Sai factory, obtained when L'Oreal bought the company from Coty, a global perfume and cosmetics concern.

'We wanted to add to our portfolio a real Chinese brand, based on Chinese ingredients and aimed at Chinese consumers,' Mr Gasparrini said.

The Yue-Sai brand was founded by Kan Yue-sai, a native of Guilin, who moved to Hong Kong as a girl and then migrated to Hawaii when she got a job in an advertising agency. In 1978, Ms Kan turned herself into a television celebrity. She founded the cosmetics firm because, she said, she could not find make-up suitable for her skin as she prepared to go on camera.

Last year, Yue-Sai posted China sales of Euro38 million ($385.5 million) from 800 department stores in 240 major cities.

L'Oreal is also recasting its western brands for Chinese tastes. It has contracted Crouching Tiger, Hidden Dragon actress Zhang Ziyi to promote its Maybelline make-up line.

Foreign companies dominate China's cosmetics market.

Last year L'Oreal achieved sales in China of 1.5 billion yuan, ranking third and accounting for 5 per cent of the market. In the first nine months of this year, China sales rose 67 per cent and Mr Gasparrini expects to achieve a market share of 8 per cent this year.