Did they quote from the Epoch Times? This is a religious sect spewing venom on all things Chinese. It's impossible for the Chinese to use human tissues for cosmetics, unless you talk about millions of people are executed in order to provide "raw material". The scale is just not there for this kinda "application". Besides, even in China, the executed's body needs to be returned to the family. How can this large scale use of human skin be concealed? This story does not quote any source, which loudly says it's a cooked up story.
Welcome to FR...
The article is from The Guardian, major UK mainstream press, so, no, it's not some unattributed tabloid screech.
http://www.guardian.co.uk/uk_news/story/0,,1568467,00.html
And you should do some research on developing collagen implements from organic tissues - the cosmetic industry already do it with animal tissues, using human tissues is perfectly within the relm of possible applications. And you don't need scale of millions or even thousands, only a small specific sample is needed for base material, so it's quite possible to "harvest" from just a few and still make a tidy profit. Also, to your other point about no Chinese cosmetic company in Europe, note that the Chinese are just selling the raw material, not their own branded finished products.
Chinese society is brutal to those who falls through the cracks - abuse and injustice against the people in the margins are rampant - the poorer and more marginalized people's lives just aren't worth very much in China, there is a lot of these types of activities going on.
Even in Singapore I have read in newspapers ads for fast track organ tranplant in China, one has to wonder where / how one can get an organ transplant on demand as long as one can pay up the molla.