There has been much uncertainty about China’s new ecommerce laws which will launch in earnest on 1 January 2019. The unknown direction around cross border ecommerce and the daigou trade is likely to have kept a few businesses up at night.
We are thankful to finally have some clarity around the new laws. Here are some of the key highlights of the new regulations announced on 21 November:
Cosmetics, Health Food, Infant Formula & Other Consumer Imports
Cosmetics, health food, infant formula and other retail products sold over cross border ecommerce will remain exempt from mainland Chinese registration, filing and certification. Speculation that cosmetics not tested on animals could not continue to be sold in China through cross border ecommerce has been laid to rest.
Exporting to Chinese Consumers through Brand.com Sites
The new regulations state that brands selling direct to consumers in China from their website or ecommerce platform based outside of the Mainland will be required to register their platform with Chinese customs.
Increased Purchase Limits
The single purchase limit will increase from ¥ 2,000 ($288) to ¥5,000 ($720) and the yearly purchase amount increases from ¥20,000 ($2880) to ¥26,000 ($2,745) per year. Cross border purchases that fall within the increased limits will be exempted from duties and receive a 30% discount on consumption tax and VAT.
Deterrents for Daigou
We noted in October that the road for daigou was likely to get tougher as Beijing tries to redirect cross border sales to the legitimate channels. The new laws have confirmed that all daigou who advertise online need to register with the government and pay full import taxes. In recent months, customs have stepped up airport checks, while Chinese courts have jailed several merchants for up to 10 years for tax evasion. We expect larger daigou will continue their trade, however tens of thousands of smaller operators are may see this as just too much trouble and quit – easy come, easy go.
Legislation as expected
Overall the regulations are not surprising news. Of late, Beijing has been promoting its stance towards free trade at events such as Davos and this month’s CIIE. Closing the door on cross border commerce would have seemed hypocritical and contradictory. Similarly, tech giants such as Alibaba and JD have invested significant sums in building their cross border businesses, and would have been in Beijing’s ear about the benefits of the service. Discouraging it would have driven more purchases to the less-trackable grey trade. Many Chinese consumers have also become fans of cruelty free cosmetics, imported health and formula products; taking these options away would have caused quite a stir, which no one needs right now.
The law is positive for cross border ecommerce and will see it continue to grow. However in most cases cross border should be seen a stepping stone to a wider range of online and offline sales channels in China. This will raise awareness and accessibility for your products and decrease your exposure to law changes and other risks. China Skinny can assist in developing a strategy for this.
Alibaba and Tencent have done it again. They’ve delivered record-breaking profits that blew past analysts’ forecasts, signalling just how healthy China’s consumer market remains, particularly for the digital sphere. Alibaba’s profit almost doubled to ¥14 billion ($2.1 billion) and Tencent’s grew 70% to a handsome ¥18.2 billion ($2.7 billion). The results have seen their respective stock values soar into the $400 billion-plus-club, which was formerly the sole domain of American tech giants Apple, Google, Facebook, Microsoft and Amazon.
Alibaba’s rise was mainly on the back of its ecommerce business whose active shoppers grew 33 million from a year ago – a third more people than live in Scandinavia, yet a modest 7% increase. Their average spend is what shifted the dial – around $41 – over a third more than this time last year, representing a maturing online shopper. Alibaba’s constant innovation continues to pay off, which has seen a host of new AI and marketing capabilities and investment in an ever-wider breadth of online and offline touchpoints, all held together with some impressive tech infrastructure and a wealth of data.
A comparison of the world’s two largest ecommerce companies, Alibaba and Amazon, shows some stark differences in operating models. Amazon’s end-to-end fulfilment model saw it earn $197 million in the same quarter Alibaba earned $2.1 billion. For every dollar of revenue Amazon made 0.5 cents; Alibaba took home 63 cents. Both companies are chasing the less tapped online shoppers of emerging markets, it will be interesting to see which business model is more sustainable.
Over at the Tencent campus, we are seeing a potent convergence of gaming and social media. On the back of 963 million active WeChat users – 19.5% more than a year ago, mobile gaming has drawn in some 200 million players. Smash hit game Honour of Kings allows users on WeChat to discuss strategy, pull in other friends, see each other’s scores and work together in competing for gaming glory. Its social nature has attracted a record number of female players for a game of its type. The game generated about $828 million in revenue in the first three months of this year, making it the biggest money making smartphone game in the world.
Tencent’s profit was just 69% of its closest global equivalent Facebook. Yet with 2 billion users, Facebook is making significantly less per user than Tencent. Revenue is also much more one-dimensional, with 98% coming from advertising. Of Tencent’s ¥56.6 billion ($8.5 billion) revenue, just ¥10.1 billion came from advertising – ¥6 billion from WeChat, offering plenty of scope for growth. For the majority of its income, Tencent has done a remarkable job of squeezing small payments from many of its users, from games, to digital add-ons and personalisation, to gifting, all enabled by the penetration of mobile payments.
The takeaways from Alibaba and Tencent’s results are not that they make a lot of money, but how China’s most successful consumer-facing businesses have quite different business models to what we know in the West. Understanding what makes their models unique provides invaluable insights into what appeals to Chinese consumers and how successful brands are serving them – many of which can be replicated on smaller scales for foreign brands. Pyramid schemes are out, entertainment and mobile micro-payments are in. Agencies such as China Skinny can assist with such insights and analysis.
On the subject of ecommerce: for our readers in Melbourne, China Skinny’s Mark Tanner will be joining AustCham and the Victorian Government next Monday 28 August at noon to discuss how to navigate and harness China’s ecommerce opportunity. Register for the event here. Go to Page 2 to see this week’s China news and highlights.
The glimmering prize of the China market has led many foreign brands to make sacrifices in their pursuit of Chinese wallets. The $50-billion-plus beauty industry is particularly symptomatic – a field dominated by international brands. Chinese females, and increasingly males, are avid cosmetics consumers spending a much larger portion of their incomes on it than their Korean, Japanese and US equivalents – some shelling out as much as 30% of their take-home pay.
Yet to stock your face creams and makeup in the average mainland department store, there are a different set of regulations than Western markets, such as compulsory testing on animals. Such rules have forced cosmetics brands to soul-search about how important the China is to them.
British cosmetics brand Nars recently joined cosmetics companies such as Jurlique, L’Occitane, Yves Rocher and Caudalie in renouncing their stance on no animal testing in order to sell in bricks & mortar stores in China.
It would not have been an easy decision for Nars or any of the brands it followed. Most successful foreign brands in China have been built on the back of their popularity in home markets. Brands like Nars can attribute their success in the UK to core values such as anti-animal testing. As Nars discovered by the streams of protests on social media, many of their formerly-loyal customers at home and in other Western markets will now buy their beauty products elsewhere.
In a bizarre set of double standards, Chinese cosmetics brands do not need to be tested on animals. We’re hopeful that Li Keqiang’s Summer Davos announcement that China will be “treating domestic and foreign companies on an equal basis,” coupled with lobbying from animal rights groups and the big cosmetics companies means that these archaic regulations won’t be with us too much longer.
In the meantime, there are other options for cosmetic brands that don’t test on animals who want to sell in China – some which can bring a lot of success. Cosmetics are the top selling category in cross border ecommerce, with 45.7% of shoppers having purchased them according to iResearch. Forrester Research predicts that cross border will account for 20% of China’s total ecommerce market by 2022.
Whilst brands such as Jurlique have found success in China since forgoing animal testing in 2013, Chinese consumers increasingly consider core values behind a brand in their purchase decisions, and often reward those who stay true to them.
When targeting Chinese consumers, companies should consider the wider implications for their brands. Tailoring products too much for a Chinese consumer can often estrange other customers, as Hollywood has discovered. Even tourism operators should consider how catering to Chinese visitors could affect their perception amongst their other visitors and in turn their authenticity to Chinese tourists. It’s about balance, which is something we always consider at China Skinny when providing China branding recommendations and market strategies. Go to Page 2 to see this week’s China news and highlights.
Beijing recently acknowledged that it needs to attract more foreign talent to help its transition to an economy led by consumer spending and innovation. It has even announced plans to set up its first immigration office to assist.
China is right in doing more to attract foreigners to its shores. 44% of startups in the Silicon Valley had at least one immigrant according to a 2012 survey.
Whilst China has unique characteristics and shouldn’t be blindly trying to replicate the world’s international cities and innovation hubs, it could probably learn a thing or two from them. Around 40% of residents in New York, London, Singapore, Sydney, Toronto and Los Angeles are born overseas, whereas Shanghai and Beijing have less than 1%. Shanghai’s foreigner population actually declined 2% in the first quarter of last year. About 600,000 foreigners officially live with China’s 1.4 billion people – there are five times more migrants in London alone.
In follow up to the announcement about opening an immigration office, the State Administration of Foreign Experts Affairs stated it would be ‘simplifying’ the working permit process for foreigners. From 1 November, expat eligibility for work permits will be scored on current salary in China, educational background, number of years of work experience in China, Chinese language proficiency, age and location.
Although the scoring system hasn’t been announced, it is likely that adventurous youth will find it very difficult to legally work in China unless they graduated from a top university, speak incredible Chinese, are on an epic salary and live in the middle of nowhere. The Beijinger did a great speculative quiz on how expats’ acceptability could be ranked.
For innovation, youth often have a different way of looking at things and are less biased by long-held beliefs or habits – two of the key ingredients for game-changing innovation.
Youth can play an even bigger role in China’s ability to market itself and its brands. China spends an estimated $10 billion annually on “external propaganda” with very little return. A global study by London-based Portland Communications recently found China ranked dead-last of 30 countries for soft power.
While hosting a few big events, opening Xinhua news offices and Confucius Institutes around the world, and building sports stadiums all helps; the most powerful gains in China’s brand will come from the viral digital channels of the grassroots influencers championing the country through their social networks.
Trends worldwide are rarely set by crusty middle-aged men with love handles, but rather the digitally active youth with cooler haircuts and a better fashion sense. There are plenty of them wanting to live in China, so the country should be doing what it can to welcome them to cities like Shanghai, Beijing and beyond.
We appreciate that China shouldn’t just let anyone in, but when the new pilot expat ranking system is launched on November 1, we hope that Beijing has considered the importance of youth in continuing their momentum to becoming a true world leader for innovation. We will all be richer for it. Go to Page 2 to see this week’s China news and highlights.
Just as we’ve heard of many successful Western brands in China, most of us are aware of the folklores of failures from those who entered ill-prepared, naive and even arrogant. From Home Depot burning through $160 million chasing a market not interested in DIY, to eBay blowing an 85% market share after hiring a local CEO and CTO who didn’t understand China; there are plenty of examples we can learn from.
Almost every business entering China these days knows to approach the market differently. Even with this in mind, there are still many common mistakes and false assumptions that we see at China Skinny. There are the simple things such as having Facebook or Youtube on Chinese webpages, and the well-documented oversights such as failure to trademark both Western and Chinese brands. Yet most lapses are a little less obvious.
One of the most common misjudgements is thinking market fundamentals work in a way we are familiar with in our home markets. While this may apply for some things, many characteristics go against natural Western instincts and intuition. China is a unique machine that plays by a whole new set of rules, with factors such as the omnipresent Government regulations and influence, local competitors operating unlike competition anywhere else, and a consumer base who are wired differently.
Chinese consumers are unsophisticated in some ways, and the most advanced globally in others. They have been through more change in the last few decades than many of us go through in a lifetime; and because of that, coupled with underlying cultural differences, they often perceive things completely differently, and act distinctively, from the way we do.
China’s retail space is much more fragmented than Western markets, while its ecommerce segment is more consolidated than anywhere. Some businesses don’t consider this when meeting a distributor. It’s common to be picked up from the airport by a prospecting distributor, and wined and dined with silver service. Following promises of covering the country, and every offline and online channel they’d ever need, many brands unknowingly give exclusive rights to the distributor. If you meet someone who actually delivers on this promise, we’d love an introduction.
It’s impossible to prepare for everything in China, but here’s an article that we’ve written with some key differences between Chinese and Western markets which may help.
For our New Zealand-based readers, China Skinny’s Mark Tanner will be at the Build and implement your digital strategy for China workshops in Auckland on 28 June and Christchurch on 30 June. Click here for more information. We hope to see you there. Go to Page 2 to see this week’s China news and highlights.
For the longest time, China was a society where it was advantageous to fit in. From an early age, children were taught to conform. However, as China aspires to transition from assembling products to designing them as well, there is much incentive to create free and creative thinkers to drive China’s businesses up the value curve.
Whilst recent Beijing policies such as tightening Internet controls and banning foreign media will discourage wider perspectives and free thinking, many more policies are cheer-leading independent thought. Initiatives such as increasing creativity programmes in schools, the rise of overseas study, and waiving overseas travel restrictions for lower-tier cities are all encouraging Chinese consumers to view things differently.
Although Government policies are helping to slowly build independent minds, much of it is being driven by increasingly educated and aware Millennials. This is evident scanning content that post-90’s consumers are publishing on social media, which is often more imaginative than content from those born in the 70’s for example.
After health and wellbeing, products and services that encourage creativity are one of the top priorities for the post-80’s generation who are becoming parents. If we look at the fashion industry, youth are making statements with the clothes and accessories they wear, much of it far more adventurous than even five years ago. And the obvious segment is tourism, where three quarters of China’s 120 million-plus outbound travellers have a preference for independent travel over organised tour groups.
There are also the less visible signs of Chinese consumers’ growing independence and individualism. A Chinese Academy of Sciences and London Business School study into Chinese names has found more creativity and variations in the names Chinese are giving to their children. Similarly, the lyrics in popular songs are becoming less about the communal ‘we’, and more about ‘me’.
Chinese consumers, particularly the high spending youth segments, are looking to express themselves by the goods they buy and experiences they share, to show their networks that they are different from 1.4 billion other Chinese. Marketers should be factoring this in with their product and service offerings, positioning and communications. Go to Page 2 to see this week’s China news and highlights.
As recently as 2012, most Chinese consumers considered international labels categorically better than local alternatives. KFC was a good example: although consumers knew deep-fried drumsticks weren’t a super-food, they were from an American company so must be safer, and therefore healthier, than Chinese options that could be cooked in gutter oil, with additives like melamine. That perception helped fuel more than two new KFC restaurant openings a day in China that year.
Things took a turn in late 2012 when state media accused a KFC supplier of pumping toxic chemicals into chicken. Subsequent scandals such as meat on the floor and altered expiry dates have shown Chinese consumers that even foreign brands with local supply chains can’t be completely trusted.
This has seen the monumental rise of unadulterated imported food into China. It’s why Carrefour just opened their biggest supermarket in Asia in Beijing, with a strong focus on imported food. It’s why the big ecommerce platforms are putting so much effort behind promoting imported food and cross border commerce, and a large reason why Alibaba just opened offices in France and Germany.
Yet, just as Chinese consumers won’t blindly purchase a foreign brand with supply chains in China, they won’t indiscriminately purchase products just because they appear to be imported. In 2013, a CCTV journalist travelled to New Zealand to find the source of a so-called New Zealand baby formula brand. The address on the can turned out to be a panel beater’s yard in Auckland whose staff had never heard of the dairy company. The exposé further fuelled Chinese consumers’ lack of trust and reinforced their need to do extensive research before making a purchase.
In a related event on Single’s Day this year, Weidendorf milk made headlines for selling out of 250,000 cases within 24 hours. The celebrations were short lived when local media and social networks were ablaze with reports that Weidendorf was not a German brand, and unavailable in German shops. The brand was in fact, owned by a Shanghai company. It turned out that the local company sourced the raw material, manufactured and packaged in Germany, apparently to EU standards, yet many Chinese consumers were still enraged about being misled and didn’t consider it truly German milk.
With more than 600 million Chinese now armed with a smartphone at all times, it is easy for them to do a background check on a brand, and most do. There are typically more than ten online and offline touch points on a Chinese consumer’s journey before they make a purchase, so deception doesn’t go unnoticed for long, and will spread like wildfire on social media. Consumers need more than just a foreign flag or pretty foreign scene on packaging to be convinced of its authenticity. China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
In 2012, less than 5% of China’s online shopping was done on a mobile. Nowadays, more than half of all sales in China’s massive ecommerce market are made though a smartphone. China’s shift to smartphones has taken online shopping by storm – and all aspects of the Internet, with 89% of China’s 668 million internet users accessing through a smartphone.
However Chinese consumers’ connection with their smartphones and retail goes beyond the online world. More than three quarters of them will pull out their phone in a physical store to research a product or service’s price, reviews, competitors, specifications, heritage and how and why to use something, before making a purchase.
A Chinese mobile site should not only load swiftly, but also meet the requirements of a consumer who is out and about – needs that can be quite different from researching on a desktop in the office or at home. It’s becoming increasingly common for brands to build a website primarily for mobiles, and optimise it for desktops in China.
Apps are another popular way consumers are connecting with brands on their smartphones. In fact, more time is spent online on apps than web browsing. China’s most popular app WeChat, accounts for half of the time spent on the mobile Internet -meaning Chinese generally prefer app functions to be integrated into an Official WeChat Account, rather than a standalone app which they have to download and open separately.
There are some exceptions where consumers enthusiastically embrace a brand’s standalone app, such as L’Oreal’s which has been downloaded almost 5 million times, and even niche ecommerce apps such as FruitDay and Stardrobe. These apps have been developed by companies who understand consumer needs and develop and market apps to meet them in compelling ways. China Skinny can help with that. We hope you enjoy this week’s Skinny.
Switching Gears: Chinese Consumers Drive Surge in Gasoline Sales: Consumer-driven growth of gasoline demand in China is helping soften declining demand for diesel from industries, further illustrating the importance of the consumer class in China’s economy.
Foreign Experts Confident Of China’s Long-Term Prospects, Rejecting Blame For Causing Economic Reversals: Commentators from around the world believe the current volatility in China’s currency and stock markets is perfectly normal as China transitions to a higher value consumer and services-based economy and remain positive about China’s future. 77% of Chinese consumers said they would not reduce near-term spending on goods and services in response to the stock market correction according to MKM. Many Chinese media outlets’ coverage of plummeting stocks has been limited.
Protection Of The Chinese Equivalent For Its English Trademark: Examples and reasons as to why some brands successfully challenge the right to their Chinese language trademarks, and others don’t.
Fake Sprouts Growing Out Of Your Head Is Now A Thing In Beijing: The latest craze sweeping China are small plastic sprouts appearing to grow from the top of wearers’ heads. Speculators say it could be inspired by a character in the popular cartoon ‘Pleasant Goat and the Big Bad Wolf”, or it could be a celebration of the blue skies in Beijing due to banned cars and closed factories leading up to the celebration of the Allied forces victory in WWII on September 3.
Internet, Social Media, Mobiles & Ecommerce
Five Keys To Connecting With China’s Wired Consumers: China’s ecommerce market is likely to exceed that of the U.S. and Europe combined within three years. Five keys to realising the opportunity are: 1) Adopt an integrated platform strategy; 2) Understand China’s vast network of distributors; 3) Harness the power of social media; 4) Leverage China’s growth in location based services; and 5) Work with platforms to understand China’s consumers.
China’s BAT Dominate Mobile User Engagement: Apps associated with Baidu, Alibaba, and Tencent account for 60% of time spent on mobiles in China, with WeChat accounting for more than half of time for consumers in metro areas. Chinese consumers spend 18.2 hours a week on mobile internet activities, of which 9.2 hours were on WeChat according to Forrester research.
Food & Beverage
More Cheese, Please! Exporters Toast China’s Taste For Pizza And Cakes: Restaurants and bakeries account for up to 80% of China’s cheese market, with the 300 million pizzas sold in China each year contributing to the growth. Cheese for children as a healthy snack accounts for as much as 20% of the market for consumers.
Changyu Chief Winemaker: Embrace The ‘New Norm’ Of Chinese Market: China’s biggest wine producing company, Changyu, is set to nurture a new generation of wine consumers through characterful branded wines that are easier to drink and understand, and wine tourism including the 400-hectare ‘Changyu International Wine City’, expected to open to the public next year.
Aus Beef Goes Online To China: Chinese consumers are able to buy Australian chilled beef direct online for the first time following a deal with JD and Bindaree Beef.
Adventurous Chinese Holidaymakers Search For Extreme Thrills Abroad Says New Data: 16% of urban Chinese consumers say they would be interested in doing extreme sports whilst on holiday, which will be further helped by locals like Zhang Shupeng who broke the world record for wingsuit flying without an oxygen mask in April this year. 74% of consumers are interested in trying the local food when on holiday, with 23% keen to learn how to cook local food in the country they are travelling in according to Mintel.
Swiss Railway Launches Special Trains For Chinese Tourists Following Complaints Of Rude Behaviour: Half of all foreign visitors who ride Rigi Bahnen’s stunning railway through the Swiss Alps are Chinese. “Their strong presence is a challenge,” according to the CEO, and prompted the launch of 20 special trains a week for Asian tourists, where toilets will reportedly be cleaned more often and signs added “showing how to use them correctly.”
Want A Star’s Wardrobe? Chinese Entrepreneur Sells Celebrity Styles With A Mathematical Approach: Chinese app Stardrobe has carved out a niche in China’s booming online fashion commerce industry by using algorithms to identify the fashion that celebrities are wearing and provide links to similar clothes that consumers can buy. 60 million users have registered, with 15 million active a month.
How Much Do Top Fashion Brands Really Depend on China?: Swatch is the foreign fashion brand most reliant on Chinese consumers shopping in China and internationally, accounting for 49% of its global revenue. Richemont follows with 41% of sales, Ferragamo at 38%, Gucci and Hermès at 35%.
Why Millions in China Downloaded L’Oreal’s Makeup Genius App: 4.7 million Chinese consumers have downloaded L’Oreal’s ‘Makeup Genius’, which allows them to use their smartphone as a mirror and see how they’d look with different cosmetics, including heavier makeup which is still uncommon in China.
China’s Luxury Ecommerce Boom Means ‘Ostrich’ Brands Lose Out: 74% of all Chinese consumers have bought luxury products online, with 40% having done it more than five times in the past year. Among those under 25 years old, 94% want to buy online in the future, and 88% in the 25-34 age group wish to do so according to Exane BNP Paribas.
A Hundred Apps Bloom in China as Millions Bank on Their Phones: 390 million consumers in China have registered to use mobile banking, part of the booming online payments sector.
There was once a time when Chinese consumers would simply buy the biggest and most expensive model to show off their status. How things have changed.
The well-publicised Government’s clampdown on corruption, increasing sophistication and changing tastes are all contributing to less conspicuous purchases. Yet there are a number of other factors also influencing purchase behaviour and marketing decisions.
Changing Government policy has driven pricing and product development strategies across the board, such as cheaper imported skincare products and Porsches with less horsepower. The RMB’s appreciation, coupled with growing international tourism, overseas shopping agents, cross border ecommerce and a lack of trust in locally-stocked items, has also seen many consumers buying products abroad instead of in Chinese shops. This has driven a flurry of price reductions in the Mainland from brands such as Chanel, Prada and most recently Gucci.
Slowing GDP growth is also altering consumer outlooks and spending habits, although consumer confidence is rising fastest among the higher income households who are the most likely to buy imported brands.
Whilst these changes are creating new challenges every month in China, many of those brands who are adapting and innovating are flourishing. We can look no further than Apple, which continues to see booming sales and loyalty in a crowded smartphone market full of countless cheap alternatives. Understated luxury brands such as Ferragamo and Tiffany & Co are reporting strong growth.
Premium travel experiences will continue to rise, reflected in the investments that Fosun is making in the travel industry. And consumers continue to buy more premium food and beverage, noted by JD who just invested $70 million in online fruit seller FruitDay, for whom 80% of sales comprise of imports.
It gets back to understanding China, keeping up with the changes in preferences and policies, and delivering products that best meet those needs. We hope this newsletter helps a little, and even moreso our services. Enjoy this week’s Skinny.
China’s Older Consumers: China’s elderly represent a huge and growing market, but are relatively untapped and often poorly marketed to.
Despite Equity Rally, Confidence Subdued in China: Last month’s Westpac MNI China Consumer Sentiment Indicator showed a 3.1% decline in confidence for lower income households, but a 2.8% increase for higher income households. 7.8% of consumers believe that local shares “were the wisest place to keep their savings.”
Internet, Mobile & eCommerce
These Charts Show Just How Important China is to Apple: Apple users in China expect to upgrade their devices in 18.6 months on average, versus 22.8 months in the U.S. and 29 months in Japan. Almost 30% of Chinese Apple users are loyal – with 43% expecting to spend more on their next smartphone. Apple accounts for almost 60% of China’s premium market, with the recent rise mainly at the expense of Samsung according to UBS.
Buying Chinese Gadgets a Patriotic Move? Domestic Tech Consumers are Divided: 66% of Chinese consumers in their 30s prefer international tech brands as they felt they served as “status symbols.” 59% agreed that buying domestic tech products could support the Chinese economy, however 58% said that buying international brands such as Apple or Samsung wouldn’t really hurt the Chinese economy as so many were made in China according to a CEA survey.
Alibaba to Bolster Next-Day Delivery Services: Alibaba’s logistics affiliate Cainiao hopes to offer next-day deliveries in 50 cities by the end of this year, up from the current 34 cities. Alibaba owns 48% of Cainiao.
Food & Beverage
China’s JD Leads $70M Investment in Fresh Produce eTailer FruitDay: Ecommerce fruit seller, FruitDay, has completed a $70 million funding round led by JD.com, who will enhance FruitDay’s existing delivery network with their own. 80% of FruitDay’s inventory is imported from countries like the U.S., Australia, New Zealand, Chile, and South Africa. The retailer expects to have 10 million customers by the end of the year, with 80% of orders placed over mobile.
Fried Out: Why Has China Become a Burden For KFC?: Once the pin up kid in China, KFC continues to see falling revenue in the market. The chain isn’t innovating enough to meet changing consumer needs and competition, leading to just one quarter of KFC’s customers thinking that it is unique.
Dog Meat Vendor With 1,000 Frozen Carcasses Dies After Shooting Himself With Poisoned Dart: A Hunan dog meat seller reportedly died after the toxic arrow struck him in the leg during a demonstration on how to handle a deadly crossbow to execute canines. Dogs sell for as little as ¥8 ($1.30) to be used for cooking. An online petition calling on the Chinese government to end the dog meat trade has reached 460,000 signatures.
Investment Firm Fosun Group to Build Empire of Holiday Attractions for Chinese Tourists: China’s largest non-state owned investment conglomerate Fosun is shopping up a storm, investing in tourism and entertainment assets such as Club Med, Thomas Cook, Cirque du Soleil and a slew of domestic developments. The company is “charting a resolute course into the leisure sector,” which will “build a series of top brands to serve the Chinese people.”
Health & Beauty
L’Oréal to Lure China Shoppers With Price Cuts: L’Oréal will cut prices on most imported cosmetics further than the recent tariff reduction from 5% to 2% on imported skincare products. Estee Lauder is doing the same. Tarriffs on other consumer products such as suits, shoes and diapers are being reduced by more than 50% on average. The moves are hoped to further fuel domestic consumption growth and deter China’s flourishing gray market where agents sell imported goods cheaper than they can be bought domestically.
Why There’s Never an Excuse to Test on Animals: Cosmetic brands such as New Zealand’s Antipodes are staying true to their values by not testing on animals, and are still finding success in China by selling online and shipping direct to consumers. Last year, China loosened its rules by allowing the sale of some locally-produced cosmetics not tested on animals.
Euro Weakness Upsets Luxury Brand Pricing: The falling Euro has seen the average price of luxury goods in Paris 39% lower than in China, compared to 26% last year. Products such as the Louis Vuitton Speedy 30 bag is now 61% more expensive in China.
Gucci’s 50% Price-Cut Triggers Mad Rush in China: Following Chanel and Prada’s lead, Gucci has slashed many of its prices by 50% in China – the biggest discounts it has ever given. Following a five-day VIP pre-sale, the sale reportedly caused a stampede, with consumers even lining up overnight in Chengdu – a rare sight in China.
Wealthy Chinese Head Abroad to Buy Diamonds Without Scrutiny: Tiffany & Co. and De Beers are seeing more Chinese travelling abroad to buy diamonds, away from the watchful eye of the authorities and due to the lower Euro. Even with the Government’s anti graft campaign, men are still expected to give jewellery to their wives and partners. Chinese are the main engine behind global diamond growth, which is expected to increase 8% a year until 2018.
Porsche’s Wealthy Buyers in China Choose Cheaper Models: Porsche’s average Chinese customer is 35 versus 53 in the U.S. Sales have tripled in China since 2010 to become the car maker’s largest market, but buyers are opting for cheaper models. Porsche has adapted by equipping its Macan with a smaller 4-cylinder engine which cuts taxes on the car by 30%. Premium carmakers such as Porsche, BMW, and Audi, have relied on China for about 50% of their global profits. The Cayenne’s base price in China is more than double that of the U.S.
New Balance has done some great work positioning itself as an aspirational, but affordable fashion brand in China. It’s hard to walk a block in China’s hipper urban suburbs without seeing young fashionistas sporting NB shoes. But for those sitting in the Boston HQ, that success would have been slightly tarnished by the recent ruling that New Balance’s Chinese brand name, XīnBǎiLún, was violating a Guangdong businessman’s trademark.
The ¥98 million ($16 million) fine and order to stop using the brand name is another stark reminder of the importance of trademarking in China. Last year, after failing to trademark its Chinese name, Australia’s rock star wine brand Penfolds found itself locked in a legal battle with a trademark squatter, which saw them lose sales of at least 5,000 cases a year and valuable exposure in premium IHG hotels. Even Pfizer was beaten to trademark the most commonly used Chinese name for its Viagra, “WěiGē”.
One of the more interesting examples of brand theft was from California’s In-N-Out Burger, who had no immediate plans to expand to China. Four California-educated law graduates trademarked the chain’s legendary menu items throughout Asia and Europe. Opening their restaurant Caliburger in Shanghai, they promised many of the well-known In-N-Out staples such as Double-Double, Animal Style, and Protein Style burgers and fries, and even an iteration of the iconic palm tree on their branding. Following a confidential settlement – rumoured to involve a significant sum of money – Caliburger changed their burger names and decor.
China has a “first to file” policy for trademarking, meaning little emphasis is placed on the rightful owner of a brand. The cost to trademark in China can be surprisingly inexpensive. Even foreign brands who are unsure if they will ever launch in China, should consider taking the simple steps to register their trademark here.
When China Skinny localises branding for a client, in addition to creating something that resonates and is relevant to the target market, we also ensure that the proposed trademark is available and filed before investing in the brand. In addition to brand trademarks, regional branding for food and beverage can be protected, and even shapes such as Toblerone’s triangle chocolate. Best get onto it if you haven’t already. Go to Page 2 to see this week’s China news and highlights.
The differences between Mainland China and Hong Kong consumers are again illustrated in recent travel research by Ruder Finn and IPSOS. Where Mainland Chinese tourists cited various types of shopping as the three most common activities on their last leisure trip, holidaying Hong Kongers weren’t as bothered about visiting a store.
While many Mainland tourists are planning more cultural and dining experiences – like their Hong Kong cousins – consumers in the two markets are still worlds apart, which should be reflected in marketing and communications strategies.
The different spoken and written languages in the two markets are just the start of it. Digital channels also bear little resemblance to one and other – Google is the search engine of choice in HK, whereas Mainlanders are on Baidu and Qihoo. In Hong Kong, Facebook, Instagram, WhatsApp and YouTube outrank WeChat, Weibo and Youku by a country mile.
But the differences span far deeper than that. Social media is significantly more relevant and influential in Mainlanders’ consumer journey than it is for Hong Kongers. Although consumers in Hong Kong have had free speech for a long time, most Chinese have only managed to voice their opinion in the past few years since participating in online social channels – and they’re making up for lost time. The transparency of social media also helps overcome the trust issues that are much more prevalent in China.
Many Chinese are taking overseas trips, buying cars and even appliances for the first time, whereas Hong Kong has been a bastion of consumerism for generations, which also leads to notable variances in purchase behaviour.
In many ways, Hong Kong consumers have greater similarities with Americans than Mainlanders, so it’s surprising how many businesses still lump them into one generic Greater China strategy – even using HK-based teams who often have very little view into the Mainland to do it. Mainland China varies so much by region and city tier, that it often justifies a matrix of tactics in itself.
There’s no doubting a presence in Hong Kong can help in the Mainland Chinese market – like Korea, HK’s music and screen industries are popular in the Mainland. It is the number one destination for outbound tourists on shopping jaunts. Similarly, there’s talk in Beijing of a more propaganda-heavy school curriculum in Hong Kong. Nevertheless, it is likely to be many years, if ever, before the two markets could be realistically grouped into one. We hope you enjoy this week’s Skinny.
Chinese Consumers Crave Real-Time Brand Interaction: 58% of Chinese consumers feel that they have a shared, two way relationship with brands. The top four brand behaviours that correlate to Chinese consumers’ societal needs are: (1) Inviting consumers to help represent products and services to others; (2) Inviting consumers to be a part of the development and refinement process for products or services; (3) Taking a stand on the issues the consumer most cares about; and (4) Helping consumers achieve their personal goals.
Johnson & Johnson Has the Right Formula for Growth in China: J&J believes the key to its success in the Chinese market has come from building close connections with consumers and constant innovation.
The Differences Between Mainland Chinese and Hong Kong Luxury Travellers: The three most common activities for Mainland Chinese tourists on their last leisure trip: 61% went shopping for products with local characteristics, 54% shopped at luxury product destinations and 47% shopped at luxury outlets. Hong Kong are less focused on shopping, and more about experience: 60% fine dined, 41% went to an entertainment complex and 29% went to a spa according to Ruder Finn and IPSOS.
Chinese Travellers Just Love Japan: Japan is top of the wish list for Chinese traveller for 2015, up from 10th place in 2013 according to a TravelZoo survey of wealthy travellers. 15% of those surveyed were looking for cultural experiences in Japan, 13% wanted to rent a car and explore, 13% were interested in gastronomy and just 1.4% into shopping. The U.S., New Zealand, Australia and Taiwan rounded out the top-5 destinations.
‘Uncivilised’ Chinese Tourists to be Ranked on Level of Bad Behaviour by Authorities: In a bid to improve Chinese tourists’ behaviour abroad, China’s National Tourism Administration is launching a black list of tourists next quarter, with individuals’ bad behaviour reported and ranked. Airline operators, hotels and tour agents can access to the data before they decide to do business with potential customers.
Internet & Ecommerce
Alibaba in Major Initiative to Court China Consumer for U.S. Retailers: Alibaba is ‘crossing the river by feeling the stones’ by taking a relatively conservative strategy into the American market. It is initially offering U.S. retailers easier access to the massive Chinese consumer market through its platforms, payment systems and logistics. This will heighten awareness of Alibaba and build goodwill in the U.S., laying the groundwork for a longer-term play. Neiman, Saks and Ann Taylor have signed up so far. $15 billion U.S.-to-China cross-border consumer sales last year are expected to grow to $291 billion by 2020.
Amazon China Outlines Key Targets: Amazon is picking China’s online shopping 2015 “hotspots” will be: health products, fashion, overseas shopping and entertainment. Sales traffic from social media increased 35% last year, contributing to 81% overall sales growth. 65% of sales came from second and third tier cities.
China’s Express Delivery Business Tops the World: Businesses made 14 billion deliveries in China last year, 52% more than in 2013 according to the State Post Bureau.
Food & Beverage
Half of Chinese Food Plants Fail Inspections: 48.1% of the 7,000 Mainland China food audits, tests and inspections last year failed to meet acceptable standards from HK-based AsiaInspection. The main issues were mislabelling product ingredients, falsifying of ingredients’ expiry dates and rogue substances such as pesticides, antibiotics, heavy metals, bacteria and viruses.
Chinese Food Companies Find Room to Grow in Australia, NZ: Chinese companies are investing in Australia and New Zealand’s agricultural sectors, helped by favourable terms from FTAs. Everything from dairy plants, to sugar plantations, to cattle stations are receiving investment. 53% of beef imports to China came from Australia in 2013. Although some Australian vineyards are getting bids from multiple Chinese buyers, changes in purchasing rules has slowed things down.
Q&A: Fashion Maven Anna Wintour on China’s Sartorial Future: “I’m sure within the next generation, we’ll see the emergence of Chinese designers on a global scale,” says Vogue Editor Anna Wintour.
China’s Box Office Sales Surge 36% in 2014: China’s box office grew by more than a third last year to ¥29.6 billion ($4.8 billion) in 2014. Domestic films accounted for 54.5% of takings, and made up 36 of the 66 films that surpassed the ¥100 million mark. 15 new screens were added a day taking the total to 23,600.
Survey Discusses Chinese Consumers Feelings on Cosmetics Industry: There are 5,000 cosmetics companies in China – 10% account for 80% of the sales. Chinese consumers main concerns with cosmetics are fakes, false advertising, and high product prices according to a survey. Yet less than 5% of the respondents said that they had filed complaints, with 50% attributing their predicament to bad luck. More than half wanted foreign products to be marketed first in their original countries before being allowed to be sold in China.
Lingerie Takes a Back Seat as Victoria’s Secret Opens in China: Victoria’s Secret officially entered China last week, but lingerie will take a back seat to beauty products. Panties are are for sale, but not bras.
Meet The Chinese Luxury Shoppers Who Are Taking Over The World: Five profiles of China’s luxury consumers, whose consumption is expected to grow from 35% to 50% of total global purchasing over the next decade. Worldwide luxury sales are expected to double by 2025.
Happy 2015; we hope the year has started well for you. Unfortunately it wasn’t that way for some – our hearts go out to the friends and families of the 36 young Chinese who died during the New Year’s Eve celebrations on the Bund here in Shanghai.
With every New Year comes the slew of forecasts for the next 12-months. One prediction that hasn’t gone amiss is the continued rise of mobiles as an integral part of Chinese consumers’ lives. Just look to the 83% of online Chinese using their smartphones, the 468 million active WeChat users in Q3 2014 and mobile shopping accounting for 54% of transactions on Alibaba’s Alipay.
However, if we dig a little deeper, there are some notable variations in mobile habits between different regions. Mobile commerce – the next evolution of online shopping – is actually much more popular in China’s developing cities than in the sophisticated Tier-1 cities. Shanghainese consumers used mobiles for less than a quarter of online shopping purchases in the first 10-months of 2014, whereas consumers in Shaanxi province bought 60% of their goods online via smartphones.
The variances illustrate how much mobile shopping has penetrated the fast-growing ‘smaller’ cities of China, largely due to limited fixed broadband infrastructure and slim pickings in high street stores. It also represents how dissimilar the customer journey can be in different parts of China.
Looking beyond China’s biggest and most saturated cities to grow sales, and having different regional marketing tactics are two of the five points China Skinny recommends considering when making your 2015 plans for China. As always, China Skinny can help ensure your plans maximise the opportunities in China – contact us today. We hope you enjoy this week’s Skinny.
5 Key Points for China in 2015: Five points to keep in mind when refining your China plan for 2015.
The Power of the She-conomy: Chinese women have the largest amount of independence in handling their finances, with 76% of them having their own bank accounts, much higher than other Asian areas surveyed by the Economist Intelligence Unit. 69% of Chinese women prefer shopping online to physical stores. 63% bought products from abroad because they considered them better than those produced domestically.
Captive Audience: IKEA Lures Sleepers With Showroom in Beijing Airport: Nice brand building from Ikea, showcasing their products while providing Chinese consumers some real benefits.
Kingfisher Sells B&Q China Stake as DIY Fails to Take Off: B&Q’s 39 outlets in China are now 70% owned by Beijing-based Wumei Holdings. Cheap labour to do odd jobs around the home, a lack of interest in DIY from Chinese, and not adapting to the Chinese market has seen B&Q struggle in China.
China’s Best Ads in 2014: 46 minute vid: Three creative directors share their thoughts on the best ads of 2014 for China.
Internet, eCommerce & Mobile
Alipay Report Shows Mobile Commerce Booming in China: 54% of transactions conducted over Alibaba’s Alipay were made on a mobile for the first 10-months of 2014, up from 22% in 2013. Mobile payments had the highest penetration in remote Western regions Tibet (62%), Shaanxi (60%) and Ningxia (58%), whereas the lowest mobile penetration was in the Tier-1 cities: Shanghai (24%), Guangzhou (27%) and Beijing (29%).
China’s Startup Sector is Effervescent With Peculiarities of its Own: Interesting analysis of China’s domestically-targeted startup scene versus India’s international focus. 109 Chinese companies are now listed on Nasdaq or the New York Stock Exchange versus eight Indian firms.
Food & Beverage
Eight Officials Sacked After Pork from Diseased Pigs Sold for Food in China: Another food scandal for those who saw in the New Year with smoked ham or sausages – they could have been sourced from the estimated 70,000 diseased pigs processed each year in China.
Costco ‘Shocked’ by One-Day Sales of $3.5M on Alibaba’s Tmall Site: Costco will expand further into China after selling $3.5 million worth of goods online on Singles’ Day. Five of the top-10 European supermarket chains and more than 100 global merchants are lined up to join Tmall according to Alibaba.
A Glimpse Inside Hershey’s Innovation Centre in Shanghai: Although its Innovation Centre doesn’t look overly sleek, Hershey’s ensures it chocolates are localised to China’s unique preferences. With the average Swiss consumer eating almost 1,000 times more chocolate the average Chinese consumer, there is plenty of room for growth.
Top 12 Chinese Outbound Travel Trends to Watch in 2015: A good roundup of trends in China’s tourism market: 1) A broader destination spread; 2) Visa-free access goes global; 3) Chinese firms buy more tourism assets; 4) A surge in strategic agreements; 5) The rise of the Chinese hotel brand; 6) Secondary airports take centre stage; 7) Big year for Brand USA; 8) Cruising at high speed; 9) Keep an eye on Africa; 10) Better profiling and market analysis; 11) Travel niches ready for take-off; and 12) Consumer marketing extends beyond UnionPay.
InterContinental Rolls Out New Hualuxe Hotel Brand for China: InterContinental Hotels Group, the world’s largest hotel group, is opening its first China-specific brand, Hualuxe, with hotels in more than 100 Chinese cities plus overseas locations planned over the next 15-20 years.
Shiseido Aims to Double China Sales With More Local Execs, Ecommerce: “China store sales are expected to rise between 5-10% but it’s in e-commerce, that we see an extraordinary opportunity,” Masahiko Uotani, CEO explaining how Shiseido will double sales in China by 2020.
Surging Chinese Investment Overseas Has Widespread Global Impact, Especially For The Hospitality Industry: How things have changed in a year for Chinese investment – particularly in the tourism and hospitality, real estate and food industries.
Exclusive, Mobile, And Global: The China Luxury Market’s Top 5 Trends of 2014: How the luxury segment panned out for the year: 1) China’s luxury consumers more global than ever; 2) “New normal” domestic growth here to stay; 3) Individualism in high demand; 4) Brands worked to prevent overexposure; and 5) Luxury consumers go mobile.
Mín yǐ shí wéi tiān, the famous Chinese proverb meaning “Food is the God of the people,” has been used for generations. The definition of that God is changing rapidly for many Chinese.
Like in many industries, Chinese consumers’ inherent curiosity to try new things, coupled with rising affluence and increasing awareness of what’s out there from the Internet, travel and studying abroad has driven consumer demand beyond the staples. Add some pioneering importers and hospitality aficionados to the mix, and the options for dinner just keep getting better and more diverse.
Chinese consumers still typically prefer their own nosh, but there are many growing niche categories in cities beyond the sophisticated markets of Beijing, Shanghai and Guangzhou. Consumer’s vigilant focus on their health has seen the market for products like olive oil swell by 184 times over the past decade. Wine consumption grew 275% between 2007-2013, with more than a third of drinkers citing health as their main reason for drinking it.
Tempting Chinese consumers to try new food varieties is no walk in the park, but there are many newish categories from wine to avocados, doing a good job through relevant marketing and education.
Localising to China’s unique characteristics has been a successful strategy for many brands. Tailoring to Chinese tastes such as Starbuck’s Red Bean Green Tea Frappuccino or even craft brewers’ roasted sweet potato, guihua blossoms and Sinchuan pepper beer shouldn’t be underestimated. Changing lifestyles are also driving food innovation, such as easy-to-prepare food for busy urbanites from brands like Barilla Pasta, cater for the 50% of urban consumers who have cooked more at home over the past year.
The Government’s austerity campaign has seen a shift from gift-based purchasing to more consumer-focused buying. This has helped shoppers look beyond just pretty packaging and image, driving a real need for good tasting, quality food – similar to the changes happening across most industries in China. We hope you enjoy this week’s Skinny.
Carrefour China Opts for Convenience: Carrefour, following their recent announcement of exiting the Indian market, is diversifying its China offering by launching convenience stores. The convenience sector grew 19.5% in 2013 – the fastest growing retail sector after ecommerce.
The Next Big Thing for China’s Wealthy: Etiquette Classes: Increased global travel, business expansions and mounting interest in Western education and culture has led China’s wealthy to seek out etiquette professionals. Those buying Hermes handbags a decade ago are now splashing out $16,345 for a 12-day course. Millionaire households in China rose to 2.4 million in 2013 from 1.5 million in 2012 according to BCG.
Food & Beverage
Barilla Has a Fresh Recipe for Fast Success in Urban Markets: Following two years of research, pasta maker Barilla is launching a new pasta and sauce combo that is easy to prepare, aimed at modern busy Chinese consumers who are increasingly looking to cook for themselves. Italian pasta sold in China has become ‘softer’ in recent years to be more like noodles.
China is Getting a Taste for Craft Beers: Local microbreweries and home brewing associations are popping up all over China. Brews with Chinese characteristics include everything from Sichuan peppers to purple rice to Tibetan barley and some flavoured with tiny fragrant guihua blossoms or jasmine tea.
Increasing Avocado Consumption in China: Education is still a significant issue for avocado sellers as many Chinese consumers don’t understand how to open and eat the fruit. Some brands are addressing this through in-store flags and WeChat accounts providing nutritional information, recipes and usage tips, promotions and coupon redemption. 80% of Chinese consumers still purchase their fruits and vegetables on a daily basis from traditional markets like fruit stands, push carts, farmer’s markets and wet markets.
Thank You, but We Prefer the Salt Monopoly: The 64-year old state monopoly in the world’s largest salt market is set to end, but many online consumers have vented their concerns that salt scandals will follow.
The Importance of Wine Exhibitions: With wine customers in China shifting from Government gifting and institutional purchasers to consumers, wine exhibitions can be a valuable way to meet and build relationships with distributors and consumers, understand competitors and improve market insights.
Internet, eCommerce & Mobile
Consumers Without Borders: Chinese Consumers Present a Key Growth Opportunity for the U.S. Market This Holiday Season: Chinese consumers are expected to shell out ¥100 billon ($16.3 billion) in 2014 buying foreign goods online. 39% of those purchasing are aged 26-30, with 57% female. 40% were willing to share their purchases over WeChat and instant messaging networks.
Black Friday Taps Into Chinese Consumers: Alibaba and Amazon attempt to lure Chinese customers into buying more American goods during the Black Friday shopping frenzy was underwhelming. Consumers, still recovering from the massive Singles’ Day festival, complained of narrow offerings and limited Chinese language product descriptions.
China eDM Performance in H1 2014: In the first half of 2014, 9.4% of Chinese receiving marketing emails opened the message according to Webpower China. 16.7% of those who opened it clicked/tapped on a link, 1.6% of recipients overall.
Special Editions Target Chinese Travellers: Titles like Vogue Paris, Harper’s Bazaar Arabia, Condé Nast Traveller, Vogue Travel in France and Vogue Australia now create local Chinese language editions, featuring local content. Unlike regular editions sold in bookshops and newsagents, these special editions are often distributed for free in upscale locations, such as five-star hotels, department stores and cultural spots.
Middle-Earth Meets Middle Kingdom in NZ-China TV Deal: A deal enabling easier television production between China and New Zealand was announced during President Xi Jinping’s recent trip to New Zealand. The increased footage of NZ in China is expected to boost tourism.
Health & Beauty
China’s Latest Attempt for Better Air: One in three cigarettes globally are smoked in China, but that may change soon.
China Skin Care Market Driven by Male Beauty Products: Over the past five years, growth for China men’s facial product market grew an average of 20.1% a year, twice as fast as the larger female market. China is the world’s largest market for men’s skincare, forecast to reach $1.2 billion this year and $2.5 billion by 2019. Whitening creams, moisturiser for cold dry winters and hot humid summers, and natural products for pollution protection are most popular, with growth in biotech, natural and organic products.
Rémy Cointreau Takes a Bet on China: Rémy has faith that the increasingly number of uber wealthy Chinese will continue to buy its premium cognac, and isn’t following its rivals such as Pernod Ricard in cutting prices and launching less-expensive drinks.
That’s the Skinny for the week! On the to-dos this week, why not contact China Skinny to discuss how we could help with your marketing, online initiatives or research to take advantage of China’s opportunities. Just email us at email@example.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.
If you’ve missed earlier news or need to learn more, there’s a library of information about Chinese consumers in prior China Skinny Weekly’s right here. You can have this delivered to your inbox each week by subscribing for email updates, or if social media is more your thing, please follow us on Twitter, Facebook, Linked In or Google+, or subscribe to our RSS feed. If you have any feedback or suggestions for future articles, please let us know.
For some, Batman is a selfless hero fighting to keep evil from Gotham City. Yet, according to China’s Communist Party mouthpiece the Global Times, the Caped Crusader is a vehicle for American skulldugery, grouped in with the CIA, an American think tank and pro-democracy NGO, and said to be responsible for the current troubles in Hong Kong.
What really rattled the Global Times’ reporter was the way America “packages its ideology into its cultural products”, which Chinese “unconsciously consume”. This isn’t well aligned to Beijing’s “Chinese Dream” for the development of “comprehensive national power”. In saying that, there is an increasing trend of Hollywood China-fying its blockbusters to further appeal to the world’s second largest movie market.
China restricts the number of foreign movies shown at the cinema to 34 a year. Those few titles still accounted for 41% of total box office takings in the Mainland last year, down from 52% in 2012.
Yet with foreign restrictions to be lifted in 2017, the powerful China Film Bureau has “declared war” on Hollywood, with strategies such as urging cinemas to lessen screen times of the new Transformers movie. Even so, the movie opened with a record $90 million on its first weekend in China, and is expected to help push the share of foreign films back over 50% this year.
China’s box office has grown 35% annually since 2003 to ¥21.7 billion ($3.48 billion) in 2013. Hollywood’s share is nothing to sneeze at, but the real benefit to America, and other Western countries to a degree, is the corresponding soft power which drives sales in China of everything from wine and coffee, to Nike shoes, to overseas vacations. How the movie industry pans out has a bearing on many of us, so it is something we at China Skinny will be watching with interest.
Go to Page 2 to see this week’s China news and highlights.
Over the past couple of years, there’s been no shortage of Western brands in the Chinese Government’s dog box. Some of the market’s highest profile foreign players such as Apple, KFC, Starbucks, Nike, P&G, European carmakers and milk powder brands have been singled out for their ‘misdemeanours’ by state-run media.
Although Chinese consumers aren’t always trusting of what they see and hear in the all-present state media, there’s no disputing the negative effect the bad press can have on sales.
Last week, another well-known achiever was singled out by the state media, this time it wasn’t a foreign brand, but the local success story WeChat. People’s Daily and a slew of other local rags criticized WeChat for not being as “pure” as before.
In the past, almost all of the coverage of WeChat in China’s state media has been unequivocal praise, so it will be interesting to observe if this criticism continues. The negative press for Tencent won’t do any harm for its most formidable competitor, Alibaba, so close to its IPO, and the day before Tencent announced that more WeChat accounts can sell goods online.
WeChat has been treading a relatively fine line in China. Although the Government works closely with Tencent to track inappropriate content, the network’s closed nature can make it more difficult to identify and suspend communications than the open platforms such as Weibo. Other features such as WeChat’s QR-scanning mobile payments have been suspended following lobbying from state-run banks. The service has also cannibalised the state-run telecommunication companies’ revenue streams.
There is no shortage of Chinese tech companies that have had to toe the line for not aligning with the Government mandate. Negative press is often followed by new laws. China’s successful taxi apps, which skirted around the state taxi regulation, have had all sorts of rules imposed. Laws threatening jail for spreading rumours on Weibo also affected usage on the network. WeChat has already reduced the maximum number of friends allowed on a personal account to 5,000, and it’s likely there’ll be other new rules imposed. We can be certain that Tencent will be working especially close with the Government right now, as anyone operating on scale in China should be.
We hope you enjoy this week’s Skinny.
China Online Spending Power Unmasked: China’s retail spending for the first four months of 2014 were up 12% from a year ago. Online shopping grew at 52%, with growth expected to continue at 20-30% over the next 3-5 years. China’s per-capita retail floor space was 0.6 square meters in 2013, compared with 2.6 in the USA, 1.3 in the UK and 1.3 in Japan.
Consumers’ Outlook Brightens in May: Westpac Bank’s latest Chinese consumer sentiment indicators shows rising confidence as personal finance and job conditions pick up. The measure rose to 121.2 in May from 117.3 in April. Similarly, Nielsen’s Chinese consumer confidence index remains at a record high for the first quarter.
Wildlife Consumption and Conservation Awareness in China: a Long Way to Go: 52.7 % of Chinese agreed that wildlife should not be consumed, compared to 42.7 % in 2004. Nevertheless, the proportion of respondents who had consumed wildlife only decreased slightly from 31.3 % down to 29.6 %
Internet, Mobile, Social Media & eCommerce
Tencent Criticized by China State Media as Some Accounts Limited: Interesting coverage in China’s state media that isn’t singing WeChat’s praises.
Top Chinese Messaging App Makes Big eCommerce Leap with Opening of WeChat Stores: Following a trial with major brands and retailers, verified service accounts can now set up stores on WeChat with transactions processed through the WeChat Payment platform.
Weibo CEO: Clutter is Good for Us, and Microblogging Can Thrive Alongside Messaging Apps: Weibo knows it can’t compete with WeChat head-on for communications, so it is focused on challenging the traditional media channels for news, information and gossip. Weibo sees key opportunities coming from the integration with Alibaba, adding value for its users through music, video and games and attracting new users from China’s lower-tier cities and rural areas.
Crocodile on the Yangtze: An Insiders Look at Alibaba: 16 min vid interviewing former Alibaba VP, Porter Erisman about his Alibaba documentary. The biggest lesson from his time with Alibaba was the importance of localising the Internet, and not just the advertising or packaging. Some great footage of Jack Ma belting out the Lion King. China Skinny was at the Yellow Dragon Stadium for Taobao’s 10th birthday celebrations last May and we can attest that Jack Ma is quite the performer in person.
Health & Beauty
Estee Lauder First Day Tmall Sales Data Leaked: Estee Lauder launched its official Tmall store on 21 May, and within 24 hours had clocked 7,941 transactions averaging ¥339 ($54). The day’s takings totalled ¥2.7 million ($430,000), more than the average offline store does in a month.
One in Every Two Cigarettes Will Be Smoked by Chinese Consumers by 2018: Of the ten biggest markets for cigarettes, China, Indonesia and Vietnam are the only ones not in decline. Their increase in volume will more than offset the declines in the other markets, adding a combined 60 billion cigarettes in 2013.
In China, There’s Now a “Xiaomi of Condoms” Startup. And it Just Got $5M in Funding: Online condom brand Daxiang, meaning “big elephant”, has $5 million to spend on developing more features such as the one-handed application. It is planning to constantly launch new products based on user feedback. A trial is currently aiming to deliver condoms in a Beijing neighbourhood in under 45 minutes.
Hong Kong Mulls Curbing Tourist Arrivals Amid Discontent: While most countries are falling over themselves to attract more Chinese tourists, Hong Kong is considering following Taiwan in restricting numbers. 75% of the city’s 54.3 million tourists in 2013 were mainlanders, who accounted for more than a third of the territory’s entire retail sales.
Food & Beverage
Wine: New Roads to China: Case studies from Australian, French and German wine businesses approaching China in different ways.
Middle Class Status Symbols: Beyond Cars and Watches: Pianos are becoming a new status symbol of wealthy Chinese families, partially because there is prestige associated with those who have homes large enough to house them. They are also an investment in a child’s future as talented young musicians have a greater chance of getting into the top universities. In Europe about 40% of Steinway grand pianos are bought for amateur player use, whereas it is over 65% in China.
Economist: China Luxury Slowdown ‘Short Blip’ in Big Picture: The Economist Intelligence Unit is predicting a bright future for luxury goods in China given rising wealth and an appreciating RMB. The number of Chinese households earning more than $150,000 a year will grow from 384,000 currently to 10.3 million in 2030. By 2020, there will be 61 Chinese cities with more than 100,000 residents that have an income greater than ¥150,000 ($24,500) a year, up from just Beijing and Shanghai in 2012.
China: Luxury Fashion Still in Demand: Daily search volumes for luxury brands on Baidu increased 36% between 2013 and 2014, with Chanel becoming the most searched-for brand. Fashion searches on mobile increased 110% versus 26% on desktops. Mobile searches for jewellery were up 60%, versus 10% on desktops.
Weird & Wonderful
The Sphinx: Didn’t the Egyptians think to Trademark it in China?: China has just created one its most monumental fakes: a bogus $1.3 million Sphinx 50% taller than the original. On the subject of imitations, Starwood Hotels is opening a faux Bavarian castle in Dalian later this year.
That’s The Skinny for the week! We’d love to discuss how we could help with your marketing, online initiatives or research to take advantage of China’s opportunities. Just email us at firstname.lastname@example.org or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.
If you’ve missed earlier news or need to learn more, there’s a library of information about Chinese consumers in prior China Skinny Weekly’s right here. You can have this delivered to your inbox each week by subscribing for email updates, or if social media is more your thing, please follow us on Twitter, Facebook, Linked In or Google+, or subscribe to our RSS feed. If you have any feedback or suggestions for future articles, please let us know.