The lure of WeChat for brands is clear; last year it drove $32.9 billion of information consumption and $52.4 billion of traditional consumption including travel, food, shopping, hotels, and tourism, according to a report from the China Academy of Information and Communications Technology released this month. 34% of China’s data traffic happens on WeChat, versus the 14% on Facebook in North America.
There’s no denying WeChat’s enormous impact into everyday life in China as it has progressed to become a near unparalleled marketing tool. Yet its popularity has also made it hyper competitive. Official Accounts now number 20 million, with 3.5 million of those active, raising the bar for any brand hoping to make an impact on WeChat – seeing consumer expectations surge with it.
Last year over half of WeChat Official accounts saw less readership than in 2016. Whilst the way consumers use WeChat is continually becoming more sophisticated, many brands’ WeChat strategies haven’t done much to keep up. Few provide genuine value through entertaining and educational content. Even less build communities that engage and resonate with their target market and potential advocates. And many brands still see WeChat as a one-way communication stream to push content out to followers, and are yet to tap into the plethora of interactive functions available in the WeChat ecosystem or integrate offline touch points.
In most cases, WeChat initiatives do cost money. Many brands realise this and allocate a material budget for WeChat marketing. China Skinny gets many approaches from brands wanting a ‘WeChat campaign’, but often haven’t even defined their target market, positioning or what makes them unique from the thousands of other brands in their category. Without having these foundations, investing in WeChat will often be throwing good money after bad.
Although we hear so much about marketing opportunities on WeChat, in some cases an Official WeChat account isn’t appropriate for a brand. Take a small tourist attraction overseas for example. For many Chinese tourists, they are likely to only ever visit it once – and it will be just one of many places they’re seeing on their holiday. So few travellers will go to the effort and care enough to follow something that will fill their WeChat account with content that isn’t very relevant. Nevertheless, even if the attraction doesn’t have an Official Account, WeChat can still be very effective for that tourism business using less traditional advocacy initiatives or payments.
Brands shouldn’t blindly just invest in a traditional WeChat account just because everyone is talking about WeChat. They would be wise to ensure that they have the foundational strategy defined first and then consider the context of WeChat with regard to their product or service and positioning. Agencies such as China Skinny can assist with this.
For our British and European-based readers, China Skinny’s Mark Tanner will be in London at the Clavis Insight 2018 EMEA eCommerce Accelerator Summit on June 6 sharing ecommerce industry trends and case studies alongside GSK, L’Oreal, Unilever and PlanetRetail. More information here – we hope to see you there. Go to Page 2 to see this week’s China news and highlights.
Earlier this month JD launched its first 7FRESH, a 4,000 square metre grocery store in Beijing that follows many of the new retail concepts from Alibaba’s Hema stores. JD heralded the supermarket the first of 1,000 stores that could open in the next three to five years. Hema also plans to significantly ramp up its presence, with 2,000 stores planned over the same period.
The focus of 7FRESH is a “personal and educational” hands-on shopping experience including “magic mirrors” that sense when customers pick up a product, and display product information such as nutritional facts and origin. JD also plans to introduce smart shopping carts allowing consumers to shop hands-free, which will be particularly helpful for shoppers with kids in tow. Facial recognition allows shoppers to check out and pay using the technology, able to walk out directly with the purchases or have them delivered within 30 minutes.
It is part of the growing new retail trend in China which has seen online giants shake up the bricks & mortar scape by creating richer, more convenient shopping experiences which drive significantly higher sales than traditional retail stores. Much like Alibaba’s Hema, JD is using big data from its 266.3 million shoppers to help craft the experience.
Physical stores still account for more than 80% of China’s retail overall and well over 90% of grocery sales, so JD and Alibaba’s battle for supremacy will be interesting to watch. Unlike the pure ecommerce world, where Alibaba has significantly higher margins by farming out most marketing, stock holding, fulfilment and customer service to brands, in the physical world it will be operating a more ‘full service’ model like JD.
Whilst JD’s market cap is just one-seventh of Alibaba’s, it has some very powerful organisations behind it. Tencent is the largest shareholder of JD, owning a fifth of the retailer. Its super-app WeChat leads China’s o2o and social media spheres, which will provide valuable data and influence to assist in the success of 7FRESH. Tencent’s new retail grocery ambitions will also be supported by the stake it purchased in Yonghui in December, yesterday’s investment in Carrefour’s China business and Saturday’s launch of its first unmanned WeChat store in Shanghai.
Walmart – the world’s largest company by revenue – owns 12% of JD and is likely to provide insights and support to 7FRESH from its wealth of retail experience including 22 years in China. It will not only help Walmart gain traction in China’s previously elusive ecommerce and new retail segments, but it will also provide plenty of learnings to roll out in its Walmart stores in China, and potentially to its stores in the US and globally.
In short, there is no better player than JD to take on the mighty Alibaba in the new retail game. Two hungry, data-focused, well-funded and well-oiled players, and a host of other competitors, will ensure the rate of innovation in China’s retail segment will continue to dazzle. It will also create another segment where China is likely to lead the world and possibly export its systems globally. New retail in China is happening, and happening fast, and brands that best understand and embrace it are most likely to succeed in the years ahead.
Who are China Skinny? We are a marketing agency on the ground in Shanghai conducting research, building strategies, and executing them for over 100 multinational brands both big and small, across 20 categories. What’s your biggest China problem? Contact us to see how we can help. Go to Page 2 to see this week’s China news and highlights.
Happy 2018! The year has started off on a positive note with China’s premier Li Keqiang announcing last year’s GDP growth is expected to roll in at 6.9% – north of the 6.5% target and the first acceleration in seven years; a time when GDP was less than 40% of today’s value. Consumers’ enthusiasm to shop continues to drive this growth accounting for almost two thirds of the 6.9% with retail spending growing 10%.
Although consumer anxieties persist and concerns around food safety and the cost of health and education are common, the signs are pointing to 2018 becoming another bumper year of the Chinese consumer. Whilst well-marketed foreign brands still hold significant appeal across many consumer categories, brands should be aware that shoppers are less inclined to view foreignness with the same awe and curiosity as they once did.
Chinese are showing increasing pride and interest in Chinese heritage and nostalgic themes. 2017 wrapped up with some gleaming examples such as CCTV’s show about Chinese antiques receiving millions of views, rave reviews and social posts from Chinese millennials. Even more widespread was a New Year fad which saw Chinese cluttering their social media feeds with old photos of themselves.
Few things inspire, influence and indicate preferences more than cinema. Last year five of China’s six most popular movies were domestic productions, including the overtly nationalistic Wolf Warrior which broke all-time box office records for the country.
Chinese consumers’ increasing interest in their roots was always going to happen as they matured, but it has been accelerated in light of a strong, confident and consistent China leadership and wavering heads of state in the West, amplified by the all-powerful state media.
So does this all mean that the foreignness of imported brands is becoming irrelevant? Definitely not. Foreign brands should promote the characteristics of their origin and heritage that make them special, but not with the blind swagger that some have portrayed in the past. They should also consider the opportunities to tap into the growing resonance of the Chinese renaissance through thoughtful communications, promotions and product development. Agencies such as China Skinny can assist with such initiatives. Go to Page 2 to see this week’s China news and highlights.
Earlier this month Beijing released a discussion draft of its Ecommerce Law that has sent China watchers and businesses searching earnestly for some clarity. It promises to dramatically tighten up the cross border commerce opportunities that make up one of the most important and fastest growing channels for foreign brands exploring the China market. Like many government mandates, it strikes a confusing contradiction; adhering to the trend of increased control over China’s online consumer space in the face of all the talk of China opening up to the world from its helmsman.
Whilst some details of the discussion draft are uncertain, it will send shudders to some imported brands selling in China. Foreign retailers will be unable to sell online in China without going through a platform controlled by a Chinese-owned entity with the relevant licenses. Whereas the vast majority of online sales currently go through these channels anyway – Taobao, Tmall, JD, etc – it doesn’t look positive for Amazon’s ecommerce business in China, who this month sold their China-based cloud computing hardware due to the new cyber security laws. It also provides little hope for foreign brand.com stores.
The draft also seeks to shut down online sales as a way to import illegal products into China. If ‘illegal’ includes products currently not allowed to be sold in Mainland China, it will dramatically impact the most popular cross border category: cosmetics and skincare, where foreign products can’t be sold in China if they aren’t tested on animals. Only approved products will make it through the gate so it is likely to affect many categories.
As the China Law Blog eloquently put it, “the plan is to funnel all cross-border e-commerce through a limited number of processing centers, all of which are controlled by the national government”. Daigou traders are unlikely to be tickled pink by the rules.
The unfortunate reality of the draft regulations is that they will make the already dominant platforms such as Alibaba and JD even stronger. As their listing and support fees can be a prohibitive expense for smaller brands and the platforms are getting more crowded by the day, it is becoming increasingly harder to even get a listing on the platforms, let alone be noticed.
The wonderful thing about China’s current cross border commerce environment is how sales are spread across many more channels – Alibaba’s platforms account for just a third of sales, versus three quarters of China’s ecommerce overall. Although most of the other cross border platforms are Chinese entities and won’t be negatively affected by the new rules, those foreign-based sites may not fare so well – a real shame given many successful foreign brands now in China first sold into the market from their own foreign-based sites.
Like many previous ecommerce-related laws in China, the devil will be in the finer details and enforcement, but the draft should send a clear signal about the direction of ecommerce in China and highlight the importance of not relying on one precarious sales channel. Agencies such as China Skinny can ensure you are best prepared for such a risk. Go to Page 2 to see this week’s China news and highlights.
Here’s some further encouraging news for China’s consumer market: in the first eight months of this year more babies were born into families with multiple children than those without – some 52% versus 45% in 2016. That will hearten the folk in Beijing who are seeking solutions to support its top-heavy population demographics, and should be music to the ears of brands peddling everything from infant formula to shared accommodation. During last weekend’s enormous Singles’ Day festival, baby products were among the top-selling categories.
Despite the increases, Chinese mothers continue to have one of the highest workplace participation rates globally, with 63% of females in the workforce versus 56% in the US and 50% globally. This is the result of a generation of the one-child policy, differing family structures which see grandparents caring for young ones and an admirable cultural belief that “women hold up half the sky.”
Even with the spike in those procreating, many Chinese remain uninformed on the subject. For example, more than 80% of adults in China have misunderstandings about contraception. This is the result of limited sex education and ‘birds and bees’ chats between parents and their kids. Sexual references are taboo in mainstream media and other channels. It was in 2015 when the big budget empress TV soap was taken off air to have Fanbingbing chest shots photoshopped out. Homosexual references are completely banned and even leggy models were even banned from car shows as Beijing does what it can to keep its population pure and innocent. This is reflected in consumer tastes and confirmed in numerous China Skinny research projects which has found an aversion to certain images deemed too sexy, with distinct preferences for the cutesy.
Yet behind the Hello Kitty knits and gaming youth, sexual innuendos are becoming more commonplace in China. Any visit to the local convenience store is a testament with battery operated devices, lubes and contraceptives taking prime real estate in point of sale displays by the counter. In a movement that represents greater self-confidence towards previously frowned upon areas, lingerie has become one of the fastest-growing fashion categories in China growing 20% annually for almost a decade.
There are much less subtle indicators of a trend towards an increased liberalness. Durex is leading the revolution by tiptoeing around the sensitive subjects to create engaging and timely communications that resonate with consumers online and get shared en masse. And while Durex and other foreign brands lead the category, a host of local condom makers are coming up with new innovative products to break into the fast-growing category.
Like everything in China, what appeals and is acceptable to consumers is constantly shifting. Hit the mark, and a brand can attain a cult-like following. Miss it, and there can be an anti-following. Agencies such as China Skinny can assure you are on the mark. Go to Page 2 to see this week’s China news and highlights.
If you believe the press, there is only one show in town for selling your wares in China – ecommerce. Yet behind the hype, ecommerce accounts for just 15.5% of retail overall, and an even smaller percentage for categories such as food and luxury. That leaves over 80% of goods bought through the good old brick and mortar stores – albeit a very fragmented network, and one growing at less than half the pace of ecommerce. Even Mr. Ecommerce himself, Jack Ma has said “pure ecommerce” will soon vanish, replaced by more holistic retail strategies.
That’s not to discount the influence online shopping and China’s overall digital sphere is having on traditional retailing. 61% of online consumers start their product research on an ecommerce platform according to PWC and it is a vital touchpoint in the customer journey of both online and offline shoppers. Yet it’s about time the downtrodden shopping centre got some rightful airtime.
One of the positive outcomes from ecommerce’s disruption is that it has forced traditional retailers to up their game. That, with a host of other factors, has seen China’s retail space evolve to something unrecognisable from as recently as 2013.
China’s most successful shopping malls have become ‘lifestyle centres’, drastically changing their tenant mix and crafting a much nicer experience for shoppers to maintain a point of difference over the oft-cheaper and better ranged screens of the ecommerce stores. A typical centre in China is up to one-half food and beverage and can have cinemas, ice skating rinks, spas, gyms, children’s play places, language schools, bowling alleys, horse riding centres on the roof, indoor beaches, and amphitheatres and other areas devoted to public events.
The most savvy physical retailers also integrate online strategies to attract shoppers to their stores. One example is the popular utilisation of key opinion leaders to help build buzz for physical stores through their digital channels, be present at stores to wow shoppers and offer incentives to fans that can only be redeemed at the stores.
Distributors can often be incredible assets to get products into stores. Whilst they are likely to reassure you that they offer full digital marketing strategies and services, few have deep literacy in digital marketing and nouse to fully capitalise on the opportunities the channel brings. Many don’t even have a true view of what consumers are seeking, as some recent Australian research into the common nectarine recently discovered.
Any retail, tourism or services brand selling in China can learn from the way successful brick and mortar retailers have evolved to understand current Chinese consumer preferences. The moral of the story: physical retail should be a key pillar in most China strategies. Yet few bricks and mortar strategies will be successful without a robust and differentiating digital strategy to support it. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
Welcome back to our China-based readers; we hope Golden Week panned out well.
China’s dynamic startup scene typically takes a consistent path. New ideas usually follow innovations that have been successful overseas, then quickly morph to serve the unique needs of Chinese consumers; capitalising on the distinct ecosystem of embedded mobile payments, devout smartphone usage and lack of privacy concerns.
Any sniff of success and a slew of others will follow. Close to five million Chinese graduate with science, tech, engineering and mathematics degrees every year, many who are optimistic about becoming the next Jack Ma. Most who launch startups will fizzle, but a select few will get funding, followed by more, and more capital, often from one of the big gorillas Alibaba, Tencent or Baidu – bringing the crucial support and channels to scale up to the next level.
Over the past few years China has been awash with investment capital, and with so much money sloshing around these startups can shower consumers with subsidies, discounts and freebies ensuring they get hooked. What follows is a war of attrition, where startups fiercely compete with incentives, burning through cash with unprofitable business models until the less-resourced competitors fall away or are swallowed up by a better-funded player. Mergers and consolidation always follow with the winner usually taking all.
When just one dominant player remains, the sweeteners lessen. We saw this with Meituan and Dianping in 2015, which provided an estimated ¥58 billion ($9 billion) worth of discounts and subsidies for restaurants and movies in 2015 combined. Since announcing a merger late that year, incentives have dropped off. Similarly within three months of the ride hailing apps Didi-Kuaidi-Uber merger, a typical ride that cost ¥8 climbed to ¥13. If we look across almost every online category in China – much like other places – they are dominated by a single player. Ctrip-Qunar control around 80% of the online travel market, Alibaba accounts for a similar amount of ecommerce, likewise Tencent and social media.
We’re starting to see similar consolidation for the latest hot sectors in China’s tech world. Baidu recently bowed out of the food delivery space selling its Xiaodu subsidy to Ele.me. And on the bike sharing front, where over 30 companies vie for pavement space, riders and critical mass, players are starting to drop off. Market leaders Mobike and Ofo are already said to be in merger talks.
Fortunately China’s tech scene isn’t just evolving to one big network of monopolies. Some areas are still passionately contested driving innovation and deals for consumers. In what would be a surprise to many, Baidu isn’t the leading search tool in China for products. In mature categories such as online travel there are flourishing niche sites that can be better-targeted than the leader. In ecommerce, less price-sensitive and more sophisticated consumers tired of trawling through the expanses of Alibaba’s platforms often swap to niche platforms in areas such as luxury, food and cross border, where Alibaba accounts for just a third of sales. Brands would be wise to consider them.
On the subject of cross border commerce, China Skinny’s Ann Bierbower will be sharing advice about effectively reaching and selling to Chinese consumers at the Reach Global Customers Through Ecommerce seminar in Los Angeles on October 24. More information here. Go to Page 2 to see this week’s China news and highlights.
China Skinny works with clients across 17 industries which has given us a well-rounded perspective of Chinese consumer behaviour. It’s been a helpful way to identify what works in one category, how it can be applied in others and any affinities between them.
One of the most dynamic industries we work in is food & beverage, which has welcomed some of the most innovative and exciting marketing we’ve seen in China. There are mega-brands with annual marketing budgets exceeding a billion dollars, to niche players that cleverly hone-in on specific target markets. Costly celebrities and KOLs are a regular feature in campaigns; 39% of Chinese food & beverage ads have celebs in them, versus 10% in the UK and US, according to Millward Brown.
Premiumisation has become a commonplace buzzword in China and its effect is seen at every level. Even rice saw 25% of consumers trade up between 2011-2015 versus 3% who traded down, according to McKinsey. Premiumisation and health concerns have also led sales of the workingman’s favourite instant noodles to drop by billions of tubs. Buzzwords such as healthy, natural, organic, GMO-free, functional and probiotics are increasingly making their way onto Chinese labels and with it, heftier price tags. Between 2012 and 2016 the portion of high- and middle-end product sales grew from 26.2% to 34.4% on Alibaba’s retail platforms.
The one thing almost all successful food brands have in common is their adoption of digital channels. Food & beverage has become the fastest growing ecommerce category and will continue doing so following significant investment in cold-chain and cross-border logistics. 60.5% of fresh food is now available online versus 26% in 2014. What makes the online food & beverage category interesting is that it is much less dominated by Alibaba and JD, with niche food-specific platforms accounting for a larger share of sales. With ecommerce now as much a marketing channel as a sales one, food & beverage brands are embracing it and the diverse opportunities it brings.
Traditional offline food brands are also embracing technology. China’s giant ¥3.5 trillion ($507 billion) eating out industry is taking to mobile payments. 45% of McDonalds China’s sales are now paid for through a smartphone. China’s insatiable appetite for food delivery has seen a storm of food delivery apps surface, which prompted KFC’s parent Yum China to buy a controlling stake in Sherpas this month. Apps developed by food brands provide a host of useful tools and are now used by 60% of Chinese consumers, according to Kantar.
No mention of online channels would be complete without the good old fashioned Daigou purchasing agents promoting their wares through WeChat, Taobao and other niche platforms. Although the fear of regulations was circulating again online in China last week, enthusiasm doesn’t appear to be waning for the grey channel. Countries like Australia, New Zealand and the US have seen an army of Daigou on their shores. A NY Times article earlier this month reported that as many as eight in 10 of the 136,000 Chinese students in Australia are involved in Daigou businesses in some form.
Food & beverage is abound with opportunities in China, particularly for brands that embrace China’s unique and exciting channels. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
If “The Belt and Road” still sounds unfamiliar, it won’t be for long. A colossal trade network is currently taking shape, weaving through continents with China at its core powering the expansion. Officially denoted the Silk Road Economic Belt and the 21st Century Maritime Silk Road, this project’s ambition is unparalleled. Xi Jinping’s pet legacy project aims to revitalize the trade routes which formerly shrouded the country in glory.
$100 billion worth of deals with 61 countries have already been inked, with a further $4-$8 trillion expected to be invested over the project’s unspecified lifetime. The development strategy signifies immense investment into infrastructure. Whether it be rail, port or road, capabilities are surging to connect and heighten cooperation between China, Asia, Europe, East Africa and Oceania.
For many recipients of this investment, new infrastructure will increase both China and global trade. Greater wealth will flow to these countries and the global economy will boost as a result. We’re already starting to see an improved flow of goods across Eurasia; trains now link 12 European cities to 16 Chinese cities, creating trade connections that are far faster than ship, and much cheaper than air. Rail freight leaving London can be in Beijing 18 days later. Even then there are still train swaps along the way due to different track gauges, leaving room for greater expediency.
However the project has not been all smooth sailing with some trade routes passing through volatile regions. Notably, investment and cooperation hasn’t always been welcomed either. Last month Australia rejected a deal to align a $5 billion AUD state infrastructure fund with China’s Belt and Road initiative over fears it could damage relations with the US and induce a domestic political backlash to growing Chinese clout.
As an integral trading partner for many regions and the biggest export market for 43 countries (including Australia) China has much to gain from these initiatives. Reliance breeds compliance and The Belt and Road will only make more countries reliant on China for trade.
We are increasingly seeing the entanglement of China’s growing trade and its political goals. K-Pop celebs, Korean cosmetic brands and workers at Hyundai have seen their sales in China halve surely must be weighing the benefits of the THAAD defence installation. The Japanese saw the geopolitical effects on trade in 2012 and we may even see it with Trump, although the meeting with Xi Jinping in Florida over the weekend may have tempered that somewhat. One of the few concrete notions stemming from the ‘Citrus Summit’, a 100-day plan was agreed upon to help lessen the widening US trade deficit with China.
It will be a long time, if ever, before China holds the soft power that the US does. Hollywood, music and sport fuel powerful influence over ideals and brand preferences. And yet unlike superpowers before them, China hasn’t implemented its rule through war – a tough feat in today’s interconnected world. Their near unfathomable trajectory to the top of the world stage stems from the much more passive, yet equally as powerful approach of becoming the integral cog of global trade. The resulting effect has seen countries quick to appease China, from dropping their territorial disputes to avoiding hosting the Dalai Lama.
Love it or hate it there is no denying China’s influence in the world will only grow, especially in the wake of The Belt and Road initiatives. The ability of brands exporting to China to alter this is minimal, yet it is a good idea to be aware and plan for situations where it may influence trade issues in your country. Go to Page 2 to see this week’s China news and highlights.
The curious Chinese consumer has many facets, with wary mothers distinctive among them. Motherhood in China is steeped in culture and tradition, high digital engagement, ingrained family structures and an excessive lack of trust. This ensures this consumer group is unique amongst its foreign counterparts, but one worth learning about. Mother and baby products grew 256% from 2010 to 2015 according to Mintel, and are expected to grow 15% a year until 2020.
However it shouldn’t just be infant formula and diaper brands taking notice. With the lucrative and free spending Millennials now entering the child rearing age, new families are driving growth across many categories.
The tradition that new mothers do not leave the house for 30 days after childbirth means they spend a considerable amount of time on their mobiles. Because of this, online sources of information, influencers, and WeChat groups are incredibly powerful in their ability to sway purchase decisions.
It’s well known that China’s 4-2-1 family structure (four grandparents, two parents, and one child) means that the child is pampered by six doting adults who are becoming more affluent by the day. This structure allows the mother to return back to work soon after birth, with grandparents or an ayi (aunty/nanny) assuming much of the caregiving responsibilities. It has contributed to just 27.8% of Chinese mothers still breastfeeding when their child is 6-months old, versus the global average of 38%. It has also reduced gender income disparity seeing parents have a higher income overall.
Mothers returning to work early means they are more impacted by colleagues and friends without children than if they were to return later. Influenced through both personal interactions and their smartphones, they are hearing about inspiring holiday destinations, new food, health issues, alternative education and even fashion.
We only need to look at fashion, where children’s apparel is one of the fastest growing segments, or tourism which is seeing explosive growth in family holidays. Recent Alibaba research found online shoppers with babies spend significantly more on fresh fruit and veges online, driving fresh food to be the fastest growing ecommerce category.
With only one child, Chinese consumers take no risks with their precious tot, particularly with the wounds of the 2008 Melamine scandal still raw. They do even more research than the average 7-10 touchpoints Chinese consumers engage with before making a purchase. That lack of trust, coupled with busy lives is driving mothers to shop online, particularly from abroad. Baby care accounts for around 15% of all cross border products and, more importantly, 66.5% of China cross border eCommerce shoppers have children – a big contributor to overseas online purchases which grew 86% last year.
In short, young families can be one of the most lucrative segments in China for imported goods if brands understand their customer journey and drivers. Go to Page 2 to see this week’s China news and highlights.
For millions of Chinese, Spring Festival is the most magical of times. It’s the one holiday of the year they get to spend at home, catching up with nearest and dearest with the chance to demonstrate their success in the city through generous gifts and red envelopes. For countless others, it’s a time to dread. Single 20 and 30-somethings across the country return home with trepidation as parents, aunties, uncles and grandparents get ready to pry and lament at their lack of a lover.
Over the past few years some of these loveless souls have taken certain measures to avoid this exact scenario. A simple search on Taobao and a cool ¥1,000/day ($140) + expenses, and you can find yourself a boyfriend or girlfriend – well, a fake one. If nothing else, it can keep mum off your back for another year and provide ‘legitimacy’ to your updates about how great life is in the city.
This year things have changed. A search on Taobao for “Rent boyfriend” 租男友 (Zu Nan You) returns the “According to relevant laws and regulations, we can’t display” verbiage.
Fake boyfriends are just a small part of a growing list of products that are getting tougher to buy on Taobao. Alibaba has been making noises about fighting fakes for some time now; in 2014, when the company listed on the NYSE, it made a lot of promises about cleaning up its platforms. But it would appear too little had been done when Alibaba was ousted from the prestigious Anti Counterfeit Coalition in May 2016, prompting Alibaba to overhaul its IACC MarketSafe Program, allowing any brand to access it at no cost.
Yet even after countless promises, Taobao remained a happy hunting ground for fake aficionados. After being taken off in 2012, December saw the platform make a villainous return to the Office of the US Trade Representative’s Notorious Markets registry. Keeping company with platforms supporting illegal online pharmacists and counterfeit security tags and circumvention devices wasn’t exactly the look Jack Ma was hoping for going into another inspirational speech about global trade at Davos last week and the announcement of Alibaba’s $600 million sponsorship deal for the next six Olympic Games, placing it up there with Coca Cola, Visa and McDonalds.
In what must have been a few late nights in Hangzhou, followed by a glitzy event and flurry of announcements, Alibaba claimed it would [finally] be tapping into its rich data analytics, working with brands such as Louis Vuitton, Samsung, SWAROVSKI, Mars and Huawei to form the Alibaba Big Data Anti-Counterfeiting Alliance in a bid to rid the world’s largest shopping mall of phonies.
Fighting counterfeits is not easy in China, even for a company with the resources and influence of Alibaba. The US Chamber of Commerce estimates that fakes add $396 billion annually to China’s economy – 12% of its exports and 1.5% of its GDP. With counterfeits contributing so much wealth, many individuals charged with cracking down at a local level are often ambivalent about enforcing it.
The effectiveness of Alibaba’s Alliance is still unknown, but no business is better placed to improve China’s IP-protection. Things still have a long way to go, but we’re positive that with Alibaba’s progress, coupled with reinforcement from Beijing – as China’s own patents soar and pivotal trademark rulings for Michael Jordan, Michael Bastian and a host of lesser-knowns not named Michael – things are moving in the right direction.
So we’ll leave you with that promising news to end the Year of the Monkey, on top of China becoming the beacon of hope for global trade. For those hoping to find that fake boyfriend or girlfriend for the Lunar New Year, there are plenty of other places you can get them in China! Wishing you good fortune (but not in the way Nike did) for the Year of the Rooster. Go to Page 2 to see this week’s China news and highlights.
In January 2013, Bloomberg reported that Beijing’s pollution was worse than the average US airport smoking lounge. The study was one of the most polarising accounts of the severity of China’s pollution at the time.
By 2014, the Chinese Government, state organisations and consumers were talking much more openly about the problem. State organisations such as the Shanghai Academy of Social Sciences, published statements claiming that Beijing was “uninhabitable for human beings” and the China Agricultural University suggested that China would suffer conditions “somewhat similar to a nuclear winter” if smog persisted. Consumers became more aware that the soupy mist wasn’t fog, but a toxic vapour that could harm their health.
Sales growth of products such as air purifiers, face masks and even canned air soared into triple figures. China Skinny started noticing a wholesale movement of consumers seeking healthier products, of which pollution was a strong contributor.
In addition to the obvious effects of pollution such as lung cancer, asthma and other respiratory diseases, there have been a number of other harrowing side effects such as increased obesity, Alzheimers and lower sperm counts. A recent study found bacteria in Beijing smog can lead to antibiotic resistance. Gulp.
Whilst China’s water and soil pollution continues to worsen, the result of Government policy and enforcement and slowing manufacturing, energy and construction sectors has seen air pollution improve slowly since 2014 – it’s gone from really, really, really hideously bad, to just really, really hideously bad.
So what does this mean for brands selling to Chinese consumers? With every new study revealing something evil about China’s pollution, it provides more emphasis on being proactively healthy – growing consumption of supplements and vitamins, healthy food grown in clean environments, and sports and fitness products. Tourism is also a beneficiary, where Chinese choose clean spots over polluted domestic destinations to enjoy their free time. Parents see overseas education institutions more attractive and migration increases – and foreign real estate sales as a consequence.
For those pinning their hopes on a positioning strategy revolving around ‘clean and green’ to lure Chinese consumers, there are a million other brands doing the same. Whilst it is important, you probably want to include other points of difference as well – China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
Education is a major concern for Chinese parents who are eager to see their child excel in multiple disciplines. From an early age on, kids in China are attending English classes, practice calligraphy and learn instruments in order to be able to compete with millions of others. It is a rigid system that focuses on theories and teacher-centred learning with the primary goal being the big exams for the next higher school level such as the university admission exam gaokao. The pressure on the 9 million attendees is enormous with schools installing anti-suicide barriers to prevent students from taking their lives ahead of the exam.
In order to modernise the learning process, many parents are signing their children up for creative leaning courses such as Lego classes. As parents are becoming aware that creativity boosts inventiveness, sales of Lego rose by more than 50% between 2013 and 2015. In addition, alternative learning methods are becoming increasingly popular for subjects like English language.
Shanghai is one of the hubs for innovative education with many incentives for extracurricular learning. This not only entails subjects, but also communication and the learning process itself. “Chinese students are very limited in their way of learning – there is a skill gap that needs to be filled and many don’t recognise at the beginning that soft skills are as important to employers as is knowledge,” says Brian Heger, Content Development Director of TOK English, a program by Telford Education Group that combines traditional learning with interactive classes and online elements.
Cooperating with universities and companies in China, Heger also sees a need to change the way educators think in order to make an impact with Chinese students. “A lot feel threatened by online learning,” he explains. Rather than using online and interactive tools to compliment their traditional teaching, “educators wait to be told what to do instead of just doing something and taking initiative.”
New incentives are increasingly pushed by Beijing where a strong need for creative learning is seen in order to replace China’s image of a country of factories, to being perceived as an innovation hub and that can compete internationally. One of these initiatives is the Incubation Centre at Shanghai’s Donghua University which aims to connect students with companies and enhance innovations and entrepreneurship. “This trend already started five to six years ago, with the government as the main driver. Now companies are increasingly investing in students with good ideas and potential,” says Prof. Anselm Vermeulen, who is leading the program for Entrepreneurship and Innovation together with his colleague Dr. Nikola Zivlak. In a similar program, Prof. Vermeulen initiated at Shanghai Business School and cooperation with Rotterdam Business School, Chinese students are encouraged to create a business based on ideas developed during their studies.
“China’s private sector is the most welcoming ecosystem for innovations in the world.”, explains Dr. Zivlak, and names educational barriers as the biggest challenge to the development of creative thinking. “90% of our Chinese teachers are not willing to change their ways of teaching even though Donghua University is China’s 9th most international university,” states Prof. Vermeulen. Innovative minds are redirected to an exam-focused curriculum that leaves little room for trials.
But the change towards creative learning and thinking is underway in China, even within the country’s large enterprises. Training sessions with selected staff members has established new ways of managing and handling affairs that facilitate communication processes and enhance productivity. The demand for independent and inspiring graduates is increasing, offering multiple opportunities for foreign education companies and other businesses that are eager to train promising candidates into qualified staff. Contact us today to learn how.
Happy 2016 and welcome to this week’s Skinny; we hope your year has started off well.
Less than a fortnight in, China has been anything but dull, with stocks and the Yuan sinking like a stone. ‘Volatile’ has been one of the most-used buzzwords with reference to China this year, so making predictions for the next 12-months is a dicey business, but here are eight of our picks leading into the Year of the Monkey:
- Rural & Elderly Consumers: Expect to hear more about the hundreds of millions of China’s rural and elderly consumers being China’s biggest untapped opportunity. Beyond the hype, most foreign brands are likely to see little upside, with these consumers being much more price sensitive and nationalistic in their brand choices, which will see local brands reap most of the growth;
- Lower-Tier Cities: Consumers in lower tier cities are also less open to foreign brands than their big-city cousins. However, increased maturity and exposure to foreign cultures through online media and overseas travel – their own and their networks’ – will see more trading up from cheap to mid-priced products. Foreign brands positioned and priced correctly, with strong distribution networks in these cities are likely to see good growth;
- Localising Localisation: With more companies realising that a one-size-fits-all approach for China is uncompetitive, more large to mid-sized international brands will localise for specific cities, regions and clusters;
- Health & Wellness: Chinese consumer habits will continue to reflect their pursuit for health, with health services growing even faster than products. Sport will get a lot of exposure this year with the Olympics and investments in football. Beijing’s increased transparency around pollution will further drive this;
- Precious Children: We expect the much-touted departure of the one-child policy to have a limited impact on fertility rates in the medium term. However, there will be the usual rise of births in the Year of the Monkey as many would-be parents held out in the Sheep, which policy makers may try and spin. Even without a big rise in babies, spending on the precious only child will continue to go from strength to strength across most categories;
- Devalued Yuan: The continued fall of the Yuan against the Greenback will make margins tighter for imports, but we expect it to have little impact on the growth of some categories. Premium food & beverage will continue to grow due to rising incomes, food safety and health concerns; and tourism will increase, driven by improved visa processes and flight connections, particularly in lower-tier cities;
- Overseas Investment: A weaker Yuan will be offset by China’s volatility, seeing both individual and institutional investors seeking more stable investments overseas in property, brands and imported segments seeing strong growth from Chinese consumers.
- Online: Expect more integration between ecommerce, online video, social media, sport, banking, the physical world and almost everything in-between. WeChat commerce, for which services make up the majority of revenue, will see large growth in product sales, driven by individuals peddling product verticals, particularly parallel imports.
With China’s increasingly affluent consumers prepared to pay a premium for many things from wine to wagons, there’ll be no shortage of opportunities in China this year. China Skinny can help you realise them. Go to page 2 to view this week’s news and updates from China.
The impact of the spectacular rise and fall of China’s stocks is anyone’s guess. It would appear that China is imploding if you read some news reports – stories of a weaking China attracts readers in some countries. Discuss it with Chinese consumers buying food for their kids in high end supermarkets, and they will shrug it off, unphased; China has made it through bigger economic challenges.
Of course some consumers will be feeling less confident, but it is unlikely to have the same impact on consumer spending as a crash would in markets like America. In January this year, following a 122% rise in the Shanghai Composite Index over 12-months, retail sales grew at their slowest rate in five years. At the time, just 6% of Chinese households owned stocks versus 55% of Americans. The latest spike would have drawn a few more in with Beijing’s encouragement, but as a whole, fewer Chinese consumers gamble on stocks – China’s reputation for being conservative with their high savings is well deserved. Although consumer investors make up a large portion of the owners of China’s stocks, their share of the overall market value is estimated to be 5% or less.
China needs healthy capital markets to finance the ongoing development of its economy, and will need a different approach to what we have seen recently. Nevertheless, the biggest impact on consumption growth in both the US and China is wage growth, which has been rising faster than GDP in China. IMF is keeping its pre-crash China GDP forecasts from April, as it believes China’s stock exchanges are so disconnected to the wider economy, and are small relative to the overall economy.
The rate of growth across many categories is slowing in China, but that was happening before the market meltdown. We expect Chinese consumers, particularly those born post-80s and 90s, will carry on in the consumer groove. Consumption will continue increasing in areas such as premium food and beverage, tourism and experiences, health and wellbeing, affordable and some niche fashion, overseas investments and anything to do with the precious only child – food, clothing and education – just look at the 50% growth that Lego has experienced in China over the past two years, despite counterfeits costing a quarter of the price.
China’s affluent and middle class base will continue to grow -an extra million USD millionaires came on board in China last year, despite the reports of doom and gloom. One loser will be state media who have been cheerleading the stock market, further eroding trust in traditional media and driving even more consumers to objective digital channels. We hope you enjoy this week’s Skinny.
The Chinese Stock Market and the Chinese Economy Have Literally Nothing To Do With Each Other: “We don’t see it as a major macroeconomic issue,” said IMF’s research chief Olivier Blanchard referring to China’s recent market meltdown, citing many examples of the disconnect between China’s stocks and its wider economy. Despite the recent drop, Shanghai stocks are still up more than 80% over the past year, and the Chinese stock market is small compared to the overall economy, the world’s second biggest.
Landmark Trademark Victory for Menswear Designer Michael Bastian in China: A trademark squatter has lost its ability to use the Michael Bastian brand that it registered in China. It is the first time a trademark registration application has been rejected in China in favour of a non-Chinese individual or entity. Nice work Foley & Lardner!
Megalopolis: the Future of Urban Planning in China: A massive new economic area encompassing 100 million people living Beijing, Tianjin and the province of Hebei is likely to become a model for China’s future urbanisation. One joint plan will cover economic and social development; urban and rural planning; and land use for the area larger than Uruguay, with a population roughly the size of Japan.
Uber Said to Seek Up to $1 Billion Funds for China Carveout: Uber has been claiming a $7 to $8 billion valuation for its Chinese unit, which has been marred by police shutdowns and volatile regulations. Investments from local, Beijing-connected firms such as Baidu will help their cause.
Foreign Brands Losing Lustre in China: Local FMCG brands gained more ground than foreign brands last year, with local market share growth strongest in skincare, fabric softener, colour cosmetics and infant formula, juice and biscuits. Foreign brands increased their share in the toilet tissue, beer, chewing gum, hair conditioner and chocolate segments.
Lego Builds on Strong Success in China as Playful Children Discover Their Creative Side: Lego’s Mainland sales have surged more than 50% over the past two years as parents recognise that playing with interlocking plastic bricks boosts inventiveness.
Internet, eCommerce & Mobile
A Significant Group of Consumers is Ditching Android for the iPhone: 53% of Chinese who own an iPhone switched from an Android according to a CLSA survey. 32% of Android users who plan to buy a new phone in the next 12 months will switch to the iPhone. This is representative of Chinese consumers upgrading their products across a number of categories. It comes at a time when Android-based Samsung is facing more bad news in China, with lawsuits for loading its mobiles with unneeded and unwanted apps.
Chinese E-Commerce Loophole Set to Close: Many Western companies have been avoiding strict Chinese consumer laws, such as the requirements for animal testing, by selling to consumers for “personal use” directly via e-commerce. This loophole is likely to be closed by the Chinese Government.
Food & Beverage
McDonald’s, KFC Go High-Tech In China With Customization, E-Payments: KFC is hoping to resonate more with China’s lucrative youth segment by accepting Alipay, rolling out Wifi and launching a menu app. Likewise, McDonald’s is piloting its “Create Your Taste” burger customisation in three Shanghai stores.
Top Chinese Wines Have Gone From Bad to Good. Will They Become Great?: China now has more acres of vineyards than France. Locally grown wines are getting more impressive too.
Xu Jinglei Being Sued for Making False Health Claims About Cookies: Actress and director Xu Jinglei is being sued for endorsing “river monkey mushroom stomach cookies,” claiming they are good for the stomach, when they are no different from other cookies.
JD.com’s Richard Liu Buys Into Australia’s Biggest Milk Processor Murray Goulburn: JD.com snapped up 4.6% of Australia’s dairy cooperative trust for A$20 million, not long after launching an “Australian Mall” on the platform while CEO Richard Liu was in Australia.
U.S. Tops Chinese Tourists’ Satisfaction List in Q2: Chinese travellers are most satisfied in the United States – 3.1 points higher than the average rating of 77.86 for 24 countries, according to a China Tourism Academy survey. Singapore topped Asia, with Mongolia and India reaching record highs. Complaints mainly focused on public services and travel agency services, such as a lack of Chinese translations of public information and poor transportation.
Opportunities for Growth In Challenging China Market: Chinese consumers expect to spend more on children’s clothing, women’s casual, shoes, men’s casual and health, beauty & accessories over the next 90 days according to analysis by Prosper China.
Have Chinese Consumers Started to Look Beyond Beauty Products?: By 2013, only 5 million Chinese women had some form of cosmetic surgery. By the end of this year, an estimated 7 million will have, and 11 million by 2018. 15% of Chinese women are considering using plastic surgery for anti-aging, with the highest rates in Tier 1 & 2 cities.
Eight Surprising Facts About The Chinese Luxury Consumer: Eight characteristics about Chinese luxury consumers: 1. They’re younger than you think; 2. They’re not as well off as you’d expect; 3. Most are married and have children; 4. They’re mobile natives; 5. They all have WeChat; 6. They prefer Chinese brand names; 7. They like to shop at retail; and 8. Alipay is an important method of purchase.