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The National People’s Congress (NPC) gets together as a full committee twice a year for its plenary session. These meetings are called 两会 (Lianghui) and are the most watched political events in China. During the meetings, China’s premier leads the discussion of the main economic, social and political topics of the year, sets important targets and releases an annual report containing the main statistics, figures and economic indicators regarding growth and development. If you did not have the chance to follow this year’s March Lianghui, the following list of buzzwords is a great opportunity to catch up!

Made In China 2025 – 中国制造2025

MC25

Being one of the central issues covered during the Lianghui, “Made in China 2025” (MC25) is a comprehensive campaign that aims at upgrading the Chinese manufacturing industry. Even though the first drafts of this project were presented in 2013, the subject is still really fluid. The central focus of Lianghui 2015 was using technology for manufacturing to increase productivity and automation.

During the last couple of decades, China has based its fortune on cheap labor and low cost manufacturing. However, as the country has rapidly developed, macroeconomic conditions have put upward pressure on labour costs. The MC25 campaign is a way to address various issues altogether. First of all, the focus on innovation in manufacturing is a way to keep China competitive in this field, making the country able to maintain its cost advantage even with surging labor costs. Furthermore, MC25 is a response to the main drawback of the China low cost strategy, namely the huge impoverishment of the “Made in China” brand which is nowadays associated with poor quality and labor exploitation.

Increasing incentives, subsidies and investment in the field of manufacturing is also a way to climb up the global value chain thus concentrating on higher-value-added activities. China’s plan is to increase the percentage of Made-in-China materials and components of final goods to 40% in 2020 and 70% in 2025.

The role of the state will be crucial for the successful implementation of MC25, providing an overall framework, utilising financial and fiscal tools and supporting the creation of manufacturing innovation centers (15 by 2020 and 40 by 2025). However, the plan will also strongly rely on the market, strengthening intellectual property rights protection for small and medium-sized enterprises and making the use of intellectual property (IP) more effective in business strategy. This campaign will directly affect Chinese consumers. Given the low perception of the “Made in China” brand, Western companies have enjoyed over the past decade an “ex-ante competitive advantage”, meaning that, especially in some fields like luxury and automotive, Chinese brands were not taken into consideration by Chinese consumers.

MC25, by attempting to revamp Chinese manufacturing, will increase the level of competition in some fields, making marketing strategy more important for non-Chinese companies to maintain market share.

Maker Culture: 创客 chuangke

maker

The maker culture is a contemporary urban subculture originated in the United States that represents an extension of the DIY (Do It Yourself) culture, with a particular focus on technology and engineering. The Lianghui has refered to this as 创客 chuangke (the maker), a term that features the Chinese character chuang, meaning “to generate” and emphasises a creative and passionate approach to making things. As part of a greater plan of rekindling the “Made in China Brand”, the Lianghui underlined the importance of fostering this kind of approach in order to move away from the common stereotype of Chinese people as “cheap copycats” and reach a status where products are not only made but created in China.

In order to incentivise a more creative and proactive way of life, the Chinese government has directed investment into two main areas. On the one hand, since 2013 the government has started financing “innovation-houses”, spaces in community centres set aside for teaching people to use post-digital tools. There are now more than 75 innovation-houses concentrated in the areas of Shanghai and Beijing. On the other hand, a more ambitious campaign involved the 2013 construction of a 16,000 square metre “makerspace” in China’s most famous engineering school, Tsinghua University in which students are allowed to make experiments with open hardware as part of their degree.

Anti-Corruption

Re

Since 2013, when the Chinese President Xi Jinping came to power, a massive anti-corruption campaign has been initiated with the aim of netting hundreds of corrupted government officials and company executives. The central concern of 2014 Lianghui was the “Operation Foxhunt” by which the NPC decided to start the negotiations for an extradition policy with the United States to punish rich Chinese suspected to have fled abroad to launder money earned illegally in China. This problem has been underlined also at this year’s meeting, with particular emphasis on “smash the tigers and the flies” concern (要坚持老虎苍蝇一起打) stressing the importance of eradicating corruption both from high level members and lower level ones. This campaign is reinvigorating Xi’s reputation as a strong but fair leader among Chinese electors even though international observers point out that the targets of the campaign might be political enemies and opponents.

Regarding the Chinese Market, the anti-corruption crackdown has had profound consequences on markets which were mostly attractive for high net worth individuals. The gambling market has suffered the most, with gaming’s share of revenue in Macau dropping 17.4% in January, extending the run of consecutive monthly falls to eight. Obviously the Chinese luxury market has been strongly affected, experiencing a slow down for the first time in 2014 (-1% growth), a loss of approximately RMB ¥115 billion. Tourism, exotic markets and real estate have all experienced a slow down given the higher prudence of Chinese consumers coming from the fear of becoming suspects.

5-year Plan

5yearplan

The Lianghui received extra attention as 2015 is the last year of the 12th Five-Year Plan and the government meeting was a chance for the government to unveil the new 13th Five-Year Plan. Even though the actual 13th Five-Year Plan has not been released yet, the main concerns were obviously economic factors, employment and environment.

Regarding general Chinese economy, the GDP target has been set at around 7%. Furthermore, policies for the implementation of the new normal policy have been spelled out, including relaxation of the fixed exchange rate policy, the removal of some tariffs and the critical reduction of the industries in which foreign investment is restricted.

With respect to employment, the Lianghui has declared the will to create 10 million additional jobs in urban areas and to avoid an unemployment rate above 4.5%. With the same purpose, the budget allocated to military spending will be increased by 10%.

In conclusion, Lianghui’s considerations regarding environmental issues concentrated on cutting energy intensity by 3.1%, bringing coal consumption to a zero-growth equilibrium and replacing the “green charges” with actual “green taxes” and “green tariffs” in order to further incentivise energy saving habits.

Marketing strategies in China will be mainly affected by environmental considerations. These policies will push Chinese consumers to be more environmentally aware and perceive companies that are “more green” as more valuable. This is a great chance for companies to increase corporate social and environmental responsibility in their marketing schemes.

China is made of many unique markets.  Chinese consumers not only vary by geographical location but also by generation.  The young in China receive a lot of airtime, and for good reasons; but there is a consumer group in China that many brands, products and services are missing.

In China, the older generation often gets overlooked when it comes to foreign products and services. There are over 200 million Chinese over the age of 60, making China’s elderly population the largest in the world. This number is expected to rise to 243 million by 2020 and 400 million by 2050 according to China’s National Committee on Aging, yet this huge and growing segment remains relatively untapped and often wrongly marketed to. Life expectancy in China has risen from 40 years old in 1950 to around 70 years old today; with indications the trend towards longer life will continue.

The spending power of Chinese over 60 is not something to overlook. In 2014 elderly spending accounted for USD $643 billion or 8% of China’s GDP. This is expected to reach USD $17 trillion by the end of 2050. Well-intended but ineffective marketing highlighting and reinforcing the debilitating effects of aging are not going to make this group want to buy a product or service.

Chinese above 60 want to live their lives fully, and opportunities exist for well-marketed brands that can speak to these unique consumers. Whether it be about health products, health care, travel, investments, FMCG or fresh food and beverage, reaching and communicating with this target market is quite different than addressing the young and affluent.

In research China Skinny completed for a dairy product targeting elderly, one recurring theme was how to best reach this age group.  Not as active online as their younger counterparts, and often times less trusting, makes many traditional digital marketing tactics less effective.  Getting smart about targeted online channels and influencers can be effective. With this group not as familiar with foreign brands, Chinese brands have a foot up as of now, but there are ample opportunities for foreign goods and services.

One positive caveat is that like younger Chinese, older Chinese are becoming more aware of, interested in, and proactive about their health and are choosing products for health reasons. Products meeting these needs are often imported as they are usually trusted to be safer. Emphasizing this point from the younger to older Chinese is pragmatic but these are two different demographics that vary not only by age, but also by geographical location and a number of other factors.  For example, Mintel research found that 96% of Shanghainese 55 and older planned to eat more healthily compared to only 33% in Beijing.  That’s a huge variance and doing due diligence to fully understand your target market by both age and location will go a long way. If China Skinny can assist in market research or marketing execution be in touch today.

520 – a special day in China and a special day for China Skinny. Attending the Global Conference on Women and Entrepreneurship hosted by Alibaba in Hangzhou, our team is part of the 800 participants. With 640 million female consumers in China, bringing female entrepreneurs together shows the importance of women’s power for China’s economy.

Excited to be here, we will find out shortly what Jack Ma has to say about Alibaba’s role in this century’s She Era. The room is filled to the roof with a few of the 231 million female customers that shop on Taobao and Tmall.

jack-ma-in-spotlight

Arianna Huffington spoke of the importance of women finding their inner self to prevent burnout. With 100 million Chinese suffering from stress and mental diseases, Huffington points out that success lies in staying focused and gives tips and advice how to reach this goal.

discussion-with-huffington

Actress and Entrepreneur Jessica Alba emphasized to the importance of understanding your target market and how to reach themthe right way. Producing safe and healthy baby products and detergents, Alba plans to launch on the China market in the near future. With more than 9 out of 10 of Chinese moms having absolute control over what their babies are consuming and 86.5% of spending on children going towards healthy, safe and foreign products, women are the driving spending power in the Chinese baby and toddler market.

jessica-alba-honest-company

Short snack in between: a decorative reminder of the event’s host.

alibaba-cake

Along with these celebrities, the audience discussed the role of women in China with Chinese stars like Chinese actress Zhang Ziyi, Su Mang, UK Ambassador Barbara Woodward, and Goldman Sachs Vice Chairman Mark Schwartz. Marriage was a topic of discussion – a big concern for many of China’s “left-over women”, often ambitious women who remain single after 30. With women contributing to just 10% of global GDP growth, there is room for improvement across all industries and countries.

su-mang-alibaba

All speakers consistently stated that mind-sets have to change as there is no country worldwide with gender equality. Given the status quo, it will take 81 years to reach economical gender equality. Women are 9% less likely to have saving accounts, assets or take out loans, and building the right infrastructure is one of the Jack Ma’s objectives for leading China into the She Era Economy of the 21st century.

discussion-with-jack-ma

Two interesting days with dozens of speeches, hundreds of questions and hot discussions. With this event pointing out discrepancies and bringing entrepreneurs from all over the world together, the trends towards the independent, strong business women in China is on the rise. China Skinny can help you play your part in reaching and appealing to this large and powerful consumer group.

Shopping in China is not a necessity but a lifestyle. It is a hobby Chinese consumers pursue with a passion, particularly as online shopping becomes increasingly popular. 67% of Chinese purchased goods online in the past three months according to McKinsey.

Chinese consumers often look for a product in stores and end up buying it elsewhere. Armed with smartphones, a third of shoppers research goods on their mobile in stores, and just 16% of them end up purchasing the product in the store. Following this trend, the industry is hastening to meet Chinese customers’ expectations, creating a multichannel shopping experience with the well-used catchphrase being “O2O” (Online-to-Offline).

O2O

Integrating online elements into offline retail and services was estimated to generate an additional ¥240 billion ($38.4 billion) in 2014, growing 20% from a year earlier according to Analysys International. 71% of online Chinese consumers have used O2O services. A 2015 McKinsey study found that customers particularly like offers where they can purchase a good online and return or exchange it offline. More than half of Chinese consumers are also interested in services allowing them to buy online and pick-up offline or using online coupons in physical stores, with services such as discounted cinema tickets being especially popular.

For smaller businesses, O2O could be a route to stand out from the crowd. A nail specialist states that offering her services through the O2O beauty service app Helijia earns almost doubled her salary when working in a physical nail salon, with the average online order exceeding ¥150 ($25). Helijia recently raised ¥312.5 million ($50 million) investment to to attract more makeup artists and expand into new cities. Whether it is buying medicine, washing laundry or cooking – China’s online landscape can serve nearly every purpose.

O2O-services-in-China

Investments from China’s online giants indicates the importance of the online-to-offline business model in the Middle Kingdom. Early this year, Alibaba invested in an Israeli O2O and QR Code startup which improves the efficiency of scanning QR codes 400%. At a similar time, Tencent and Baidu teamed up with Wanda Group to invest ¥20 billion ($3.2 billion) developing O2O shopping malls on steroids. Wanda’s 1.5 billion customers is the largest offline consumer network globally and, coupled with Baidu’s and Tencent’s strengths (Wechat in particular), signals that massive potential in the O2O business.

The integration of online into offline services is expected to grow rapidly. Two out of three Chinese consumers would like to get more O2O offers in entertainment, while almost half expect extra O2O healthcare services. Online payment systems like Alipay and Wechat Payments are profiting from this development, as more customers expect to be able to use one of those platforms for paying in physical stores. O2O is a convenient concept for consumers living in remote rural areas as well as white collar workers in cities.

O2O-payment-systems

With China’s growing middle class, rising smartphone penetration and more and more consumers seeking information and shopping online, retailers should consider including O2O in their marketing and sales strategy to satisfy their customer’s expectations in the services and shopping experience. Contact us for assistance in your China marketing to meet the trends and stay on track.

China Skinny wishes you a happy 2015; we hope you saw it in with a bang!  The beginning of the year is often a time to plan ahead for the following 12-months. Whether you are already in China, or entering this year, here are a few points to keep in mind:

1. Strive to Understand Chinese Consumers

Understand who your consumers are. Where do they shop? What will catch their attention? How have businesses been successful with similar products and target markets? In addition to the answers to these questions, understand that Chinese consumers are becoming more sophisticated and diverse each day. Just because a foreign business is present in China does not mean they will succeed, especially with the growing competition – not only from foreign brands but also from homegrown brands

2. Be Bold

Entering China with an online-only strategy has worked nicely for some but it is not going to work for everyone, especially those with low to moderate brand recognition. How are you going to make a splash and get noticed? Chinese consumers are not limited in their options as more imported goods and services attempt to attract their wallets. How will you stand out? Not every organisation or company may have the means to open a store, but how about a pop-up store? Or can you join a road show to exhibit your goods? Combining offline efforts with digital efforts is one way to smartly and efficiently capitalise on opportunities in China. There are ways to make a buzz beyond store openings, one just has to be smart about it.

3. Venture Out

First and second tier cities are fun and exciting, with their bright lights and big malls, but they’re becoming very crowded. Is there a place for your goods or services outside of the major cities – the most landlocked province in China was the number one seller of bikinis online per capita!  Provinces in China differ enormously so trying to tackle a population as large as China’s with a single countrywide strategy can be difficult, if not impossible. Geographical differentiation needs to be taken into account and regional strategies should to be considered to maximise available opportunities and provide consumers with relevant products, services and messaging.

4. Be Committed and Flexible

China changes fast. Entering China and getting setting up is only the first step to tackling China. To succeed in China you must not only be committed but also informed on the constant changes that happen in China. A long-term strategy that is flexible is fundamental when entering China. 

5. Keep it Real!

Stay true to your brand. In a low-trust society such as China it is vital to stick to your foundation. Attempting to change your brand to satisfy someone’s notion of what appeals to Chinese shoppers often backfires in the medium term. Understand your market, the available opportunities, and how your products or services best fit into that market. There are ways to localise and appeal to Chinese consumers while still remaining true to your brand. Presenting your brand as authentic and retaining your roots while taking a China-fied approach has a more sustainable chance of success than changing your brand’s identity.

 

China isn’t easy by any measure, but keeping these five points in mind will ensure your business is well placed to maximise the opportunities that China presents. All the best for 2015 in China!

 

Shanghai, Beijing and China’s other first tier cities probably spring to mind when you’re thinking about opportunities in China. Their consumers have more western tastes, buy more western goods and are generally easier to reach than consumers in China’s ‘smaller’ cities. The megapolies also have better networks, infrastructure and facilities for western businesses. However, China’s smaller cities, most you’ve probably never heard of yet, often hold much more opportunity for western businesses with Chinese aspirations, here’s why:

1. Most Chinese urbanites live in the ‘smaller’cities

Shanghai and Beijing have a combined population of around 44 million people.  Not to be sneezed at, but given more than half of China’s 1.34 billion people live in cities, there are about 650 million urbanites living in other Chinese cities.  China’s has about 700 cities with more people than Geneva, so there are plenty potential markets.

2. There are more rich consumers in China’s ‘smaller cities’ than the larger cities

The most relevant measure of perspective customers for most western businesses are the affluent consumers.  Those earning between $20,000 to $1m a year; enough to have some income left over to make discretionary purchases. There are currently 120 million affluent consumers in China, expected to grow to 280 million by 2020 – 75% whom will live in the ‘smaller’ cities.

3. China’s smaller cities are less competitive

There aren’t many well known businesses who don’t have a presence in China these days, but the most common path into China is through the biggest cities more accustomed to western brands and products.  That’s made those cities some of the most competitive markets in the world.  Many brands are yet to venture into the smaller cities.

The seaside city of Qingdao with almost 9 million residents is a potential gold mine for western businesses
The Seaside city of Qingdao with almost 9 million residents is a potential gold mine for western businesses

4. Consumers in China’s smaller cities generally have lower expectations

With all the brands competing in China’s bigger cities, their consumers realise how valuable they are and are often more assertive than western consumers.  Many cities don’t have the big-name western stores, and have lower expectations as consumers.  They still work hard for their money and expect value.

5. Most first time buyers in China are in smaller cities

Chinese consumers in first tier cities have been consuming for over a decade now and many of them are not buying product categories for the first time and are more likely to have developed brand preferences.  The majority of first time purchasers in China are in the smaller cities and they’re more open to new brands.

6. Selling online is a great way to reach smaller city consumers

Chinese consumers are increasingly buying their wares online, especially in smaller cities where many goods aren’t available in stores in their city.  In categories such as luxury and western goods, the portion bought online is much higher in smaller cities than First Tier cities. With the high price of well-located retail in China, online sales can be a cost effective way to reach the masses. 

If you’re not already targeting China’s smaller cities, you should be thinking about it.  A word of caution though, marketing landscapes differ considerably from province to province, even city to city.  Make sure you’re aware of this and do you homework in whatever market you’re targeting.

Facts about China’s Smaller Cities’ Consumers