If you were peddling your products in Los Angeles and Chicago, there’s a good chance that you’d need to tweak the marketing strategy to account for differing lifestyles, varying tastes, disparate climates, different sales channels and varied cultural and emotional needs. In China, variations between cities are typically even greater. Many Chinese cities’ characteristics have been evolving since long before Columbus was leading expeditions to the Americas. These historic differences have helped shape regionalised consumer behaviour. More recent Beijing policies have further moulded differing consumer profiles. For example, residents in first tier cities have been able to travel abroad with more flexibility for longer than their lower tier peers, impacting their sophistication and maturity when travelling abroad, and their exposure to foreign lifestyles and products.
There’s no city that better illustrates the diversity of China’s megalopolis’ than the boomtown of Chengdu in China’s southwest. On the surface, it could be any Mainland city; thousands of grey apartment blocks sprawled across a flat grid of streets, dotted with adventurous modern commercial towers and restored ancient constructions, dissected by a winding river and heaving highways, obscured by a soupy smog more days that it isn’t. But filling those towers are a population arguably more independently-minded than consumers in other parts of China – with personalities as spirited as the peppers that are such as big part of the local Sichuan cuisine.
Chengdu is located some distance from Beijing’s policy makers. The mountains that encircle the city have provided a natural barrier for traders, invaders and legislators for centuries, isolating the city from the outside influences that have impacted other Chinese cities. Chengdu’s fertile soil and natural resources have seen it stay isolated for much of its history, allowing it to stay largely self-sufficient, with an attitude that’s both “mind your own business” and “anything goes.”
With the wealthy, sophisticated city of 16 million people increasingly on brand’s radars, China Skinny has delivered a number of research projects that include the Chengdu market. Their tastes and preferences are often the most disparate from other consumers in other cities we have investigated. One of our recent studies into the customer journeys of consumers in six mainland cities found the research and sales channels used in Chendgu were by far the most distinct.
Chengdu’s relatively lower rents have lured young, independently-minded migrants from across China, cultivating a hip, progressive culture that’s spawned San Francisco-style cafes filled with millennials. The many miles and mountains between Chengdu and Beijing has seen regressive policies about homosexuality hold less clout in the city, which has become a haven for the LGBT community, whose members are drawn to the relaxed, open vibe. Chengdu was voted the gay capital of China in a recent poll by gay dating app Blued.
Beyond sexual liberation, Chongqing also leads China for many genres of music, its underground scene and youth culture. Much of China’s Hiphop and Trap has spawned from the city, with many of China’s biggest hiphop hits dispersed with the Sichuan dialect.
For brands hoping to connect with independently-minded consumers in the city, you’d by wise to ensure that your product, messaging, channels, KOLs and most importantly, your brand’s purpose, are resonant with the target market in the city because just transposing a successful strategy from Shanghai or Beijing won’t always work.
For most brands in China, it can be impractical to have an independent marketing strategy for each target city, however there can be consistent elements by city tier and/or regional city clusters which can be incorporated to make marketing more targeted and resonant. We’ve found that understanding the consumers in a specific city usually highlights some quick wins that can make your brand and product connect with local consumers and break through the clutter. China Skinny has a lot of knowledge and experience to help you with that. We hope you enjoy this week’s Skinny.
Urbanization Rate to Reach 70% by 2035: Study: One billion Chinese people, or over 70% of residents, will live and work in cities by 2035 according to a report published by the National Academy of Economic Strategy. Hangzhou, Changsha, Chengdu and Xi’an had the highest rate of talent inflow between Q4 2016-Q1 2018. The per capita GDP in 12 Chinese cities surpassed $20,000 in 2018. China’s urbanisation rate was 58.5% at the start of 2018.
Chengdu Is Tapping Into China’s $300 Billion Rainbow Economy: Chengdu, or “Gaydu,” the city of 16 million best known internationally for its pandas, was voted the gay capital of China in a recent poll by gay dating app Blued. Although China decriminalized homosexuality in 1997 and removed it from an official list of mental disorders in 2001, gay, lesbian, and transsexual individuals still live in a grey area. There’s no law against being LGBT, but no rules protect against discrimination, either. China doesn’t recognize gay marriage and bans gay imagery in mainstream media. Just 5% of China’s LGBT population live their diversity openly according to the UN. Businesses have been carefully tapping into the $300 billion opportunity.
Is the Chengdu Music Scene Being Boiled Alive?: Yet all isn’t rosy in the laidback, chill town of Chengdu. As of March 2019, permits were technically compulsory for all ticketed live performances in Chengdu, which require artists to submit their ID, lyrics, recordings, setlist and general description of the show content. In actual fact, parties, gigs and festivals are actually growing in number rather than diminishing and the underground scene continues to thrive in new and innovative ways.
The Rise of Trap Music in China (Chengdu): 18 minute vid: The most thriving Trap scene in China isn’t in Shanghai or Beijing, but Chengdu and it is now spreading. Here’s a short video of one of Sichuan’s most popular Trap bands Higher Brothers, comparing their concert in Atlanta with one in Shanghai.
China’s Unmanned Store Boom Ends as Quickly as it Began: Across China, shops were considered the future of retail as recently as two years ago, have been shutting their doors for good. Alibaba launched the first unmanned store in 2017, and by the end of the year an estimated 200 convenience stores had sprouted up around the country. The difficulty of selling fresh groceries in stores without staff was one major obstacle, with boxed lunches, ready-made fresh meals, desserts and other products with limited shelf lives making up a large share of convenience store sales and a 40-50% margin, versus 25% for processed food.
Consumers “Trading Up” and Seeking Quality Drives Record-Breaking 6.18: Includes Infographic. JD sold $29.2 billion worth of merchandise for the 18-day shopping festival. Transaction volume growth was twice as high in lower tier cities than the overall growth. 91% of orders coming from JD fulfilment centres were delivered same-or next-day. JD’s smart customer service robot fielded more than 32 million inquiries, solved 90% of them. Some big numbers: 350 million cartons of milk sold, 150% increase in tampons sold, 6,700 tons of imported fresh food sold. Cosmetic medicine grew 572%, and sales of male beauty products saw a 522% increase within the first hour.
Alibaba’s Ecosystem Drives the Largest-Ever 6.18 Campaign: 200,000 brands took part in Alibaba’s 6.18 Mid-Year Shopping Festival, with 110 brands generating gross merchandise of more than ¥100 million ($14.6 million) for the 18-day campaign. Flash sales channel, Juhuasuan, added over 300 million new consumers, with more than 180 products topping ¥10 million ($1.5 million) and 4,700 breaking ¥1 million ($146K). 48% of newly-launched products were bought by consumers outside of first- and second-tier cities. Cross border sales from 3rd and 4th tier cities grew 153% from a year before. The top-5 cross border countries were Japan, US (consumers still love their goods), South Korea, Australia and Germany. Livestreaming promotions grew 120% from the previous year. During the campaign more than 100 brands – including L’Oréal, Clé de Peau Beauté, Emporio Armani, Crocs, Godiva and Budweiser – saw sales surpass last year’s 11.11.
Home Appliance Manufacturer Galanz Accuses Tmall of ‘Playing Dirty,’ Burying Search Results: One of China’s leading microwave makers, Galanz has accused Alibaba of blocking traffic to its products and demanding it to choose between its platform and the up-and-coming rival Pinduoduo, in what is describes as “forced exclusivity”. According to Galanz, its inventory of 200,000 home appliances was not visible on the first page of Tmall’s search results ahead of the 618 shopping festival. Alibaba began asking shop owners to choose between Tmall or rival e-commerce platform JD as far back as 2012 which is against Chinese law.
Food & Beverage
Costco Set to Open First China Store: Five years after setting up an online store in China, Costco is set to open its first brick-and-mortar store in the country in Shanghai’s Minhang district at the end of August. Costco will offer two types of memberships – one for families and the other for corporations, with both having an annual price of ¥299 ($43).
JD.com Inks Deal to Handle Cross-Border Logistics for Carrefour: French retailer Carrefour is to offer cross-border logistics services. As part of the deal, Carrefour will set up a store on JD’s international marketplace to sell imported goods, following last year’s opening of a store which sells the retailer’s domestic goods on the platform. JD will import the goods and arrange customs clearance, sorting, and distribution for Carrefour. Interesting, the news may be short lived with Alibaba’s Suning acquiring 80% of Carrefour’s China unit for $698 million. Similarly, Japanese department store chain Takashimaya will close its Shanghai store and halt its operations in China.
China’s Dairy War Threatens to Engulf 2022 Winter Olympics: Yili and Mengniu are fierce rivals in China’s $62 billion dairy products market and things just got more heated with Yili warning it may pull out of sponsoring the 2022 Beijing Winter Olympics due to Mengniu allegedly infringing its status as the sole sponsor of dairy products at the games. Mengmiu slipped in as “joint beverage global partner” partnering with Coca Cola through its parent company Cofco. Yili is China’s dairy market leader holding a 23.6% share, with Mengniu close behind on 22.4%.
Australia Nets US$8.2 billion from Chinese Tourism: China remained Australia’s leading tourism market, with the number of visitors from the country growing 2.9% to 1.3 million in the year ending March 2019. Their expenditure grew 10% to A$12 billion ($8.2 billion), representing an additional A$1.1 billion ($757 million) for the year, and 27% of total tourism expenditure.
Alipay Launches Cab-Hailing Integration Mini-Program: Alipay has launched a new mini-program which integrates online cab-hailing services from five overseas platforms, in 33 cities in 10 countries including the UK, the United States, Australia, Singapore, Thailand, Vietnam, UAE, Malaysia, Indonesia, and Philippines. It plans to expand to 20 countries and regions by 2020. The app will mean Chinese tourists don’t need to download a different app and can pay with their Alipay account.
Over a Third of China’s Babies are Delivered Via C-Section – the National Health Commission Wants to Change That: 36.7% of women in China deliver babies by caesarean, although in some urban and wealthier regions in China, such as Shanghai, rates are as a high as 68%. The international healthcare community considers rates of 10-15% to be the ideal rate. Anxiety about giving birth and fear of pain are the main reasons for nonmedical caesarean deliveries, especially considering that only a minority of Chinese women are given any form of pain relief during labour. Beijing hopes to reduce this rate by including stricter regulation of caesarean section operations and the provision of more support and pain relief for labouring women, as well as a higher hospital income for natural births.
UEFA Gets Digital Assist From Alipay to Grow China Fan Base: Alipay, the “digital lifestyle and payments platform” has signed a deal with the Union of European Football Associations, launching a “lifestyle account” on the Alipay mobile app to connect Chinese fans with the latest news about European soccer, as well as a mini-program within the app that fans could use to buy tickets to the UEFA Euro 2020 tournament – the first time UEFA will allow a digital ticketing channel outside of UEFA.com.
Harley-Davidson Strikes Deal to Build Smaller Bike in China: Harley-Davidson Inc will partner with China’s Qianjiang Motorcycle Co to build a new smaller motorcycle than its trademark “big hogs”. The new bike will be notably cheaper than Harley’s existing range and be 338cc, one of the smallest in the company’s 116-year old history. Its existing bikes are typically 601cc or more. Harley’s sales in China grew 27% in 2018.
Remember when you’d see the big tricycles stacked metres high with polystyrene, rubbish and furniture cruising the streets? Or the vividly-coloured Facekinis poolside or on the beach? Or how about the infants with split pants on a cold Beijing day? They were all China novelties that have largely disappeared from the bigger cities. Yet with each disappearing quirk, a new curiosity has arisen to ensure that there is never a dull day in China.
One area that has recently taken on a life of its own is beauty. Fashion, haircuts and even hair colours are becoming more varied and diverse daily. It is not uncommon to see young Chinese spending 40 minutes on a photo editing app polishing their latest selfie, or a young man in a public place diligently applying mascara – not just representing the exponential rise of male makeup, but also that younger Chinese are confidently challenging traditional social norms to be what they want to be, unfazed by state media’s direction on how to behave.
The pursuit of beauty has been important since ancient times in China. In the Tang Dynasty, makeup became a part of everyday culture, with women applying foundation powder, blusher and a dusting of light yellow powder. Bluish black eyebrows, lipstick, painted on dimples and ornamental forehead flourishes were also added. Whilst beauty is a little less novel than it was 11-14 hundred years ago, it is as relevant as ever for Chinese consumers and something that many of us should take note.
China Skinny has compiled numerous pieces of research asking consumers how they would spend extra money if they received it. Beauty always scores highly, often the top way young millennials would spend the windfall. Many Chinese will directly correlate the way they look with their chances of success – in both their personal and professional life.
One of the most poignant illustrations of the importance of beauty in China is the soaring segment of cosmetic surgery. Unlike in the West where patients are older when looking to have work done – more than 75% are over 35 in the US – 54% of Chinese going under the knife are under 28. This is fuelling an industry expected to be worth ¥360 billion ($52 billion) by 2023. Last month’s IPO of plastic surgery app So-Young soared 44% on its first day of trading and has settled to a value of around $1.5 billion. Almost 2 million users are on the app monthly, 79% more than a year ago.
In addition to the obvious beneficiaries of plastic surgery, cosmetics and fashion, many other categories are touched by China’s beauty obsession. For example, health supplement purchasers are often motivated by beauty benefits – even with target markets you may not expect like the 20-year olds buying anti-aging pills. Categories such as food and beverage are heavily influenced by the quest for beauty, with an increase in healthy food demand resulting from how they can improve appearances such as skin and hair. The fast-growing fitness industry is also heavily swayed by the aesthetic outcomes. The good news is that it isn’t just the Pechoins, L’Oreals and J&Js of the world who stand to benefit, with the majority of Chinese consumers showing interest in niche beauty brands.
The free-spending young Chinese in particular often strive to stand out amongst the masses, and looking good is considered a key component of this. When brands are communicating to their target markets, they should bear this in mind wherever plausible. China Skinny can help determine if and how this all fits for your products or services.
In other news, China Skinny has moved its Shanghai HQ to a bigger and better office. We’re still in central Jing’An District, a block from our our office on Jiangning Road. We love visitors, so pop by any time for a coffee, tea or just to say ni hao. You’ll find our address here. Go to Page 2 to see this week’s China news and highlights.
To many readers, video gaming may seem like pastime reserved for a small tribe of socially-awkward folk with Vitamin D deficiencies. Yet any marketer in China should be paying attention. China’s $36 billion video gaming market is four times larger than its movie industry and a driving force behind the inclusion of eSports as a medal event in the 2022 Asian Games, and even a possible demonstration sport at the 2024 Paris Olympics as the IOC wrestles between tradition and appealing to vast new audiences.
Chinese gamers have long been stereotyped as young males spending their free time in dingy internet cafes; their gaming-contorted fingers covered in a thick film of greasy food and crumbs. The People’s Liberation Army has even attributed gaming as a major reason so many young men fail its physical tests.
Nevertheless, profiles are changing. Gender fluidity is one of the big trends happening in the China market. Just look to the runaway growth of men’s makeup, a spike in males buying lacy-style and see-through fashions on Taobao, while women are buying up suits and almost half of cars from brands typically purchased by men in other markets such as Maserati and Porsches. It seems now that gaming is no longer just the realm of males, with some estimates claiming females make up almost half of China’s 530 million gamers.
Chinese consumers’ obsession with gaming should give marketers clues into how their target markets – male and female – see the world. For many, gaming is a form of escapism from boredom during long commutes and the 9am-9pm-6 days a week work schedule in many Chinese firms. But it is also a pillar in many Chinese social lives; a convenient place to meet others with shared interests, and the closest thing many have to playing team sports, brother and sisterhood, and even a place to meet love interests.
When many marketers think of utilising games in their strategies, it revolves around gamification to connect and engage with Chinese consumers. Whilst there are some success stories, most attempts simply aren’t interesting, relevant or well-integrated into other marketing initiatives, with few gamification investments attracting more than a handful of genuinely engaged participants.
The sophistication of game developers is presenting increasingly diverse opportunities to connect with the target market during an emotional moment in their day. Female-focused mobile dating game Love and Producer saw an estimated $32 million of in-app purchases after one month of being launched. High-end cosmetics brand M.A.C. released five Honour of Kings limited-edition lipsticks targeting its 100 million+ female players – 14,000 were preordered and all five lipstick styles sold out across all sales channels within 24-hours of launching.
Combined with awareness-building initiatives through placements and partnerships, gaming is also looking to become a legitimate sales channel for goods and services. The industry has even created its own sect of KOLs who are supported by millions of live streamers, all potential endorsers of products and services.
With Beijing’s new gaming approvals freeze starting to thaw, games and their players will continue to evolve into more sophisticated marketing and sales platforms to connect with the lucrative male and female millennials, and Gen-Zs. Contact China Skinny for advice on how best to do that.
With the extended May Day Holiday (in hope of stimulating spending), there’ll be no Skinny next week, but we’ll be back the following Wednesday. Go to Page 2 to see this week’s China news and highlights.
In October 2015, China announced plans that it would be abolishing its one-child policy the following year, in hope of rebalancing its top-heavy population which is expected to see 500 million folk aged over 60 by 2050. The announcement, coupled with the earlier one-child policy changes, had brands selling everything from infant formula to educational toys readjusting their sales forecasts north. Even Disney invested an additional $800 million in the construction of the Shanghai Disney Resort to add extra capacity to account for the fertility spike.
On the surface things started off well, with birth rates jumping 7.9% between 2015 and 2016. But it was always likely to be just a blip. 2016 was the Year of the Monkey, which was a much more desirable zodiac for childbearing than 2015, which happened to be a Sheep Year. Superstitious Chinese don’t want their kids to be the docile followers associated with our woolly friends.
There was also some pent up demand from parents who had always longed for more than one child. Yet for most Chinese couples, the 37-year-old One Child Policy had reengineered the national psyche making it socially acceptable to have a single child. The competitiveness of China’s education system also sees parents invest significant sums into their child’s education and development, coupled with the premium paid for safe food and beverage and other extras to ensure their child gets the best start at life. Most couples consider it too expensive to have more than one child.
Since 2016, birth rates have fallen off a cliff, dropping by 12% in 2018. In another troublesome sign for China’s fertility planners, marriage rates hit record lows in 2018. Couples need to be married in China to legally have a child. Beijing will be banking on the country’s investment in robotics and Artificial Intelligence to help make up for the falling working population.
So should those infant formula brands, Lego, Disney and other companies hoping to sell their wares to Chinese youngins be revising their revenue forecasts down? Not at all. As Chinese families’ affluence rises, a disproportionate share of the increase goes to their child. As they only have one, few cut corners. A child born today will have parents earning 130% more than those born a decade ago. There have been countless surveys with Chinese consumers over the years about how they would spend additional wealth, and a large percentage always cite they’d spend it on their child’s education and development. Even extra budget directed at travel will often be to take the kids away, with families one of the fastest growing outbound tourist segments.
To get a real taste of how important the market for children’s goods and services is, take a trip to the town of Zhili in Zhejiang Province this November. The town famous for its child garment factories has a population of 100,000, which swells to around 350,000 around peak times such as Singles’ Day. The population boost comes from families relocating there in the hope that their kid will become China’s next top child model. Kids can earn up to ¥10,000 ($1,500) a day, with the most popular models reportedly earning a million ($150K) a year. The modelling rates highlight just how lucrative the children’s fashion category is, but also its competitiveness.
Although birth rates are falling, there were still 15.23 million children born in China last year – and a greater portion with affluent parents than ever. Citi Research, in their short video about the infant formula category, summed the situation up well: “having the right route-to-market, especially in the online channel, matters more than the underlying market”. That could be said for virtually every category in China, where there remain enormous target markets still willing to spend, regardless of slowing population or economic growth. China Skinny can assist with your route to market. Go to Page 2 to see this week’s China news and highlights.
Countries trading with China have seen their share of geopolitical tensions of late: the trade war with the US, Canada’s arrest of Huawei CFO Meng Wanzhou, foreign espionage claims in Australia, threats of Huawei bans across countries from New Zealand to Poland, European talk of China being a “systemic rival” and threatening tighter rules on its investments in the region, a host of ongoing tensions with ASEAN countries over the South China Sea, and so on.
The tensions are said to have been responsible for restrictions on Australian coal shipments, suspension of Canadian canola exports, the delayed launch of the 2019 China-New Zealand Year of Tourism festivities (which finally took place on Saturday), and Wall Street bankers’ claims that an informal boycott of US goods is the root of Apple’s woes in China.
There’s no question the results of tensions can be challenging for exporters, but they aren’t a scratch on what happened to Japanese brands in 2012 over an island territorial spat in the East China Sea. It was one of the most fearful displays we have seen when it comes to how powerful China’s state media can be in swaying public opinion. Anti-Japanese sentiment soared among consumers, driving protestors to wreak an estimated $126 million worth of damage to Japanese-branded goods, buildings and related sales. In two waves of protests, hundreds of Japanese-branded cars were smashed and overturned, rocks were thrown at Japanese restaurants, Japanese factories were set ablaze, Japanese buildings were broken into and ransacked, and stores selling Japanese goods were vandalised, causing many to shutter, including the $8.8 million destruction of an AEON supermarket.
The week between 15-21 September saw the Japanese car manufacturing industry suffer losses of $250 million due to the production of about 14,000 cars being suspended, with subsequent sales in September dropping by close to 50%. Tourists to Japan plummeted by nearly half in the month that followed.
Yet if Japan is anything to go by, exporters losing sleep over their current geopolitical tensions should be heartened. Japan has good stuff, and most Chinese consumers couldn’t stay away, no matter how deep-rooted their Anti-Japanese feelings were. Chinese tourists to Japan grew more than five-fold from 1.4 million in 2012 to 7.4 million in 2017. Since then, visiting Chinese spending in Japan was so lavish that a new term — “buying explosion” — emerged to describe the way Chinese tourists descend on particular Japanese retailers, buying everything from Japanese rice, to toilet seats, to condoms. Even Japanese car sales have soared, with China expected to overtake Japan on volume last year.
However, probably the most astonishing indicator of Japanese love by Chinese consumers is restaurant data released by the Japanese External Trade Organization. The number of Japanese restaurants in China grew from about 10,600 in the beginning of 2017 to 40,800 at the end of the year. Even by Chinese standards, that is phenomenal growth!
The key takeaways from our Japanese friends is that the impact of geopolitical tensions – as undesirable as they are – are generally short term blips, if they have any impact at all. If you make quality products and services that connect with Chinese tastes and preferences and are marketed well, the shoppers are likely to stay loyal, or soon come back wanting more. Here’s to that.
On the subject of Chinese restaurant and food preferences – Japanese and the others, China Skinny’s Mark Tanner will be sharing valuable insights at the Foodomics Conference in Auckland, New Zealand on 10 April. It would be great to hear from you if you will be there. More info here. Go to Page 2 to see this week’s China news and highlights.
What caught our eye in the build-up to this Chinese New Year is not the nearly-3 billion trips to be made via China’s transport system, not the thousands of ways to make pigs cuter including carving one into a watermelon, but the NBA’s pick for its Chinese New Year ambassador: 20 year old boy band member Cai Xukun from the group Nine Percent.
In a land where there has been much public debate and negative state media over the influence of ‘sissy boy’ role models, the decision caused the expected uproar online. On popular sports platform Hupu, known for its masculine user base, 82% – 39,363 voters – checked the option “I’d rather die” in a poll about Cai’s NBA mission.
On the surface the choice seems like an outrageous misalignment with the esteemed NBA brand. The NBA has some of the most athletically-impressive beings of the sporting world – poles apart from the effeminate 65kg pop idol. Yet the expensive decision is likely to bear fruit.
For a start, although the NBA already has an epic following in China including the largest social media fanbase of any sports league with 150 million followers, that only accounts for a small portion of China’s population. Like any business, they will be wanting to grow that base.
In choosing a target market, they will look to the Gen-Zs (those born in the mid-90s to early 2000s) as having a high propensity to support and spend on the game. Gen-Zs are an open-minded generation in a society that has never been so enthusiastic about sport, causing them to explore and embrace sports more than the generations before them. They’re also big spenders. Although most haven’t yet banked a single pay cheque, they account for 15% of household expenditure, versus just 4% in the USA and UK. As the only child/grandchild of six doting adults, and having never lived through tough times, they are free spending with seemingly few worries in the world.
You’ve probably guessed that many of Cai’s fans are Gen-Zs, and particularly females – another lucrative yet untapped sector by the NBA. Last year’s NBA All-Star Celebrity Game featured Chinese-Canadian singer Kris Wu, which reportedly increased female viewers by 30%.
There are plenty of examples where endorsements of effeminate pop-idols have bolstered sales for brands in China, albeit most are more closely-aligned to each other’s core values than the NBA and Cai. Yet the NBA’s China fans are so deeply rooted in the game, they are unlikely to stop supporting the game en masse due to a Chinese New Year endorser who doesn’t fit the league’s image. Most brands in China would struggle to pull that off.
There have never been more options for consumers to spend their money. Sport – like everything – has to find ways to boost the entertainment factor to stay relevant. Whilst there would be better ways to entertain their loyal fan base, they are likely to entertain a segment who may have never considered the NBA before. Although many of the NBA’s execs are unlikely to get down to Cai Xukun’s music, they are putting their own opinions aside to attract a new and wider pool of fans. Hats off to the league for embracing China’s countercultures – those who dare to rebel from entrenched traditional values – something brands are increasingly having to do to reach the younger, freer-thinking generations.
On that note, we’ll leave you to celebrate the coming of the Pig. Happy Chinese New Year, wishing you a prosperous and productive Zhūnián. We’ll be back after the break – enjoy this week’s Skinny. Go to Page 2 to see this week’s China news and highlights.
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, with the new, complete translated cross border list here.
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.
You’ve got to give it to China: This week’s inaugural China International Import Expo (CIIE) in Shanghai – the ‘Canton Fair for exporters’ – has attracted representatives from 85% of the countries that the Olympics attracts, all hoping to sell their wares to China.
President Xi Jinping officially opened the expo speaking to political and business leaders from 172 countries. Xi pledged to increase goods imports to $30 trillion over the next 15 years, and services to $10 trillion. The goods figures were $6 trillion higher than the existing target of $24 trillion that the Ministry of Commerce had re-stated just hours before. However the figures are parallel with – actually below – how China has been tracking. China’s goods imports grew 16% last year to $1.84 trillion in 2017. The $30 trillion target averages $2 trillion a year indicating a very unambitious official growth target as Caixin pointed out. Comparing the import growth targets to the rise in GDP is even more underwhelming as illustrated in this graph, posted on Twitter by Economist journalist Simon Rabinovitch.
Among other announcements, Xi vowed to “firmly punish behaviour that encroaches on the lawful rights and interests of foreign companies, particularly IP infringements.” He promised looser restrictions on foreign ownership in the education and health care sectors, expansion of the Shanghai Free Trade Zone to another area, stepping up of cross-border e-commerce, along with reduced tariffs and lower “institutional costs” of imports.
Although many details of the expo have been shrouded in mystery until opening day, the show floor attracted over 3,000 businesses sparing no expense, exhibiting everything from flying cars to Maori food to an estimated 150,000 buyers from across China. To signify China’s importance for global trade, 130 countries are represented in the enormous four leafed clover-shaped exhibition centre, just shy of the 132 who have signed up for Dubai’s World Expo in 2020.
Attending the opening day were around a dozen prime ministers and presidents from countries like Russia, Vietnam, Egypt, Hungary, the Dominican Republic, Pakistan, the Czech Republic, El Salvador, Kenya and Laos, the President of the World Bank, Director-General of the WTO, MD of the IMF, Jack Ma and Bill Gates and Australia’s trade commissioner in the country’s first high-level ministerial trip in over a year.
Like any big show in China, there is the obligatory mascot – Jinbao the panda, commemorative stamps, countless convoys disrupting traffic, and numerous deals announced such as Alibaba’s pledge to bring ¥200 billion ($28.8 billion) of imports over five years and JD.com’s ¥100 billion ($14.4 billion). It is anyone’s guess as to how many of the deals signed this week come to fruition, but the expo is an unquestionably positive step in promoting imports and potentially spreading their presence deeper into the hinterland. See photos of the expo here. All the best to our readers who are at the expo. Go to Page 2 to see this week’s China news and highlights.
A quick quiz to start this week’s Skinny: What is the most valuable marketing company in the world? Most people probably couldn’t care less, but there are a few folk in the industry who would say WPP. Whilst the company hasn’t had a great year, it remains the largest marketing company in the world measured by billings and revenue. The London-based conglomerate has a market cap of $18.9 billion, putting them ahead of the other well-known marketing companies such as Omnicom at $15.3 billion, Publicis at $12.6 billion and Interpublic at $8.3 billion.
Before using your guess on the familiar marketing giants, you may want to consider the lesser-known companies, like Focus Media. Last week Alibaba acquired a 10.32% stake in the company for $2.23 billion, which as of yesterday had a market cap of ¥162 billion ($23.8 billion). Focus Media is the company behind many of the digital advertising screens in streets, subways and elevators across 300 Chinese cities.
With the acquisition, Alibaba plans to collaborate with Focus to merge offline media and digital marketing, slated as an upgrade to “New Marketing” which will support the growth of New Retail across all sectors. Focus has ambitious plans to soon control 5 million terminals covering 500 Chinese cities and reaching 500 million consumers.
Powering the evolution of Focus’s screens will be Alibaba’s vast banks of consumer data from the more than 550 million online shoppers on its platforms, 520 million AliPay users, and potentially the hundreds of millions watching Youku videos, navigating with AutoNavi maps, taking Didi taxis, browsing on UCWeb, ordering food on Ele.me, cycling on Ofo, using Weibo along with the more than 100 other businesses Alibaba owns a share in. When Alibaba figures out how to truly integrate and harness its massive data, there will be few stones unturned in consumer knowledge that can help direct what gets displayed on advertising screens or whatever they evolve to. Throw that in with their facial recognition technologies and you’ll have Minority Report-type advertising folks!
Alibaba’s investment into Focus Media will support its irrepressible expansion into physical retail and further strengthen its presence across the whole customer journey. What does it mean for companies such as the WPPs and Omnicoms of the world? The continued structural shift in marketing and advertising will force them to evolve beyond their traditional services.
One thing we have found at the Skinny is that while big data is valuable in planning, marketing and product development, it is a complement, rather than a replacement, to human creativity for determining how to best push consumers’ emotional buttons. It is likely to be a while before any machine can do that. Based on the early stage talks involving Alibaba and Tencent to buy a stake in WPP China, the big tech companies may be thinking so too. Go to Page 2 to see this week’s China news and highlights.
Just as live sports are helping prop up the old world of television advertising, they can also be a potent force in international relations and trade. We saw it with the ping pong diplomacy of the early 70s, and as sport becomes an important part of life in China, it will be an increasingly significant driver for geopolitical relations and the goods and services trade. FIFA, the NBA, snow sports and other physical activities are taking advantage of this. As proud supporters of rugby in Asia, China Skinny would be grateful to start seeing some real rugby love in the Middle Kingdom.
With the FIFA World Cup kicking off in Russia tomorrow, the trend is looking positive. During the month-long football festival there may be times visitors feel like they’re at a Guangzhou Evergrande Taobao match. Although China hasn’t played in a World Cup Finals since 2002, an estimated 100,000 Chinese are expected to visit Russia for the Cup, dwarfing the 10,000 football-mad English expected to be there – and their team qualified! On top of that, Chinese brands Hisense, Mengniu, Vivo, electric bike maker Yadea and Dalian Wanda are joining the party to plug the World Cup sponsorship gap.
Like many things in China, Xi Jinping’s passions and policy are helping drive China’s enthusiasm for the beautiful game. The avid football fan Xi hinted last year that China will be bidding to host a World Cup in 2030 or 2034 and will be a “world football superpower” by 2050. Feeding into the grand plan, Xi has announced that the number of football fields in China will grow from less than 11,000 in 2015 to 70,000 by 2020. China will have 50 million regular football players including 30 million students by then, and 50,000 schools will have a strong emphasis on football by 2025 – up from just 5,000 in 2015.
The 100,000 visitors are a sign of changing times in China. They illustrate how Chinese are increasingly able and prepared to spend big bucks on their leisure pursuits. Back in 2002 – when consumers were much less affluent than they are today – no more than 50,000 Chinese went to the World Cup Finals in South Korea and Japan when China was actually on the field.
The swathe of Chinese visitors ascending on Russia will have been further tempted by visa-free travel to its northern neighbour. On top of that, China’s blossoming relationship with Russia will also drive preference – as geopolitical circumstances usually do with Chinese travel trends. Russia seems to be the flavour of the month with Beijing as they look to provide a scalable alternative to Western ideologies. The friendship comes at a good time for China as its dog box is marred with imprints of South Korea’s THAAD, ASEAN-contested island building and river damming, Japanese-disputed islands and historic invasions, the encircling of India and territory skirmishes, undermining of Australian sovereignty, Europe’s wariness of Chinese investment, lack of reciprocal access and sporadic trade disputes, and Trump.
As a symbol of their bond, Vladimir Putin was presented China’s first ever “friendship medal” by President Xi at a lavish event broadcast live from the Great Hall of the People. Since becoming president, Xi has visited Moscow more than any other capital city and Putin said that Xi Jinping was the only world leader who celebrated his birthday. Putin was in China last week for the enlarged Russia-China led Eurasian SCO bloc meeting as the G7 floundered. Russia, which is managing its own diplomatic challenges elsewhere has recently signed a series of deals with China who announced relations between two countries were at “the best level in history.”
In short, this year’s World Cup couldn’t have been better timed for Russia to tap into the opportunity that China presents. For the Russian businesses that stand to benefit from an influx of Chinese visitors – let’s hope you make them welcome. Mobile payments and the slew of other China-ready initiatives will ensure they have a better time, spend more and advocate Russia to the masses at home. And good luck to the 32 nations who made it to the finals! Go to Page 2 to see this week’s China news and highlights.
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.
When an estimated 500 new products and services launch in China every day, separating your brand from the rest can be an endless struggle. Of course an informed and intelligent approach to the market is vital in driving success, but recent times have seen high-performing brands begin to move towards more collaborative methods to open up opportunities.
Some of China Skinny’s clients and other aspirational brands are increasingly opting not to tackle China alone. New trends, business models and changing influences and touch points are constantly emerging, giving rise to the effectiveness of partnerships. They have allowed brands to more easily build meaningful and emotional connections with their target markets by engaging and accessing new channels previously out of reach for them.
Many of the highest profile b2b partnerships include China’s big tech companies. It seems there are almost daily announcements of an FMCG brand, car brand or retailer signing a partnership deal with Alibaba or Tencent. The Ford-Alibaba car vending machine is a novel example which captured imaginations across China and the world. Similarly, Tencent recently teamed up with Lego to develop games, videos and a social network for Chinese children.
Beyond the well-publicised and more obvious partnerships, there are many lesser-known collaborations that are sure to surprise those both in and out of China. With China’s sought-after millennials constantly looking for more ways to express themselves, fashion and music are at the heart of the most popular cross-industry collaborations. Unexpected partnerships have blossomed, including Lipton Tea joining forces with designers in a streetwear-inspired fashion show to reach a completely new body of consumers, and TripAdvisor who partnered with Beijing-based handbag brand Rfactory to create handbags emblazoned with the online travel firm’s logo. Blackmores have teamed up with top-20-world-ranking Tsinghua University to develop a health communication curriculum course for natural medicine. In addition to the aspirational associations and the perceived commitment to China, the course puts Blackmores in good stead, set to reach some of the industry’s most persuasive future influencers during their formative years.
Like anywhere, partnerships in China allow plenty of scope for creativity and can produce much higher returns than mainstream marketing initiatives. Yet they should be well-considered, appropriately executed and kept relevant to both the existing consumer and those targeted to justify the investment and risks that come with such collaborations. Agencies such as China Skinny can assist in identifying and maximising such partnerships.
On another note, China Skinny’s Mark Tanner will be joining an esteemed line up of experts at The Secrets To Doing Business In China forum in Shanghai on Friday May 18. Mix and mingle with China-based businesses and a large delegation of visiting Australian businesses in town for the Aussie Rules and SIAL. For more details tap/click here. Go to Page 2 to see this week’s China news and highlights.
The strategies and recommendations that China Skinny developed five years ago were quite different than those we do today. When we cited the best examples of marketing in China, we would typically look to foreign brands. Back then, most domestic companies’ marketing plans were focused on price promotions and discounts.
Things have changed in recent years. The allure of overseas origins remains attractive with many Chinese consumers and there are some great case studies of foreign brands backing that up with a smart marketing strategy, yet our recommendations are increasingly drawing on lessons from domestic brands. We only need to look to the dairy category where imported brands have a natural perceived advantage for health and safety, yet domestic players still manage a 38% premium per litre for online sales. This is due to slicker marketing and usually a better understanding of the market overall. Our recent survey of Australian businesses with Austcham confirmed that exporters are increasingly waking up to this, with domestic brands seen as more of a source of competition than foreign brands – 50.7% versus 49.1%.
Domestic brands are also much more likely to have stronger distribution networks and more of an appetite for lower tier cities, which are the fastest growing markets in China. Of the 50 million new households that are expected to enter China’s middle and upper classes between 2016-2020, half of them are likely to be located outside of China’s top-100 cities according to a BCG-Alibaba study. Although incomes in smaller cities are less than in larger cities, the lower cost of living means more cash is available for discretionary purchases. Further, rising property prices and increased indebtedness help fund consumption from consumers starved of the choice available in China’s high-tier cities.
Traditional domestic brands are not the only source of local competition for foreign brands in China. One of the newest competitors to the mix are the key opinion leaders – the same folk that foreign and local brands are paying hundreds of thousands of dollars to endorse their brands. Just as George Clooney built his billion dollar tequila brand and Gwyneth Paltrow with lifestyle brand GOOP, China’s influencers are realising their value not just as endorsers of other brands, but to launch their own brands such as Zhang Dayi’s own fashion label and Mi Zijun’s snack shop.
The most potent new string of competition isn’t going to come from celebs though, it is likely to come from the platforms who are selling your brands themselves – China’s online giants who are becoming increasingly powerful in both the online and offline world. Although China have been late adopters of private-label brands, it is another area the big ecommerce platforms are likely to lead. Netease is the latest platform to launch its own private label, Yanxuan, selling clothing, furniture, and appliances from the same Chinese suppliers who manufacture for international brands like Kering’s Gucci, Burberry, and Deckers’ UGG. It follows Taobao’s Xinxuan which launched last year, and JD’s Jingzao in January.
The ecommerce platforms have the data to evaluate the attractiveness of the private label products coupled with the ability to test them with little risk. Just look at the 80,000 smelly Thai durians Alibaba sold in a minute. While Alibaba may be best known for its multi-billion-dollar acquisitions such as RT Mart and food delivery Ele.me, it is making plenty of smaller purchases that could add to its arsenal of home brands such as NZ dairy company Theland. Some would say it could be a conflict of interest, particularly given Alibaba’s ability to dial brands on and off, but it is the inevitable reality of supplying dominant retailers much like supermarket chains in the West.
New sources of competition all cement China’s position as the most competitive marketplace on the planet. Even categories that have been out of reach of domestic players such as the auto industry are now starting to see more and more threats from hungry and smart domestic brands – both Alibaba and Tencent have made notable investments in car manufacturers. Brands should be aware of who their competition is in order to carve out their unique place in the market and not become too reliant on one channel. Agencies like China Skinny can assist with such market mapping, gap analysis and differentiated branding and positioning. Go to Page 2 to see this week’s China news and highlights.
If you’re in China buying a tub of skincare online, a tray of New Zealand kiwifruit at the local fruit store, an expensive bottle of wine dining out, or even a well-known condom brand at a convenience store, there’s a fair chance you’ll end up with a fake. Unlike Western consumers who take things at face value, Chinese consumers are inherently untrusting of things for sale which contributes to them taking quite a different customer journey for products and services than consumers elsewhere.
Up until five years ago, the prevalence of fakes saw many consumers just accept it as a likely consequence of shopping in China. In 2013, China’s massive retail market saw just one million consumer complaints to relevant government departments. At the time, Americans numbered less than a quarter compared to China’s population but made more than twice as many complaints overall. The sudden rise of social media encouraged some aggrieved Chinese consumers to take complaining into their own hands. In 2011, a wealthy businessman in Qingdao disappointed with his Lamborghini’s service hired nine men to destroy his sports car with sledge hammers, and circulated the video on social media, which was followed by a run of copycats. But overall, most consumers seemed to just grin and bear it.
That is no longer. Last year consumer complaints grew 44% to 2.4 million – edging closer to America’s 2.7 million complaints. As China’s consumers have grown more sophisticated and assertive, so have their channels of recourse. Consumers are more aware and confident about the options available to them meaning brands are much less likely to get away with the things they used to. This is further exacerbated by the rise of ‘professional complainers’ who troll supermarkets for products with incorrect labelling and claims, unlawful additives and multiple production dates, earning ten times the purchase price in compensation.
As consumers have become more proactive in dealing with issues, CCTV’s annual 315 consumer watchdog broadcast has become less relevant. Once one of the most potent beacons of consumer protection, the show was notorious for bankrupting businesses it singled out. Even überbrands such as Nike and Apple took material hits after being shamed on the show in 2012 and 2013 respectively.
Last Thursday’s 315 show confirmed how much less of an impact it makes these days. Just a fraction of the media and online buzz now accompanies 315 relative to the golden days five years ago. Nike was singled out again last year, but it appeared to do little to break the label’s stride in China. Brands are also much better prepared these days with comprehensive crisis plans, illustrated by VW who apologised within minutes on Weibo after being singled out on 315 this year, again. The show has been unable to find its mojo since CCTV joined a string of other state media for corruption involving shows such as 315.
Yet with the fall of 315, the rise of complaints has been augmented with enthusiastic complaining – and praising – on digital channels such as social media and online reviews on ecommerce and travel platforms. In short, it is becoming more difficult to fix actions that annoy Chinese consumers. Much like anywhere, brands should be particularly vigilant to do what they can to keep consumers happy, within reason. Go to Page 2 to see this week’s China news and highlights.
Happy Year of the Dog! For our readers who took a break, we hope it was a blast.
One of the defining factors of the last lunar year was the Government cracking down on overly-leveraged Chinese conglomerates, particularly those who’d made “irrational” trophy acquisitions abroad. Some of Beijing’s highest profile targets have been in the news this month, with Wanda selling 17% of Atlético Madrid football club and $16 billion of deals since last year and Hainan Airline’s parent HNA hard times continuing. Yet the most extreme example is the elusive insurance company Anbang famous for its $1.95 billion purchase of New York’s Waldorf Astoria in 2014 and $30 billion in deals since. Last week, Anbang was taken over by the Government.
Whilst the tightened curbs on capital outflows and closer scrutiny on deals saw Chinese outbound investment plunge 29.4% last year, the Dog has started off with some well-known foreign brands becoming Chinese-owned, as Chinese companies continue to extend their global reach and appeal through acquisitions. The string of recent high profile investments mostly concern European luxury brands following 20% growth in the category in China last year, and Chinese nationals making up a third of global luxury purchases.
Last week, Club Med’s owners Fosun purchased France’s oldest fashion house Lanvin, following Shandong Ruyi’s acquisition of Swiss luxury brand Bally earlier this month. Volvo’s parent company Geely also became the largest shareholders of Germany’s Daimler. The announcement came not long after Daimler’s Mercedes-Benz was blasted by China for quoting the Dalai Lama – a symbolic move given the quote was on the China-banned Instagram and a sign that even marketing teams targeting markets miles from China may want to start reading up on Chinese sensitivities (subscribe here).
Yet whilst Chinese boardrooms may have spent the lead-up to the festival finalising luxury takeovers, on the ground China’s largest gifting period highlights other interesting insights.
At China Skinny we always watch CNY purchases closely, as the importance that Chinese place on these gifts for family and friends acts as a good barometer for what Chinese perceive as valuable and on-trend. This year’s theme was healthy and imported food. A People’s Daily article claimed imports accounted for 63% of Chinese New Year-related purchases whereas Alibaba’s platforms saw imported produce grow 300% from last year’s festival. Ymatou saw imported food grow 60% with Belgium chocolates, Spanish olive oil, American nuts and Australian oatmeal high in demand.
Overall, spending during China’s mega-festival increased 10.2% on last year – a sign that Chinese consumer confidence continues to bubble along, although it was slower than last year’s 11.4%. Other categories that saw runaway growth included smart home appliances and cinema, which jumped 67% from last year. We hope your fortunes follow suit this year. Go to Page 2 to see this week’s China news and highlights.