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It doesn’t have the sexiness of livestreaming, or the sizzle of Singles’ Day, but one of the most important components of China’s ecommerce and New Retail boom is the thankless task of making it all happen behind the scenes. China’s logistics infrastructure is experiencing some of the biggest, yet behind-the-scenes, changes in the country’s retail industry. Chinese logistics are evolving from fragmented and rudimentary systems, to consolidated ones driven by the internet-connected smart devices, robots and real-time end-to-end tracking and traceability.

Chinese consumer expectations around delivery have become some of the highest in the world. Many purchases are expected to be delivered in less than 30 minutes. And for other goods, if they don’t arrive within 1-2 days, most consumers will go somewhere else, with the exception of some customized products and goods coming from afar. Yet even expectations for delivery times for cross border products are increasingly short, with bonded warehouses bringing them closer to the consumer.

1.88 billion parcels were delivered just in the 10 days starting on Double-11 (Singles’ Day) last year. This gives China the scale to invest in technology and systems. The increase in New Retail and social commerce is driving both shopping and delivery to become a 24/7 business. Investment is also being propelled by lower tier cities, whose logistics infrastructure is behind high tier cities. Tier-3 cities and lower accounted for more than 70% of the growth of Alibaba’s 102 million new customers over the last 12-months, in addition to apps such as Pinduoduo and WeChat which are driving online shopping in the hinterland. The focus is also being driven by fast growth ecommerce categories like food and beverage delivery, which requires improvements in areas such as cold chain.

Logistics is big business in China. In 2017, SF Express IPOed to become the Shenzhen Stock Exchange’s most valuable company, while pushing founder Wang Wei’s net worth up to $16 billion. Alibaba’s partner logistics company Cainiao – which accounts for one in every 10 packages sold on Taobao and Tmall – was valued at ¥100 billion ($14.5 billion) a year ago, and like all of China’s logistics giants, is investing in exciting advancements.

Cainiao is evolving from just digitally managing the flow of parcels through e-shipping labels, to digitalising all components of the logistics value chain. This will see 100 million smart devices connected to its IoT (Internet of Things) technologies in three years, including partners such as warehouses, warehouse pickers, equipment, transportation vehicles, robots and management systems. It will also connect the anticipated 100,000 pick up stations such as schools and residential complexes, convenience stores and China’s ubiquitous fruit shops to cut down last-mile delivery costs. To complement this, Ciaoniao will enhance and leverage its Guoguo app which it hopes to serve consumers more than a billion times a year by 2022.

A digitalised end-to-end supply chain enables much more transparency and accountability, which is ever-important for China’s untrusting consumers. Such transparency is a key selling point allowing 17.5° oranges to sell for twice the price of similar brands of oranges that originate from the same region for example.

We expect domestic players’ investment, connections and local know-how will continue to see the Chinese logistics brands dominate the China market, and likely expand beyond its borders utilising the developing systems and technology. Foreign players won’t be helped by the recent trade war-related scandal which saw Huawei packages ‘misrouted’ in China by Fedex, whether proven to be intentional or not.

For brands selling in China, ensure you are dialled into the optimal logistics providers and their systems to guarantee customers will have the best possible experience. It will be difficult to compete otherwise. Go to Page 2 to see this week’s China news and highlights.

WeChat now boasts 1.1 billion active users, with most being in China. That’s great news for Tencent who have prodigious insights into the online, offline and commerce behaviour of a large swath of Chinese consumers. Yet its almost-100% saturation of China’s online population also presents challenges to Tencent, who is having to shift its strategy from growth by acquisition to extending the utility of WeChat and its data. To make things tougher, AI-driven competitors such as Douyin are cannibalising the screen time users spend on WeChat through services that are easier to use and more entertaining.

Tencent isn’t sitting still. It’s made some structural shifts in its strategy such as seeking to entrench itself in more industry-related applications from health services to public transport, and this month announced it joined the race for auto intelligence, aiming to provide car makers networking services, algorithms for autonomous vehicles, and location-based services.

Nevertheless, WeChat remains committed to its bread-and-butter (or rice-and-soy) consumer base, evolving with services such as authentic story telling, Official Account live streaming and new Little Red Bookesque-social commerce features – all enriching the consumer experience and presenting exciting opportunities for brands.

For many brands, finding success with WeChat isn’t just about strapping on new services as they are launched, but changing the structural approach to how they view WeChat – much like Tencent has done. The good old approach of pushing out content week in-week out on WeChat rarely works these days. More than half of WeChat Official Accounts are losing followers and the open rate of WeChat articles dropped from 17% to 6% between November 2015 and August 2018 according to social media management platform KAWO.

To increase engagement on WeChat, more brands would be wise to view the platform less as a one-to-many broadcast tool and more as a personalised and targeted interface to connect with and understand the target market. CRM capabilities on WeChat allow brands to gather information about their fanbase far beyond the standard name, avatar, gender and location that come by default. WeChat’s expanding suite of services and subsequent touch points allow brands to track individual’s preferences, behaviour and propensity to engage with different things. This data can be complementary to other insights that can be tracked such as how the user followed the WeChat account, whether through a specific article, promotion, at an offline event, store or scanning a QR code on packaging.

WeChat also lends itself to engaging initiatives such as chatbots, which offer brands a form of simple AI allowing them to connect with their customers’ personal needs and have related dialogue – over and above the usual WeChat messaging quotas – directing them to relevant content and services. Data from these interactions can feed into the CRM system to provide a view into consumer needs that can be coupled with other insights to build truly meaningful consumer-led propositions.

Richer CRM data allows brands to have more targeted, localised and personalised communications over WeChat. Interactions with consumers can be much more resonant based on whether the consumer has a family or is single, lives in Shanghai or Shenyang, if they like lace or leather or the time of the day they are most responsive. In a market as competitive and cluttered as China, particularly with more brands engaging with AI for targeted and personalised interactions, it is fast becoming a minimum requirement to continue to grow engagement. China Skinny can assist to develop your strategy for this.

For our Shanghai-based readers, China Skinny’s Andrew Atkinson will be presenting the Heath Ingredients & Food Ingredients Asia event next Wednesday 19 June discussing headline trends influencing consumer needs across China’s health food categories. More information here. Please let us know if you’ll be there. Go to Page 2 to see this week’s China news and highlights.

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.

One of the giveaways of a newbie to China is the bafflement about being unable to access Google, Facebook, Youtube, Instagram and Twitter – unless they’re chewing through their data roaming quotas or have planned ahead with a VPN. It quickly becomes apparent that China’s digital ecosystem is unlike anywhere else in the world.

Those same newbies are likely to try and make sense of it all by making direct comparisons of Amazon with Alibaba, Facebook with WeChat and Twitter with Weibo. Yet the Chinese platforms aren’t just different by appearance and namesake; their features and, more importantly, the purpose they serve in the consumer journey are often quite disparate from platforms in the West. In many cases, they are functionally more advanced (often by years) than overseas apps, which has seen companies like Apple, Amazon and Facebook replicating features from Chinese apps.

Many brands understand these differences and focus on localising tactical campaigns to take advantage of Chinese platforms’ rich and engaging features online and offline. Yet a number still miss the bigger picture of how China’s tech giants differ from the West: their touch points with consumers are far deeper, wider reaching and offline than those overseas.

One of the important growth strategies executed by China’s tech companies has been to expand beyond their core industries, even if links seem tenuous to outsiders. We saw this in 2014 when Alibaba began purchasing brick & mortar stores and then again in 2018 with their investment in screen advertising.

There are a number of reasons why this type of expansion has happened much more in China than other countries: 1. In most countries when companies get too large and dominant, they are usually forced to split. In China there is barely a whiff of this; 2. Most of China’s bigger companies with real money to invest are tech firms and State Owned Enterprises (SOEs). As SOEs are comparatively more conservative, there is less competition for big tech companies when making major acquisitions; 3. Traditional channels are less mature and more fragmented in China, enabling lower acquisition costs for market leaders and much more scope for disrupting tech giants to break in; 4. Accumulation of user data is far more liberal in China, providing significant scope for tech companies who already have the data. This enables them to utilise data synergies across new acquisitions, which can help justify paying a higher price for them; and 5. Consumers are much more open the commercial use of their data and appreciate the convenience it brings.

The approach hasn’t just been adopted by China’s famous tech giants though. We’ve also seen lesser-known tech companies utilising their presence, channels and data from their category. For example, mid-sized travel portal Tuniu has tapped into the nuptials industry, launching a marketplace just for wedding photography.

What does this mean for brands? Brands should understand just where Alibaba, Tencent, ByteDance, Meituan and other niche platforms are playing, even if they don’t appear to have an obvious connection with their industry. Awareness of their reach and subsequent opportunities can help determine how best to partner with and leverage them. Even the biggest brands in China rarely attempt to approach the market alone and will buddy up with one or more of the tech giants. Similar to the many brands who have co-located marketing staff close to Walmart or Carrefour in the West, close proximity to China’s tech leaders is likely to be an increasingly common strategy in China. Contact China Skinny to assist you in identifying these opportunities and recommending how best to leverage them. Go to Page 2 to see this week’s China news and highlights.

Food exports to China have been growing for some years now. Chinese consumers are known to pay a premium for foreign food and beverage as it is perceived to be safer and healthier, more prestigious and having interesting, unique varieties to feed their inherent curiosity. Yet one of the big drivers for shipping food from afar is that in many cases, they are actually cheaper and meet a demand that local produce can’t serve.

Although China has long been known for low wages and exporting cheaply produced food, for many food categories, China finds itself unable to supply enough food at a quality and price acceptable to Chinese consumers. The well-cited stat that China has to feed over 20% of the world’s population with just 7% of its farmland means this shortage will be around for some time yet.

With China’s population becoming wealthier and eating more as a result (calorie intakes have more than doubled in the last 50 years on average) and arable land eroding due to urbanisation, natural disasters and pollution, China is having a hard time keeping up with supplies. In addition, much of China’s working population have left rural areas for the bright lights of the city, and all of its drones, robots and AI have been unable to fill the farm worker gap. The majority of China’s farms are tiny and lack the ability to produce as cheaply and efficiently as in other countries, and even many of its larger scale operations cost more than abroad. For example, the US produces pigs 20% cheaper per kilo than even China’s new, factory-scale hog farms.  Filling a bottle of wine in Ningxia Province can be as much as three times more expensive as South Australia, with the need to bury vines during the harsh winter and high costs of bringing experts into the Chinese hinterland.

Food production costs continue to soar in China, contributing to food prices growing 6.1% in the past year according to the Government’s official consumer price index. To note a few, prices for fresh vegetables jumped 17.4% and pork prices grew 14.4% – the most since mid-2016.

The domestic price increases are making imported alternatives more alluring and giving some rosy trade figures – imported fruit purchases grew by 36% last year and beef imports have more than doubled since 2016 for example. Unfortunately the lion’s share of those imports are commodities, which are much more vulnerable to price variations.

The benefits of well branded food and beverages is nothing new – they can command a higher premium and are less susceptible to fluctuations in commodity prices and new lower-cost producing markets coming on board such as Latin America, Southern Asia and Africa. But having well-branded food products has become increasingly important as producers face mysterious delays and inexplicable rejections for food imports into China due to geopolitical tensions, and of course, increasing tariffs or lowering tariffs for competing exporters. In most cases, the hold ups at the border are commodities rather than branded products. With tariffs, well-branded products will always fare better as consumers are much less price sensitive to a brand they like than a no-name product.

Food producers don’t have to be one or the other. Selling commodities often provides cashflow that can be used to invest in building a brand. But to reduce exposure in these increasingly uncertain times, the advantages of branded products have never been more pronounced. Even if you already have branded products, it’s likely you could make them more resonant with consumers from optimised branding, messaging and other communications, being in the right channels and integrating those channels, having more appropriate packaging and formats and even loyalty programmes. China Skinny can assist you with these. Go to Page 2 to see this week’s China news and highlights.

Many brands are aware of how China’s innovations around New Retail, digital and mobile payments are fundamentally changing the way consumers research and buy products. Yet, what is often overlooked is how they are altering the format and even the type of product they buy.

Research was recently published claiming that Chinese mothers are moving away from traditional frozen ready meals, like dumplings and buns, and instead opting for frozen full meal sets such as beef noodles. Whilst this isn’t untrue, our research has found a much bigger trend pointing to a shift away from frozen foods altogether.

On numerous research projects, China Skinny has visited many homes across different China cities. In the kitchens, small freezers are stuffed with once-popular products like bags of dumplings coated with freezer-burn, seemingly untouched for many a moon. The ageing packs are representative of frozen formats falling out of favour with Chinese consumers as alternatives perceived as healthier become more convenient and accessible.

With healthy and natural having become key criteria for purchasing food, frozen options sit many rungs below fresh on the hierarchy of healthiness. That’s nothing new, but what has changed is the accessibility of fresh food, particularly for busy mothers. With stores like Hema/Fresh Hippo, 7Fresh and even the massive RT-Mart now delivering orders within 30-minutes, the incentive to have quick access to frozen products has diminished. There are currently 355 million users of delivery apps in China – a quarter of all Chinese are regularly having food brought to their homes and offices.

While the booming restaurant meal delivery service is cannibalising many food categories and changing countless restaurants and cafés’ strategies, China’s ever-discerning mothers still want an element of food preparation. They wish to have more control over their cooking, ensuring it is fresh when served – not soggy or luke-warm – while still deriving the emotional self-satisfaction of feeling they having played a part in cooking the meal. These factors, coupled with being time-short, have contributed to a stark rise in the demand for ready-to-cook fresh/chilled meals in China.

As brands define the appeal of their products, ingredients, packaging and sizes for the Chinese market, they should also consider the format. Frozen, tinned or other forms of preservation has provided a way for food to make the long trip to China and still be good for sale. While there is likely to long be demand for such food, brands should consider product development for alternative formats that will meet the growing demand for fresh, natural and convenient food.

Food is just one category that is being turned upside down by New Retail, and brands across almost every category should be cognisant of the changes to ensure that they aren’t left behind.

On a not-entirely unrelated tangent, China Skinny will be in Australia later this month with Austcham and Westpac to launch the 2019 Australia-China Business Sentiment Survey results. We’ll share the differences we found from last year’s survey, and how Australian businesses are tracking in this interesting geopolitical and economic climate. The events are in Sydney on 26 March, Brisbane 27 March, Melbourne 28 March, Perth 29 March and Shanghai 18 April. Let us know if you can make any of the events, it would be great to catch up there. Go to Page 2 to see this week’s China news and highlights.

We have just passed the 200-day mark of the US-China trade war, and what a 200 days it has been! Whilst we are finally seeing some positive signs that an agreement could be imminent, there has been plenty of commentary about the beating that America’s reputation has taken in China.

There’s no discounting that the spat has sped up the rise of nationalism in China, and there are consumers who may have directed their spending away from American businesses, but the impact has been much less severe than it could have been.

If we look back to the row between China and Japan in 2012 over the Daioyu/Senkaku Islands, many Japanese brands were hammered and some even shuttered. Similarly, the South Korean fiasco over THAAD in 2017 was estimated to cost the Korean economy $6.8 billion that year. Apple has attributed its poor results to the trade war, and Ford and GM have had better years, nevertheless all-American brands like Coke have reported no impact, and Nike saw a stunning quarter last December. Even Tiffany & Co. saw a double digit rise in Mainland China sales during November and December of last year.

One of the key differences between the US-China trade war and the disputes with Japan and South Korea is that the propaganda machine has not yet ramped up criticism of the US. China also hasn’t introduced regulations such as it did banning tour groups to South Korea. Such plays wouldn’t be well timed during the already-precarious trade negotiations with the US.

Tourism to the US was a sector that many commentators expected would take a hit as a result of the frosty relations, much like Japan’s visitors fell 34.3% in 2012, South Korea’s dropped 60% between March to October 2017, and numbers sunk at other ‘out-of-favour’ countries like the Philippines and Vietnam.

In late September, Ctrip reported that flight bookings to the US were down 42% for the October Golden Week holidays – one of the busiest weeks of the year for international travel. Other anecdotes have flooded in from travel agencies, echoing similar falls. So it will come as a surprise that Chinese tourist numbers to the US actually looked quite healthy in 2018. Although the national figures are yet to be published, Los Angeles reported a 6.9% increase in Chinese tourists last year to 1.2 million visitors. New York also hit record numbers last year, hosting 1.1 million Chinese visitors. It appeared Chinese tourism to the US took a hit in the early months of the trade war, but by November, the US Commerce department was projecting a 2% increase in Chinese tourists.

Like we’ve noted in previous Skinnies, tourism generally builds an affinity with the country, its cuisine, culture and lifestyles, which has a halo effect on preference towards many other product categories. In a world that seems to be more divided than it has been in a long time, China’s tourist growth to the US is refreshingly good news!

On the subject of tourism, China Skinny’s Mark Tanner will be sharing some insights at the beautiful Terranea Resort in Los Angeles for the Visit California Outlook Conference on February 12 & 13. Please pop by and say ni hao if you’re there. More information here. Go to Page 2 to see this week’s China news and highlights.

While you may be lamenting the need to constantly evolve your marketing mix to stay ahead in China, you can rest assured that even WeChat faces a similar challenge.

Although China’s super app hit 1.083 billion monthly active users in September last year, each sending any average of around 45 messages a day, WeChat faces headwinds to stay relevant to Chinese consumers. Readership for articles referred by friends on Moments has been dropping and Tencent’s share of screen time is being cannibalised by newer, easier-to-use and more entertaining alternatives such as short video platform Douyin.

That’s why all eyes were on WeChat’s founder Allen Zhang’s four hour speech at Tencent’s conference last week, about how he plans to reinvigorate the app to mitigate the risk of it becoming obsolete. Zhang got philosophical in acknowledging that WeChat has lost the veneer of authentic discovery that endeared it to users, because people were becoming too sensitive to their online personas on Moments.

Across the board, Chinese consumers are seeking more authenticity: from the way they travel, to the brands they buy, to how they project themselves on digital platforms. Women ‘beautification’ app Meipai discovered this as user numbers plunged 55% as Chinese women sought more natural and less formulaic portrayals of themselves. WeChat is hoping to evolve from photoshopped and choreographed Moments feeds, to a more real account of what people are really experiencing. To enable this, WeChat has launched a new video-streaming feature, not unlike Instagram’s feed, so people share their lives in real time, not through carefully curated photos and messages. Even the user interface aims to keep it real, with the typical ‘send’ button, replaced with ‘this will do’ to remind people their social feed doesn’t have to be airbrushed and polished.

Another area in which WeChat is pinning its hopes to counter the app’s saturation and encourage more engagement per user is Mini Programs. The WeChat-embedded ‘light apps’ are already hugely popular, but curiously, the majority of traffic isn’t coming from the famous mini programs you may have heard of, but rather the long-tail applications used by niches such as parent-teacher groups or your neighbourhood grocery store. Given WeChat is installed on virtually every smartphone in China, app developers are not concerned with having to create separate tools for Androids and iPhones, it is one simple app, seamlessly installed and launched from the comfort of WeChat. Tencent is thinking, if ‘there’s an app for it’ wouldn’t it make sense to make it a Mini Program?

Something that hasn’t received due airtime is the impact that the new ecommerce laws will have on WeChat. Commerce is one of the areas showing great promise on WeChat, with its transactional nature providing a logical way for the platform to grow revenue. Yet many of those stores have been run by smaller vendors and daigou, attracted by WeChat’s low barriers to entry. The new laws mean that it will be a lot more trouble to set up and maintain a simple WeChat store – or any online store – with the new taxation and reporting requirements. There are already signs of changes in the way smaller vendors promote their wares on WeChat as they try and skirt the laws, but for many, the effort won’t be worth the reward.

Regardless of its challenges, WeChat remains China’s super app with no other app being better positioned to evolve and stay relevant to Chinese consumers. To Allen Zhang’s and Tencent’s credit, they have recognised that they need to do this. There are some good lessons for any brand in China – you may be ‘killing it’ in China today, but you need to constantly review your position to stay that way. China Skinny can assist you with just that. Go to Page 2 to see this week’s China news and highlights.

Since 1990, the People’s Liberation Army (PLA) has accounted for more than 60% of the growth in global defence spending. In close to three decades, China has built a remarkable armament, with military drones and the odd unreliable stealth fighter, and is making some solid progress with AI. Just like the superpowers before, China aspires to have strong armed forces. But any good military needs good soldiers – for now at least.

Last September we noted the PLA slammed young Chinese males’ high failure rates in fitness tests, attributing unhealthy lifestyles, too many fizzy drinks, masturbation and video games, which has contributed to a complete freeze of new game approvals. But it turns out the Military’s issues with the male gene pool span far deeper.

It seems China has a masculinity crisis. Whilst Beijing has banned hip hop culture and tattoos from TV, for now it is a free-for-all for ‘feminine-looking’ boybands, which has led to much debate online. In September, state media outlet Xinhua declared “these sissies promote an unhealthy and unnatural culture which has a not-to-underestimate negative impact on the youth. The sissy culture, driven by consumption, challenges the public order and worships a decadent lifestyle”. Niángpàonán, or ‘sissy-boys’ has become a popular term online for Chinese males paying much attention to their clothing, hair, and make-up.

In some Chinese cities, males born in the 80s are more likely to own a pair of platform shoes than work boots or cleats. Yet effeminism is less of a concern than other trends seducing Chinese males. One teenager in eastern China bankrupted his parents by tipping a livestream host $37,000, claiming she was his girlfriend. China has more than 150 live stream sites, mostly funded by tipping from the 80% male viewership.

Whilst every male in China isn’t a gaming, live-stream-addicted ‘sissy boy’, as marketers it’s important to consider that this group has more spending power than the total consumption of many countries. They have their own distinct needs and respond differently to marketing than males on the streets of Sydney or Seattle, and even other sub-tribes in China. China Skinny can assist your brand with defining their needs and planning how to best resonate with them.

Not all is lost for concerned parents across China. Their desperation for their one-child to be a boy saw the male:female birth imbalance hit 1.15:1 in 2016 (second only to Liechtenstein). For those wanting their boy to be a hǎohàn – a real man, there are ¥10,000 ($1,400) training camps aimed to tackle the “crisis in boys’ education” and “help them find their lost masculinity.”

On another note, a big hat tip to Alibaba who continue to reach new heights with their 11.11/Singles’ Day extravaganza, growing 27% from last year’s massive base (in RMB terms) to $30.8 billion in gross merchandise value. See the infographic here. JD had similar growth of 26% on their 11-day Single’s Day festival, with sales climbing to $23 billion.

Your Thoughts: We received some passionate responses to our article about CIIE last week, not all of it positive. Over the past week we’ve spoken to a number of brands who exhibited at the event – some considered it a roaring success, other reviews were mixed. We’d love to hear your thoughts if you were there. Similarly please let us know how Singles’ Day went for you. Just reply to this email with any comments or feedback. Go to Page 2 to see this week’s China news and highlights.

The last few weeks have been abuzz with tech chatter in China. You’re probably thinking that’s nothing new, but the significant change in tone has piqued our interest. IPOs for Xiaomi and Tencent Music and the expansive 2018 China Internet Report have been grabbing headlines, but beneath all that many experts are starting to ask the question: has China taken the mantle from Silicon Valley as the leader in tech?

In the blink of an eye China has done the unthinkable and transformed its cheap, copycat perception into that of a world leader in innovation. And this trend is contagious amongst China’s brands both in and outside of the tech sector; in 2018 consumers view 82 of China’s biggest 100 brands as highly or moderately innovative.

Leading the pack the stories of Xiaomi and JD are representative of how brands here are tracking. Xiaomi’s founder Lei Jun proclaims his company “a new species”, blending internet services within its product ecosystem and shrugging off any classification as a hardware company. JD notes they’ve now spent 12 years as a retailer and want “the next 12 years to be as a technology company”. We even just looked at Luckin Coffee creating an innovative New Retail-type model to combat one of the last truly unchallenged foreign mega-brands.

As the world begins to note what this host of dynamic Chinese brands is doing, it pays to keep in mind what this has meant for the average Chinese consumer and what they expect from brands across all aspects of consumer engagement. A few examples:

We have seen a dramatic rise in gaming, VR, animation and development within accounts to try stand apart on social media. The boom in mini-programmes has only exaggerated this and many foreign brands are in dire need of rethinking their WeChat approach.

Retail is constantly in flux, with opportunities and pitfalls abundant for brands who aren’t diligent. In China’s uber-competitive space, pop-ups can bring the oomph today’s shoppers are looking for as they increasingly crave an experience.

Tired or uninformed advertising has seen many a brand fall short in China, yet some well-considered research and understanding can see a brand ride the wave. Last month through a challenging but well-embraced campaign, Nike captured the end of the mollycoddling one-child policy, a huge national push to get children into sports & activity, and the competitive and individualistic millennials ascending into parenthood.

As everyone in China knows, the market moves faster here than anywhere, and for that reason many brands will fall in the wake of its constant innovation. China Skinny ensures our clients are on top of and ahead of market trends. If you want to be in the best position to tackle China, drop us a line. Go to Page 2 to see this week’s China news and highlights.

There’s no shortage of coverage about China’s New Retail revolution, its mouthwatering rise of shared bikes and its 227 million active users, along with WeChat, ecommerce, mobile payments and other uniquely China trends such as cream cheese tea and face-kinis. Yet there are many other phenomenons happening in China that attract less attention but are also impacting consumers at a level that brands should take notice of. Here are three trends that Skinny readers are likely to be aware of, but maybe less familiar with the full scale and speed of their rise:

1. Consumer Credit

Consumption has been the most robust sector of China’s economy in recent years, with growth trucking along at double digits as long as most can remember. While other factors such as manufacturing, investment and house prices haven’t maintained the same momentum, three contributors have allowed Chinese consumers to defy the odds and keep spending more and more: record consumer optimism, soaring wage growth (with China’s hourly incomes now exceeding every Latin American country except Chile) and rising consumer credit.

Although China is well known for its high saving rates, these figures are skewed by older folk. The younger generation haven’t lived through the same periods of austerity and feel much less need to save for a rainy day. They’ve seen their wages grow every year, their parent’s real estate assets soar, and have been lured by the bright lights of consumerism – often calling on easy credit to spend more than they earn. Between 2015 and 2017 consumer credit grew fivefold, with those aged 24-35 making up more than 70% of consumer borrowers in China.

2. ByteDance’s Douyin

At a much more micro level, some brands looking for ‘the next WeChat’ could be heartened by the remarkable rise of Douyin and the overall ascent of short video. Launched less than two years ago, Douyin’s user numbers have quadrupled since January to boast more than 150 million daily active users watching an average of 82 short videos a day. The 15 second videos serve Chinese millennials’ craving of instant gratification, to fill any down-moment with cheap entertainment. Douyin’s growth has been so drastic that even Tencent has felt threatened and banned the service on WeChat last month. Douyin’s popularity and rapid rise has enabled fast-moving brands to use the platform to build awareness and preference with those indebted young consumers at a fraction of the cost of the more crowded and mature platforms like WeChat, Tmall and Weibo.

What makes Douyin, and its sister app Musical.ly, special is that they are two of the few Chinese apps that have been able to crack the elusive Western markets. Douyin, known as Tik Tok outside of China, was the most downloaded iPhone app in the world in Q1 of this year. Any concerns in the US about the Chinese Government monitoring your every move, something which has plagued brands such as Huawei and even WeChat, seems to be irrelevant for the Western millennials shooting and watching short videos on Tik Tok.

3. DJI Drones

Drones, while not on the same scale as consumer finance or Douyin, are making an impact across many sectors in China. One company leading the way – DJI – has beaten out formidable American competitors such as GoPro and 3DR and now owns 70% of the world’s drone market. DJI’s confidence is represented by their new HQ being built in Shenzhen complete with a skybridge for testing drones and rings for fighting robots.

DJI is creating efficiencies in industries as diverse as agriculture and food delivery, which will have a downstream impact on supply and consumption in China. It is representative of increasing automation modernising China’s supply chain and logistics, particularly in the online-to-offline categories. DJI is symbolic of the rise of China’s ambitious mega-businesses who are investing real money in R&D, while remaining nimble and long term-focused to lead their category. Expect more to come.

Those are just three of the numerous developments coming from China daily, many which are likely to be relevant to your brand, or how you market it. Agencies such as China Skinny will ensure you keep up with those trends and develop a plan how to make the most of the opportunities they bring.

Speaking of trends, China Skinny’s Mark Tanner will be sharing more in Brisbane next Thursday July 5 speaking at the ACBC-Brisbane Airport Welcome for the Air China Direct Flights Between Beijing and Brisbane. If you’re at the event, please pop over and say ni hao. More information here. 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 sovereigntyEurope’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.

Foreign brands scanning the news over the past week may have been sent on an emotional roller coaster. Although China Bears have been doom-talking about the economy for years, the World Bank’s latest update points to China’s GDP continuing to grow at a healthy 6.9% last year and 6.8% in Q1 this year. Consumption remains China’s growth driver, which is likely to continue given consumer confidence reached a 10-year high in the first quarter of 2018.

But on the flip-side, an FT article about increasingly wealthy Chinese consumers trading up referred to McKinsey research illustrating a pronounced consumer preference for local brands. Across 17 categories, infant formula and wine were the only two segments where foreign brands were preferred over domestic – and only by a whisker.

This is contrary to what China Skinny is seeing in the market. Consumers are often more familiar with domestic brands and their perceptions have become more positive – but we’re still seeing more favourable views for foreign products overall. Based on the feedback we’ve had from our extensive industry networks in China, we’re sure many foreign brands on the ground are seeing similar sentiment.

China Skinny has done deep, intimate and personal research and analysis with thousands of consumers across China. The numerous projects spanning many categories has found Chinese consumers virtually always still believe foreign brands are better – higher quality, more stylish, safer, healthier, etc.

In reality there is a disconnect. Whilst Chinese consumers usually favour foreign products, those brands aren’t servicing their needs well enough and aren’t where they want them to be. As Bain pointed out in the FMCG category, domestic brands grew 8% versus 1.5% for foreign brands in 2016. This result is not so much that they are seeking local products over foreign, but more reflective of nimbler Chinese brands who are reading the market better and acting more swiftly, coupled with stronger distribution networks and more resonant marketing.

As we highlighted in this infographic 18 months ago, dairy is a classic example of foreign brands not meeting needs. While the wounds of the 2008 melamine scandal may still cast a cloud over Chinese milk, domestic dairy commands a 38% premium per litre over imported. This is due to more appropriate format sizes, better-suited value-added products, more specific segmentation and more targeted marketing. China Skinny analysis has found similar results across many other categories.

Research by China’s Ministry of Commerce found 31% of surveyed consumers expect to spend more on imported products in the next six months and over 20% claim imported products account for at least 30% of their total consumption. Similarly, Chinese retailers plan to increase imports of over a third of 92 products surveyed. Although the results could be somewhat glossy due to current US-China trade negotiations and November’s massive China International Import Expo, they do reflect the general sentiment that Chinese consumers still relish imported products. It’s why Alibaba and JD with all of their data are busy opening up offices globally to source foreign products.

So with the good news from GDP growth to positive consumer sentiment, foreign brands are still well placed to tap into it if they ensure they interpret the market well and act quickly from it. Agencies like China Skinny can assist with the market interpretation stage, and help guide the resulting actions. Please contact us to find out more. Go to Page 2 to see this week’s China news and highlights.

There are many relatively unknown cities in China with GDPs as large as countries. For example, the city of Zibo has an economy the size of Panama’s and Tangshan’s GDP ranks up there with New Zealand by some measures. These smaller cities are helping drive China’s consumer demand, and by proxy, the global economy. Morgan Stanley forecasts that lower tier cities will account for two-thirds of the increase in consumption between now and 2030.

As China’s biggest cities have become the most crowded and contested markets on the planet, more and more brands are looking to cities like the Zibos and Tangshans where growth is often faster and competition less fierce. We only need to look at FMCG which has been growing 2-3 times faster in lower tier cities than big cities over recent years. In tourism, the 10 fastest growing airports by passenger numbers are all tier 2 cities and below. A third of all Cadillacs sold in China were bought in tier 3 & 4 cities.

Yet while it’s become common to talk about China’s less-competitive lower tier cities, brands shouldn’t just be throwing darts at maps and reviewing GDP figures in determining where to focus. Consumers in many lower tier cities don’t yet have a level of sophistication to demand many products and services.

Before looking to the hinterland, brands should critically assess consumer behaviour and preferences in those cities. Lifestyles, climate and travel habits are often as much of a contributor to demand for a product than GDP per capita. Ecommerce data, although much less developed than tier 1 and 2 cities, can also provide hints into potential demand. Even local government policy can impact consumer demand – just look to Electric Vehicles, where six cities contribute to 40% of sales.

In many cases, the hyper-competitive cities like Shanghai and Beijing can still be the most lucrative markets to target. They have become incredibly wealthy with GDP per capita adjusted for purchasing power now comparable to Switzerland. They have been wealthier longer, were allowed to travel abroad sooner, and as a result, have much more mature and sophisticated tastes. As a result, they are more ready for some Western products and services.

With both cities having more than 20 million people, just focusing on specific demographics or districts can itself produce material sales and a beachhead for further expansion.

A good example is American wholesaler Costco. Four years of testing the water with cross border commerce has given them confidence in demand for their products and formats. This month they announced they will launch two large Costco bricks & mortar stores in Shanghai. Unlike most of the 226 brands who opened their first stores centrally in Shanghai last year, Costco is opening in the outer districts of Minhang and Pudong New Area.

The bulk sales model like Costco hasn’t really taken off in China yet. Consumers have smaller kitchens and less storage than in the US, lower car usage for shopping, and a preference for freshness. However Costco is likely to have evaluated the last 4-years of ecommerce sales data to make informed decisions. If it will work anywhere, Minhang and far-flung Pudong are good bets. They are affluent areas with many large villa residences and a population who is more reliant on driving for daily needs. Costco’s first 33,000 square metre store opening in April 2019 will have 1,000 carparks. One would hope that they are integrating New Retail into their stores to ensure they are relevant and engaging for consumers.

Whether you are Costco, a fashion brand or selling vitamins, there is no consistent answer about which city is best to target. Brands would be wise to analyse different cities and regions before making a call. The cities a brand chooses to target should be an important factor in developing localised marketing strategies, selecting distributors and even lawyers familiar with local laws and regulations. Agencies such as China Skinny can assist with that. 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.