Archive for ‘Consumer’


All you need to know about business in China | McKinsey & Company

A lot of people view China business as mysterious. Relax. Consumers behave pretty much the same everywhere. Competition is pretty much the same everywhere. You just need to ignore the hype and focus on the basic fact that in China today, there are six big trends (exhibit). That’s it. Six trends shape most of the country’s industries and drive much of China’s impact on the Western world. They are like tectonic plates moving underneath the surface. If you can understand them, the chaotic flurry of activity on the surface becomes a lot more understandable—and even predictable.

Coauthors Jeffrey Towson and Jonathan Woetzel discuss China’s six megatrends with Nick Leung, the managing partner of McKinsey’s Greater China office.

These trends move businesses on a daily basis. They’re revenue or cost drivers that show up in income statements. Deals, newspaper headlines, political statements, and the rising and falling wealth of companies are mostly manifestations of these six trends, which aren’t typically studied by economists and political analysts. In fact, we happen to think that Chinese politics or political economics are wildly overemphasized by some Westerners in China. So let’s tell a story about each of these megatrends, with some important caveats. They’re not necessarily good things. They’re not necessarily sustainable. For every one of them, we can argue a bull and a bear case. Most lead to profits or at least revenue. Some may be stable. Some lead to bubbles that may or may not collapse. We are only arguing that they are big, they are driving economic activity on a very large scale, and understanding them is critical to understanding China and where it’s headed.

via All you need to know about business in China | McKinsey & Company.

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China Wants Its People in the Cities – Reuters


Thirty-five years ago, when paramount leader Deng Xiaoping launched gaige kaifang, or “reform and opening,” China was a much more agricultural country, with less than a fifth of its people living in cities. Since then hundreds of millions of rural residents have left the countryside, many seeking jobs in the export-oriented factories and construction sites that Deng’s policy promoted.

Commercial and residential buildings stand in the Luohu district of Shenzhen, China, on Dec. 18, 2013 In 1978 there were no Chinese cities with more than 10 million people and only two with 5 million to 10 million; by 2010, six cities had more than 10 million and 10 had from 5 million to 10 million. By the following year, a majority of Chinese were living in urban areas for the first time in the country’s history.

Now urbanization has been designated a national priority and is expected to occur even more rapidly. On March 16, Premier Li Keqiang’s State Council and the central committee of the Communist Party released the “National New-type Urbanization Plan (2014-2020),” which sets clear targets: By 2020 the country will have 60 percent of its people living in cities, up from 53.7 percent now.

What’s the ultimate aim of creating a much more urban country? Simply put, all those new, more free-spending urbanites are expected to help drive a more vibrant economy, helping wean China off its present reliance on unsustainable investment-heavy growth. “Domestic demand is the fundamental impetus for China’s development, and the greatest potential for expanding domestic demand lies in urbanization,” the plan says.

To get there, China’s policymakers know they have to loosen the restrictive hukou, the household registration policy that today keeps many Chinese migrants second-class urban residents. China will ensure that the proportion of those who live in the cities with full urban hukou, which provides better access to education, health care, and pensions, will rise from last year’s level of 35.7 percent of city dwellers to 45 percent by 2020. That means 100 million rural migrant workers, out of a total 270 million today, will have to be given urban household registration.

To prepare for the new masses, China knows it must vastly expand urban infrastructure. The plan calls for ensuring that expressways and railways link all cities with more than 200,000 people by 2020; high-speed rail is expected to link cities with more than a half million by then. Civil aviation will expand to be available to 90 percent of the population.

Access to affordable housing projects funded by the government is also expected to rise substantially. The target is to provide social housing (roughly analogous to public housing in the U.S.) to 23 percent of the urban populace by 2020; that’s up from an estimated 14.3 percent last year, according to Tao Wang, China economist at UBS Securities (UBS) in Hong Kong. That means providing social housing for an additional 90 million people, amounting to about 30 million units, over the next seven years, Wang writes in a March 18 report.

The urbanization plan appears to face several big challenges. First, the government wants to maintain restrictions on migration to China’s biggest cities, which also happen to be its most popular. Instead, the plan calls for liberalizing migration to small and midsize cities, or those with less than 5 million. Whether migrants will willingly flock to designated smaller cities, rather than the megacities including Beijing, Shanghai, Guangzhou, and Shenzhen, is an unanswered question.

Another obstacle to faster urbanization is that the plan doesn’t propose how to reform China’s decades-old land tenure system. Changing the system could allow farmers more freedom to mortgage, rent, or sell their land.

Finally, one of the most daunting problems is figuring out how to pay for implementing the ambitious urbanization targets. The cost of rolling out a much more extensive social welfare network will be substantial (today, most Chinese in the countryside have far lower levels of medical and pension coverage, as well as far inferior schools); building the new urban infrastructure will also be expensive.


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Consumers in China: The true meaning of san yao wu | The Economist

FIFTY-TWO years ago this week, John Kennedy gave a speech to Congress in which he argued that consumers “are the only important group in the economy who are not effectively organised, whose views are often not heard.” His eloquent plea for their protection led to the United Nations guidelines for consumer protection and to the annual celebration of World Consumer-Rights Day on March 15th.

Nowhere is that day marked with more gusto than in China, where it is known as san yao wu (three one five). Every year on that date, the national broadcaster airs a much-watched programme lauding consumer rights. It is also used as an excuse to bash successful foreign firms—Apple was last year’s main target—for small or imagined transgressions.

This year China will better honour Kennedy’s legacy. The television gala is still due to be broadcast this weekend, and corporate evildoers—internet firms are rumoured to be in the crosshairs this time—will probably be shamed again. But something more important will also happen. On March 15th a new consumer law, the biggest reform in this area in 20 years, comes into force. At face value, it appears to give a big boost to consumer protection. Retailers must take back goods within seven days; in the case of online purchases, consumers do not even have to offer a reason. Consumer data will be protected from misuse, and permission will have to be sought for any commercial use of them. Class-action lawsuits, hitherto rare in China, will become easier to file.

The motivations for the law seem sincere. The government is keen to shift the economy towards consumption-driven growth. Regulations protecting consumers should help, by bolstering their trust in merchants. Max Xin Gu of K&L Gates, a legal firm, also believes the law “is timed to come hand-in-hand with the anti-corruption campaign” launched by President Xi Jinping: both are meant to allow ordinary people to benefit from the rule of law.

James Feldkamp is the founder of Mingjian, a pioneering Chinese website offering independent product reviews (akin to America’s Consumer Reports or Britain’s Which?). He agrees that trust and transparency are key to boosting consumption. However, he worries about how the law will be implemented and enforced. Indeed it may leave consumers ill-protected even as it saddles firms with extra costs and complexity. For example, although parts of the law resemble the EU’s strict rules on data privacy, it has important gaps. Michael Tan of Taylor Wessing, another law firm, notes that it does not grant a “right to be forgotten” (by having firms expunge all record of a former customer). It leaves businesses in the dark on how exactly they can use customer data, and fails to impose on them a duty to ensure their accuracy.

via Consumers in China: The true meaning of san yao wu | The Economist.

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China’s New Year market booms, luxury gift sales down – Xinhua |

China\’s consumer market boomed during the first days of the Lunar New Year holiday despite falling luxury gift sales, according to the Ministry of Commerce (MOC) on Wednesday.

In the first four days of the week-long Spring Festival holiday, the most important traditional holiday in China, consumer market sales expanded steadily and quickly, the MOC said in a statement on its website.

Without giving nationwide figures, the MOC said consumer market sales in the cities of Beijing and Chengdu had risen by 9.2 percent and 13 percent year on year respectively. According to the MOC, sales in Shaanxi, Anhui and Henan provinces grew by 14.3 percent, 11.2 percent and 10.4 percent respectively.

Online business and the catering, tourism and entertainment sectors have also prospered during the holiday, according to the MOC.

China\’s consumer market has boomed in spite of falling sales of luxury goods purchased as new year gifts, according to the MOC.

Sales of luxury gifts such as expensive alcoholic beverages and rare seafood, which are sometimes sent as gifts to officials during the holiday, have fallen sharply. Experts have viewed the drop as a direct result of the central government\’s anti-graft and frugality campaign.

via China’s New Year market booms, luxury gift sales down – Xinhua |

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Chinese consumers: Doing it their way | The Economist

IN THE the heart of old Shanghai is a magnificent villa that serves as the workplace of Guo Jingming, a provocative young film-maker. “Tiny Times”, his recent blockbuster, follows the travails of some fashionable college girls (pictured, in the walk-in closet of one of them). Its depictions of the high life, rarely shown in Chinese films, have set social networks ablaze; they have also been attacked by the People’s Daily for “unconditional hedonism”. Mr Guo says: “So what? Materialism is neutral, neither positive nor negative.” After all, he goes on, China’s cosmopolitans know at any given moment what movies are playing in New York and what fashions are on the Paris runways.

China’s once-drab and Mao-suited interior is not so far behind. In Mianyang, a middling city in the province of Sichuan, an enormous billboard featuring Miranda Kerr, an Australian supermodel, draped in Swarovski crystals welcomes shoppers to the Parkson shopping mall. It is one of half a dozen high-end malls in town. Luxury sales are exploding there. Local Audi and BMW dealers sell more than 100 cars each a month; Land Rover, Jaguar and Cadillac have just muscled in on the market.


Thirty kilometres (20 miles) away in Luxi, a town of 57,000 people, online shopping is hot. The first express-delivery office opened only three years ago, and handled perhaps ten packages a day; today, there are five, each handling 100 packages a day. Even 60km away, in rural Santai county where farm-workers are the customers, one modern shopping mall has sprung up and another is being built. “Customers are evolving very quickly from the low-end market to the middle and high-end,” says Yang Shuiying, proud general manager of the Zizhou shopping centre.

In the 1950s and 1960s the world economy was transformed by the emergence of the American consumer. Now China seems poised to become the next consumption superpower. In all likelihood, it has just overtaken Japan to become the world’s second-biggest consumer economy. Its roughly $3.3 trillion in private consumption is about 8% of the world total, and it has only just begun.

“The future of the world will be profoundly shaped by China’s rush toward consumerism,” says Karl Gerth, an expert on Chinese consumption at the University of California, San Diego. Although investment made the biggest contribution to China’s growth last year, and although private consumption’s share of output, now at 36%, fell between 2000 and 2010, that trend is unlikely to last, for several reasons.

First, boosting the people’s desire to consume is a stated goal of China’s leaders. Higher government spending on health care and pensions may encourage households to save less for such things. Higher interest rates may, paradoxically, discourage thrift if people reach their savings goals faster. Rising wages and an ageing population will also shift the balance towards consumption rather than saving. And although household debt is growing fast, China still has relatively little.

Besides, consumption has not fallen in absolute terms. It has, in fact, grown briskly—just not quite as quickly as the economy overall. In dollar terms, China contributed more than any other country to the growth in global consumption in 2011-13, according to Andy Rothman of CLSA, a broker. Moreover, China’s official statistics understate some consumption—spending on housing, for example.

A massive push to urbanise is also under way, which should produce tens of millions of richer citizens seeking retail therapy. McKinsey, a consultancy, forecasts that consumption by urban Chinese households will increase from 10 trillion yuan in 2012 to nearly 27 trillion yuan in 2022

via Chinese consumers: Doing it their way | The Economist.

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Pioneering digital marketing in China

Originally posted on China Daily Mail:

China Digital Marketing

China Digital Marketing

The Chinese market is a key target for global luxury brands and export oriented companies focusing on high-end quality products and services. Setting up a marketing strategy could be the hard part of the job, even for brands and companies that are well established in western countries.

Chinese customers are increasingly using digital channels and platforms (like Baidu or Weibo) to gather and share informations that are totally different from the western countries. Therefore it’s quite difficult to set up an effective marketing strategy through digital channels without a deep understanding of the peculiarities of the Chinese digital media.

That’s why big players like Ogilvy & Mather, one of the most famous global PR and communication companies, set up divisions like OgilvyCulture and Social@Ogilvy to market across different cultures or develop social media marketing programmes.

But a disruptive trend is likely to change the present…

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IT push aims to boost domestic demand |Sci-Tech |

Work on 4G licenses and broadband

Internet access to be speeded up

China is to promote consumption of IT-related products and services as it seeks to spur domestic demand and push economic upgrading.

It will speed up work to issue licenses for the fourth generation (4G) mobile network this year and accelerate development of broadband Internet access, according to a statement released after an executive meeting of the State Council presided over by Premier Li Keqiang.

The nation is aiming for annual average growth of 20 percent in the information consumption industry from 2013 to 2015, the statement said.

The meeting demanded implementation of the “Broadband China” strategy, stepped-up efforts to construct and upgrade network infrastructure, pushing forward the FTTH (Fiber To the Home) project and improving Internet speed.

China, which has the largest number of mobile phones in the world at 1.2 billion, is already building 4G trial networks in major cities.

China Mobile, its largest telecom carrier, is promoting the homegrown Time-Division Long-Term Evolution (TD-LTE) 4G standard and hopes to start commercial 4G rollout as soon as possible.

via IT push aims to boost domestic demand |Sci-Tech |


Union Jack in fashion as China banks on consumer spending | The Sunday Times

PAUL PRIESTMAN may employ only 40 staff at his London design consultancy, but in China he is one of the big boys. In August, he was appointed a director of CSR Sifang, part of China South Locomotive, the state-owned enterprise that is developing the world’s fastest train.

Many Chinese businesses are now seeking global design identities, a field in which Britain excels

Priestman, co-founder of Priestman Goode, is best known for his work on Virgin’s distinctive Pendolino tilting trains a decade ago. He is now helping CSR develop a global brand as it looks beyond the domestic Chinese market.

His appointment as creative director was a bold step. Few foreign nationals make it to the senior ranks of Chinese state-owned firms.

“It was a great accolade for British design,” said Priestman, 52. “We are helping to develop China’s design identity, which will be crucial in helping them to grow in international markets.”

Priestman Goode is in the vanguard of a “second wave” of investment in China. The first wave of European exports was led by Germany and its expertise in manufacturing; the second could be led by Britain’s strength in services.

As China rebalances its economy away from investment towards the consumer, these services are likely to be in high demand.

The reform plan unveiled this month by China’s ruling Communist party, the most radical blueprint for more than 20 years, should reduce inequality and boost incomes, unleashing spending by 1.4bn consumers.

As incomes rise, the Chinese will demand better financial services, healthcare, education and consumer goods — all sectors in which Britain excels.

Lord Sassoon, chairman of the China-Britain Business Council, who accompanied George Osborne on his trip to China last month, believes Britain has a unique opportunity.

“As the Chinese economy rebalances towards the consumer, they are very hungry for British creative ideas, whether in fashion and design or IT and technology,” he said. “On my visit with the chancellor, the excitement around British design was palpable.”

The creative industries will also be a key focus for David Cameron’s trade delegation to China next month. Priestman will be one of more than 20 business people accompanying the prime minister on the trip.

via Union Jack in fashion as China banks on consumer spending | The Sunday Times.


China overhauls consumer protection laws | Reuters

China‘s top legal body has strengthened consumer rights in the country after it revised the nation’s Consumer Protection Law on Friday, the first major overhaul in two decades.

Customers are seen at an Apple store in Beijing August 24, 2012. REUTERS/Jason Lee

The revisions increase consumer powers, add rules for the booming Internet shopping sector and stiffen punishments for businesses that mislead shoppers.

Chinese regulators have been cracking down on real or perceived corporate wrongdoing, with domestic and international infant formula makers and drugmakers particularly coming under the spotlight this year.

via China overhauls consumer protection laws | Reuters.


Changing China set to shake world economy, again

In my view, this is a ‘must read’ article for anyone interested in how China will impact their own countries and lives in the foreseeable future. It complements another recent article -

Reuters: “Long after concerns about tightening U.S. monetary policy have faded, a more profound issue will still dog global policymakers: how to handle the second stage of China’s economic revolution.

A view of the city's skyline from the Beijing Yintai Centre building at sunset is seen in Beijing, August 29, 2013. REUTERS/Jason Lee

The first phase, industrialization, shook the world. Commodity-producing countries boomed as they fed China’s endless appetite for natural resources. Six of the 10 fastest-growing economies last decade were in Africa.

China’s flood of keenly priced manufactured goods hollowed out jobs in advanced and emerging nations alike but also helped cap inflation and made an array of consumer goods affordable for tens of millions of people for the first time.

The second stage of China’s development promises to be no less momentous.

Consumption will take over the growth baton from investment. Services will grow as a share of the economy, while industry shrinks. Commodity-intensive mass manufacturing based on cheap labor will give way to greener, cleaner ways of making things.

More of the value added by a better-educated, more productive workforce harnessing new technologies will stay in China instead of going to multinational companies.

That’s the plan, anyway.

China will remain the most powerful engine of global growth for the next couple of decades, but it will no longer be just processing imported raw materials and components for re-export, said Li Jian with the Chinese Academy of International Trade and Economic Cooperation, the Commerce Ministry‘s think tank.

“China has realized that it cannot blindly rely on investment and exports as the main drivers of growth. So China’s demand will be more balanced,” Li said.


To show it is serious about more sustainable growth, China deliberately engineered the first-half slowdown that unnerved markets in order to address these longer-term structural priorities, according to President Xi Jinping.

Xi and the other new leaders of China’s Communist Party are expected to approve a blueprint for reform at a plenum in November. Overcoming vested interests opposed to the new economic model will be a stern test of their credibility.

A lot is at stake for the global economy too.

Philip Schellekens, an economist with the World Bank in Washington, said the importance of the reforms Beijing intends to make cannot be overstated. As China changes, so will the rest of the world.

“The structural transformations that we think are going to happen in China over the next two decades will matter far more than the near-term vulnerabilities,” he said.

On balance, commodity-exporting developing economies stand to be affected more than rich nations – an obvious exception being Australia, where the end of a China-driven mining boom was a big issue in Saturday’s election. China buys a third of Australia’s exports.

Commodity demand should stay strong, especially as China’s capital stock per head is only 10 percent that of America’s and urbanization has a long way to go. But rebalancing will favor commodities more closely tied to consumption than to investment.

Economists fret that too many emerging markets spent their windfalls from surging raw material prices instead of sloughing them into infrastructure and other investment. As a result, growth is slowing now that China’s demand is softening.

China’s appetite for agricultural commodities and energy should hold up well but Capital Economics, a London consultancy, said it was concerned about large metals exporters that have not saved their extra income and so are running current account deficits.

It singled out South Africa, Zambia, Chile and Peru as being particularly vulnerable.

via Insight: Changing China set to shake world economy, again | Reuters.

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