The Trade War's Impact on Foreign Brands in China
"After 5,000 years of trials and tribulations, what kind of battle have the Chinese not been through?” asks the anchor on state broadcaster CCTV, referring to the escalating the trade war. The clip received more than 3.3 billion views. “Negotiate— we can! Fight— bring it on! Bully us— YOU WISH!” says the Chinese Communist Party's official newspaper the People's Daily.
Following the breakdown of trade negotiations between the US and China in Washington on Friday, and new tariffs on hundreds of billions of dollars of Chinese imports, Chinese propaganda has ramped up. Compared to other geopolitical disputes, China's state run media had been relatively passive in the 310 days since the trade war began. Yet based on recent state media sentiment, China's faith in forging an amicable deal appears to be thinning.
Wall Street bankers, American farmers and other US exporters will be deflated following Friday's breakdown. In addition, many foreign brands in China are likely to feel some impact.
Chinese Brands Day - which coincidently also fell on Friday - was the catalyst for a number of reports highlighting Chinese consumers' growing preference for homegrown brands. JD.com found the sales value of Chinese brands grew 8% faster than foreign brands last year with volume growing 14% faster. Categories that have traditionally been dominated by foreign brands, such as Mum & Baby, saw strong growth from domestic competitors.
Rising Chinese nationalism is not a new trend, we've being seeing signs of this over the past six-or-so years, but it is accelerating with every bit of news about trade wars and Huawei-exec arrests. As powerful and impressive as China is, consumers can still be hyper-sensitive to anything that looks to be putting their country and people in a bad light.
Rising nationalism is coupled with local brands producing better quality products and services, with more resonate marketing and sales strategies. It doesn't mean foreign brands' days are numbered in China - there remain plenty of cases of continued growth: purchases of imported fruit grew 36% last year, Nike's sales in Greater China grew 24% last quarter, and Roger Dubuis announced their watches "resonate very well" with Chinese consumers last week. What it does mean is foreign brands have to work harder to find they place and point of difference that connects with consumers.
In a recent China Skinny fashion project, “国潮” - "China trend" often came up when speaking to consumers. It is something brands across many categories should consider incorporating into their mix to resonate with their target market. There have been many contrived attempts from foreign brands hoping to connect with Chinese culture, however we've found some of the most successful examples have been collaborations with local artists and cultural influencers. This could mean working with local fashion designers right through to well-known local chefs for product development and promotion.
Yet beyond trying to connect more with Chinese culture, countless foreign brands could align more with Chinese consumers by simply getting the basics right. Too many brands are still trying to force western sales channel strategies into China's unique marketplace, others are using armies of Caucasian models to show Chinese how good something may look on them, they're stocking the wrong sizes, shapes, packaging, formats or even flavours. Some are even developing China strategies based on talking to the ethnically Chinese who haven't lived in China for some time, or are from a different region to their target market.
Trade war or no trade war, rising Chinese nationalism or not, there's still countless opportunities for foreign brands to grow from delivering thoughtful strategies in China. China Skinny would welcome the chance to chat about how we can assist with that.
Here are this week's news and highlights for China:
Chinese Consumers
Trade Dispute Between US and China Deepens as Beijing Retaliates: Hopeful expectations that the trade war would end soon have been quashed following the breakdown of talks in Washington last Friday. They were disputes over changing major Chinese principles. Tariffs of up to 25% will be added to an additional $300 billion of Chinese exports to the US following on top of the additional tariffs on $200 billion worth of goods last week. China has retaliated raising tariffs to 20-25% from 10% on $60 billion worth of US imports - 5,000 products including beer, wine, swimsuits, shirts and liquefied natural gas. $1 trillion was wiped off global stock values on Monday as a result of the trade war, before rebounding a little yesterday. Chinese propaganda has ramped up.
Staying Relevant to Chinese Consumers: 3 minute video: Mark Tanner shares some thoughts on marketing in China at the recent China Connect conference in Paris.
Heritage is Hip With Chinese Millennials: Post-90s Chinese are the most willing to spend on culture and the popularity of Chinese heritage items consumed by millennials is case in point. Examples include Forbidden City-branded items, the National Treasures TV show, arts and crafts collaborations by Pechoin, Chinese-style street fashion brand Mukzin revisiting historical fashions and Hey Tea's twist on tea culture. Foreign strategies can better serve this by sharing their own heritage and know-how in a cool, modern way, by building a deeper knowledge of Chinese culture and history and reviving ancient Chinese arts and crafts with the help of local experts and designers.
China’s Population to Peak in 2023, Five Years Earlier than Official Estimates, New Research Shows: China's birth rate fell to its lowest since 1961 last year, indicating that most, if not all, of those parents who wished to have a second child already had done so since the one-child policy was abandoned in 2015. The number of women of child-bearing age (15 and 49) is expected to decrease by 56 million between 2018 and 2033, with 27 million fewer children aged nine or younger by 2028 - 17% less than today.
Chinese Millennials are Rejecting Dull Factory Jobs — and Transforming the Economy: China's 400-million-strong millennial generation want less boring work, with better pay and more free time to spend money. Millennials tend to be entrepreneurial; “happiness seekers”; and want fulfilment, not just financial stability, but also in their work. 97% of Chinese millennials would prefer to work for a company whose values were similar to their own. As China moves up the economic curve, many of the low-skilled jobs are moving to nations where labour is cheaper - between 2005-2016 manufacturing wages in China have increased five-fold in China. Manufacturing accounted for 47% of GDP in 2010 but only 40% in 2017 — when services accounted for more than 50%. In the first half of 2018, services contributed 60.5% of China’s economic growth and accounted for 45% of employment.
Mother Day’s Spending Shows Growth Potential: Chinese aged 25-40 are the driving force of gifting on special occasions, with gifts not restricted to flowers and food, but also "expensive" items such as electronics, jewellery, healthcare products and travel. A recent study from Ctrip from 60% of Chinese with senior parents have become more likely to spend money for their folks to travel.
Digital China
Chinese Online Consumption of Domestic Brand Products Quickens in 2018: Report: The value of Chinese brands bought on JD.com grew 8% more than foreign brands last year, with volume growing 14%. Chinese brands also saw more online orders for products such as maternal and child products, whose markets were dominated by their foreign counterparts last year. Top-tier cities reported the strongest growth, with enthusiasm robust with millennials.
Chinese Ecommerce Giant JD.com Exits Australia: Chinese e-commerce giant JD.com has closed its office in Australia less than 15 months after opening with ambitious expansion plans. It is part of a company-wide response to widening losses. JD.com said there would be no change to its service and partnerships with Australian and New Zealand exporters, which would now be managed by JD.com staff in China. JD also rebuked rumours of a reducing staff in China, claiming its total headcount increased by 1,000 year-on-year last quarter. Alibaba opened an office in Australia in 2017 and says Australia is its fourth top country globally selling products into China.
Food & Beverage
Hema Fresh Launches New 'Hema Market' Brand Store in Shanghai: Hema has launched Hema Market in a strategy of locating near large residential communities, with reduced or removed in-store dining and prepared food areas, scaled-down fresh seafood and aquatic product offerings, and a focus on daily staple foods - effectively a New Retail version of a wet market. Future Hema Markets are expected to include service counters addressing other basic residential community needs for laundry, beauty and hair styling, health and fitness, home cleaning, and child care, among other services. While Hema Fresh targets younger, more affluent, less price-sensitive consumers, Hema Market focuses more on older, more price-sensitive, common consumers in nearby communities.
These Hot Pot Flavoured Toothpastes Have Already Sold Out in China: Chinese toothpaste brand Leng Suan Ling has launched a toothpaste supposedly flavoured like Sichuan peppercorns and boiled meat. Presales have reportedly sold out of the little spicy, medium spicy and hentai spicy ranges.
World Alcohol Consumption on the Rise as China's Thirst Grows: Annually, Chinese men drink more than 11 litres of pure alcohol - mostly in the form of spirits and beer, while women consumed three litres. Average consumption has increased 70% since 1990 and Chinese are on track to surpass the US for per capita intake by 2030.
Penfolds 'Copycat' Ordered to Pay More than $800k AUD ($555k) for Trademark Infringement in China: A Melbourne federal court has fined Australian company Rush Rich Winery $400,000 ($278k) and ordered them to immediately cease production of wine with any mark "substantially identical with or deceptively similar to" Penfolds' Chinese branding. A Shanghai court also ordered Rush Rich to pay $426,000 ($296k) in compensation. In China, Penfolds operates as "Ben Fu", meaning "chasing prosperity" which has a similar meaning to "Rush Rich".
Chinese Tourists
One of China’s Most Influential Travel Show Hosts Right Now is a Fox Hand Puppet: A Basil Brushesque-Tibetan sand fox hand puppet is the star of 10 minute online episodes of travel show Hu Lai Decides to Go Travel. First launched on Bilibili, it has become a sensation in China.
How to Attract Self-Driving Chinese Tourists: Most Chinese self driving tourists are 30-49, with those aged over 41 travelling for 35 days on average, compared to just 18 days for under 24s. 40.3% of roadtrippers do it with family, 32.1% with a significant other, 11.9% with parents and 8.5% with friends/colleagues. USA, New Zealand and Australia are the top-3 countries. Ctrip now offers car rentals that specifically come with Chinese GPS. The most-viewed WeChat post by any national tourism board in Q3 2017 was Destination Canada’s article on seeing maple trees in Canada, with a recommended driving route for the best fall foliage. Visit Florida's KOL campaign to encourage roadtripping in the state received over 57 million views.
That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
