Chapter 4 Status of China’s Advertising Market
4.6 Top Advertising Agencies in China
4.7.1 Sponsors, Partners and Exclusive Suppliers of Beijing Olympics
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4.7.1 Sponsors, Partners and Exclusive Suppliers of Beijing Olympics
The Beijing Olympic Games had 12 worldwide partners, including the domestic personal computer enterprise, Lenovo Group, and another 11 domestic partners, 10 sponsors, including the Taiwanese company, Uni-President, and 15 exclusive suppliers (Table 4-17). Although the Chinese Government took action to protect the rights of the Olympic sponsors, 17 as a result of not understanding the Olympic-related rules, many domestic commercial suppliers produced Olympic-linked advertising and infringing goods, which were illegal and went against the Olympic intellectual property rights, especially in terms of outdoor advertising. The Beijing Industrial and Commercial Sector increased the intensity, and supervised a total of 142,576 incidents of infringing content advertisement, including the cleaning up of 2,020 infringing outdoor advertisements.
17 Chinese government released “Regulations on Protection of Olympic Symbols” on 1st Apr. 2002 for the purposes of strengthening the protection of Olympic Symbols, protecting the lawful rights and interests of the owners of the Olympic Symbols, and ensuring the dignity of the Olympic Movement.
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Table 4-16: Sponsors, Partners and Exclusive Suppliers to the Beijing Olympics Sponsors Companies
Worldwide Partners
Partners
Sponsors
Exclusive Suppliers
Source:Official Website of the Beijing 2008 Olympic Games, http://en.beijing2008.cn/
4.7.2 Advertising Spending During the Olympics Period
In August 2008, although sponsored advertising grew by 40%, advertising spending grew only by 7% in comparison with China’s advertising spending, which grew by an average of 19% in the seven months leading up to the Olympic Games. According to
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Nielsen, many advertisers suspended advertising in August, causing the overall advertising spending to tumble to level in May 2008, when the Sichuan earthquake hit and advertising was suspended for three days (Nielson Wired, 2008). The fall in advertising spending in Aug 2008 may have been caused by so-called “ambush marketing (hidden marketing).” Although Chinese officials protected sponsors from been “ambushed” by infringing advertisements, this was widely recognized as “a waste of money” by many marketers, and the Olympic organizers removed many billboards around the sites of the Games (Pfanner, 2008).
4.7.3 Winners of Olympic Advertising
The “Economic blue book, 2008”, published by the Chinese Academy of Social Sciences in 2007, forecast that the Beijing Olympic Games would accelerate the development of the economy and cause the beginning of a period of breaking out, and continue to increase investment in leading roles. It was estimated that the Beijing Olympics would bring in US$16 million of direct revenue, that the marketing revenue would be more than US$2 billion, and that the Beijing Olympic Games would be far better than the Sydney and Athens Olympics. The Beijing Olympic Organizing Committee estimated the profits from the exclusive coverage of TV broadcasting would reach US$833 million. China’s Audit Office published financial accounts of the Beijing Olympic Games in June 2009 which showed that the Olympic venues would produce 20.5 billion, expenditure of 19.343 billion, and the balance would be more than RMB 1 billion. Both Chinese and foreign TV companies would profit simultaneously from the extraordinary revenue from the Olympic Games. According to the CCTV rating survey in 2008, the revenue of CCTV Olympic Games’
broadcasting was estimated at RMB 2 billion. Moreover, the National Broadcasting Company (NBC), which had exclusive coverage of the Beijing Olympics in the
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United States, produced 3600 hours of Olympic programming on television, cable channels and on-line player, which brought more than US$900 million of revenue (China Review News, 2008). In China, CCTV caught the attention of most people, and with a ratio 52.19%, CCTV captured half of the national ratings. From the August 8th Olympics opening ceremony to the 24th closing ceremony, CCTV’s Olympics reports attracted a 1.12 billion audience to watch the Games. The opening ceremony attracted more than 800 million viewers, which broke the record of 300 million for the New Year’s Eve Evening Show (Wenweipo, 2008).
Just as important as TV, the overall number of internet users on the day of the Olympic Games opening ceremony reached 161 million people, which revealed the potential of internet communication. Research by AC Nielsen points out that the Internet and television had both become the most important media for users to access information about the Olympic Games (XinhwaNet, 2008). 18
4.8 Summary
Ever since the advertising market was first developed in China, media has dominated the market and the legislative restriction on operating media in China means that, although foreign investors may never be able to operate in the business of the media, foreign advertising agencies are performing well in China’s advertising market with revenue shares increasing year by year. The top advertising companies in China are mainly foreign companies, and this demonstrates that foreign transnational companies are playing an important role in China’s advertising market.
18 PPS.TV, the most popular online television service simultaneously broadcast all of the 2008 Olympic Games which, it is estimated, attracted 100 million Olympic online viewers in China.
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As a result of competition and progress under the 30 years of the prosperous development of the advertising market in China, although TV, especially CCTV, obtained most of the advantages of the market, the Internet caught up and played a relatively important role during the Olympic Games. TV and the Internet have both been considered to be the most important media for users to access information of important events. Thus, the potential of the Internet cannot be ignored.
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C hapter 5 Perspective of China’s Advertising Market
As mentioned in Chapter 2, a survey indicated that the media advertising of twelve Asia-Pacific region countries rose to US$83.5 billion in 2006, mainly driven by three big countries, China, India and Indonesia. The boom of China’s advertising growth is surprising, sharing more than half of the region’s total amount. From another perspective, without China’s advertising boom, the growth of the whole region would have fallen from 15% growth rate to 5% in 2006. Compared with the other nations in the region, Hong Kong experienced 8% of the high growth rate, and the remaining nations, such as Thailand, Malaysia and the Philippines all grew by 4%. Australia, and South Korea both grew by 2%, while Taiwan and New Zealand respectively declined by 3% and 2% (Nielsen Media Research, 2007), which highlights the fact that China has became the superstar of the Asia-Pacific Region.
5.1 Online Advertising Attracts Advertisers
There has been a great many opposing views about the impact the global financial crisis will have on China. On one hand, it is believed that many large companies will reduce their advertising spending, including the Internet, due to the slowdown of the economy. On the other hand, some point out that the financial crisis will drive online consuming, with a concomitant increase in online advertising. In 2008, more and more companies are showing an interest in online advertising in China, which is much cheaper and more effective than advertising on TV and newspapers, since TV advertising fees have increased and newspaper circulation figures are falling.
Although the global economic downturn affected the GDP growth rate of China, in
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the sphere of the Internet at least, there is still optimism about the development of the advertising business. In fact, China’s online advertising market revenue continued to increase by 70% year-on-year in the first two quarters of 2008, since the financial crisis drove people to seek entertainment, an ideal choice of which is free music and games. On October 10th, Analysis International reported on China’s online advertising industry, which gave a positive outlook to the market, and Optimedia China predicted that the volume of China’s advertising market would reach RMB 19 billion (US$2.78 billion) by the end of 2008 (Chen, 2008).
As early as the initial stage of the financial turmoil, one of the world’s Internet giants, Google, launched a series of similar activities to attract advertisers in China, which helped to boost the company’s Chinese branch revenues by RMB 973 million in the first three quarters of 2008, with a market share which increased from 23.4% in 2007 to 26.9%. Although some start-up Internet companies are closing down due to a lack of foreign investments, the impact of the global financial crisis on the Internet industry is much less than estimated (China Daily, 2009). Since the second half of 2008, due to the financial turmoil, China’s exports declined rapidly, and many domestic companies turned to the Internet to expand the domestic market.
Simultaneously, because it is cheap and convenient, purchasing goods on the Internet is more and more popular in China nowadays, and the revenue from web buying is expected to reach RMB 126.3 billion in 2009. In the previous year, the total revenue of Asia’s largest network of retailers, Taobao, reached RMB 99.96 billion, which was a growth of RMB 43.3 billion, an increase of 131% compared with 2007 (Xinhua Net, 2009).
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5.2 Children are the Future Market
China is the most densely populated country in the world with 1.3 billion people, including 325 million children, 110 million of which live in urban cities, and more than 200 million live in rural areas. This is the largest population of children in the world. According to the fifth census statistical bulletin issued by Chinese officials in 2000, the average family monthly consumption for 0-3 year-old infants was about RMB 900, and the annual baby and children’s supplies market in China was estimated to be more than RMB 100 billion (China Milk Powder Market, 2008). Moreover, China is facing a new stage in its baby boom. In 2006, AC Nielsen observed that the largest number of newly-weds in China led to an increased birth rate the following year. Since the mid 1980s, due to the “one child” policy, the birth rate in China was sustained at 0.18%, but the boom of newly-weds increased the birth rate to 0.21% in 2006 and 2007, which was almost a 9% growth compared with 2005. 19 According to statistics issued by the China Investment Advisory Network, in 2005 and 2006, the amount spent on children’s clothing in major shopping malls in China increased over the previous year by 15.50% and 11.63% respectively. Moreover, the CIAN predicts that the number of new born babies will double and the growth of China’s birth rate will peak at 15% in 2010 and will be maintained in consecutive years. Another study by McNeal and Yeh estimates that Chinese children influence 68% of household purchases, 23% higher than households in the US. Another study by McNeal and Zang in 2000 indicates that children largely exert a direct influence on family purchases of US$60 billion per year, and combined with their indirect influence, this has been approximated at US$125 billion, and that children’s influence on household spending will grow commensurately (Chan and James, 2008). This data shows that a
19 Although Chinese government statistics show that the average family birth rate is currently 1.8 compared to 5.8 in the early 1970s, population experts are predicting a mini-baby boom before 2010.
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focus on children will be the major future strategy of the advertising market in China.
Table 5-1: New Product Information Images of Chinese Children Source TV Parents Store
visits Friends Newspapers RadioOutdoor
Advertisings Magazines
Ranking 1 2 3 4 5 6 7 8
Percentage 77% 47.7% 41.3% 39.6% 33.8% 25.2% 14.2% 12.2%
Note: Multiple Choices of Different Media Source: Kara and James (2004)
5.3 Trend of Growth in the Advertising Market
According to a forecast by the Center for Studies of Media Development of Wuhan University, based on a yearly growth rate of 14.2%, advertising revenue is estimated to reach RMB 267.5 billion in 2010, and RMB 519.6 billion in 2015, three times more than in 2006.
Table 5-2: Advertising Revenue Forecasts Based on 14.2% GDP Growth Rate
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Advertising
Revenue (RMB Billion)
157.3 176.9 205.1 234.2 267.5 305.5 348.9 398.4 455.0 519.6
Source: Chang (2007)
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Table 5-3: Advertising Revenue Forecasts Based on 9.5% GDP Growth Rate
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GDP
(RMB Trillion)
20.94 22.93 25.10 27.49 30.10 32.96 36.09 39.52 43.28 47.39
Advertising Revenue (RMB Billion)
167.5 183.4 200.8 219.9 240.8 263.7 288.7 316.2 346.2 379.1
Source: Chang (2007)
On the other hand, according to estimates based on an average 9.5% growth rate of GDP, the advertising revenue of 0.8% share of the GDP, China’s GDP will reach RMB 30 trillion in 2010, and its advertising revenue will increase to RMB 240 billion, 379 billion in 2015, 17% less than the estimate based on the average growth rate of advertising revenue. Moreover, the annual auction for prime-time advertising slots on CCTV in 2009 has hit a record RMB 9.26 billion. The auction jumped 15.4%, and the largest buyer, Procter & Gamble (P&G), was estimated to have spent roughly RMB 515 million, up 6% from last year (Normandy, 2008). 20
In order to overcome the impact of the financial crisis of 2008, China plans to invest four RMB trillion to expand domestic demand, especially consumer demand, within two years for the best achievement, including investing RMB 600 billion to promote technological innovation, and RMB 850 billion to promote the medical and health system (XinhuaNet, 2008a). An analysis of these revitalization programs is expected in the second half of 2009 and the first half of 2010, bringing a “man-made”
20 P&G was the top bidder of CCTV’s 2009 airtime auction at the 2009 CCTV prime resource auction, spending RMB 515 million, a six percent increase on its spending in 2008 (RMB 480 million) and RMB 420 million in 2007.
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economic growth rate, which is not expected to be low (United Daily 2009).
5.4 Problems of Chinese Advertising Market
Compared with the same period in 2007, the total retail sales of goods in China in February 2008 kept rising by 20% with a total amount of RMB 835.47 billion, including a 19.2% growth rate of urban areas and 20.6% of country areas. The townships and villages performed 17.7%. 568.31 of the RMB 835.47 billion, and over 70% of retail sales was made in urban areas, nearly 20% was made in townships and villages, and 10% in country areas (Bureau of Statistics, 2008).
In 2007, the annual per capita net income of rural residents reached RMB 4,140, an actual increase of 9.5% over 2006 after deducting price increases. On the other hand, the disposable income of Chinese urban residents per capita increased to RMB 13,786, an actual increase of 12.2%. These figures demonstrate that the Engel coefficient of Chinese rural households (i.e. household food expenditure of households as a proportion of total expenditure) was 43.1%, while the Engel coefficient of urban households was 36.3%. Thus, the purchasing power of the Chinese people has grown up to five trillion US dollars per year, which surpasses Japan, and makes China the second largest market in the world. China’s purchasing power indicates that it has transformed itself from the “world’s manufacturing plant”
into the “world’s consumer market” (Lin, 2006). Although China has overtaken Japan, there are still some uncertainties, which are described below, which may turn the Chinese market into an unstable situation.
5.4.1 Influence of Financial Crisis
An analysis by the World Bank indicates that the impact of the international financial
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and economic turmoil on China’s economy was manageable in late 2008, but is expected to intensify. Premier Wen Jiabao considers that the initiator of the financial crisis was a serious imbalance in the US economy, mainly due to long-term dual deficits which relied on borrowing to maintain high consumption. Long-term ineffective supervision of financial institutions enabled the use of high leverage ratios to obtain huge profits and once the bubble burst it brought disaster to the world (Financial Times, 2009).
Although when he visited China in 2007, Paul Wolfowitz, the President of the World Bank at that time, said that 400 million Chinese had been lifted above the 1 US-dollar-a-day poverty level within 20 years, he urged the country he called “a major global force” not to think of trade surpluses and rapid economic growth, but rather to think of the amazing poverty reduction. Instead, the trend of the economic market in China has experienced a downturn from the impact of the financial crisis of 2008 (Finfacts, 2005). 21 Carat’s worldwide prediction for 2008 is revised downwards by more than a percentage point from 6.0% to 4.9% in the US, the UK, Spain, and surprisingly China, which has long been touted as a bright spot among the gloom. In 2009, the prediction has also been slightly reduced, from growth of 4.9% to 4.8%.
Due to the impact of the May earthquake and uncertainty about post-Olympics advertising spending, China’s growth has been revised downwards by a percentage point for 2008. The forecast for 2009 is that China will have a significant decline in growth from 13.2% to 10.9%.
21 Paul Dundes Wolfowitz (born December 22, 1943), former United States Ambassador to Indonesia, President of the World Bank. Currently a visiting scholar at the American Enterprise Institute, working on issues of international economic development, Africa and public-private partnerships, and chairman of the US-Taiwan Business Council.
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In October 2008, the index of China’s economic aggregate demand (consumption, investment, government spending and net exports) indicated a rapidly freezing economy, which could lead to an even worse deterioration of the global economy.
From the perspective of the consumer, October consumer growth rated 18 percent compared with the same period the previous year, fell 0.6 percentage from September, and consumer confidence fell to 92 points in November, the lowest point in three years. The entire index indicated that the October 2008 could be a turning point in China’s economic growth after the global financial tsunami. Furthermore, in the Spring of 2009, Chinese local governments took a more active prevention in enterprise-owner “malignant collapse” due to the economic recession (Economic Daily, 2009). Furthermore, a survey showed that the vast majority of advertising agencies in China lacked confidence in their future operations in 2009. However, the survey also showed that the year 2009 would be full of “crises” and “opportunities”, coexisting in the advertising industry. Generally, the optimistic expectation of turnover in 2009 had declined from 79.7% to 64.7%. In contrast, the ratio of pessimistic prediction of turnover had increased by nearly 10 percent (Modern Advertising, 2006).
5.4.2 Insecure Consumers
Although China has the highest savings rate in the World, due to their devotion to the traditional virtue of frugality, Chinese people prefer to deposit more money in the bank than they withdraw, and especially since more than 6 million workers and peasants had been unemployed since 1987, the uncertain general public would rather save for a rainy day than spend. The savings of China’s urban and rural residents has been held at more than RMB 6 trillion. Even though the gap between rich and poor in
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China is very prominent, these huge amounts of savings are held by well-off families.
A new survey by Gallup which was published in “Fortune” magazine shows that a number of Chinese consumer groups, though limited, hold 70% of the nation’s wealth (Meng, 2003). China’s national savings rate is close to 50%, and the household savings rate is about 30% of the family’s income. Thus, China has the world’s highest propensity to save among the major economies. However, even though well-off Chinese families are holding huge amounts of wealth, the Gallup survey showed that, on the contrary, 68% of Chinese people are dissatisfied with their savings, since state-owned enterprises have laid off more than 60 million workers since 1997, which is the cause of the insecurity of their employment and income (Roach, 2006). Insecure Chinese workers are afraid of the instability of their jobs. A British report quoted the
“China Daily-overseas edition” which revealed that, by the end of 2001, a total of 5.15 million workers were laid off by state-owned enterprises, and 20% of China’s
“China Daily-overseas edition” which revealed that, by the end of 2001, a total of 5.15 million workers were laid off by state-owned enterprises, and 20% of China’s