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APRIL 28, 2000 VOL. 26 NO. 16 | SEARCH ASIAWEEK

8 Things You Didn't Know About Chinese Consumers

Wang Gang Feng - Gang of One Photography for Asiaweek
Tokyo molded Fantasy girls Yuan Ran (left), Zhen Qin and Jia Yue

Fresh insights into the biggest potential market in the world

Optimists see new hope that the Chinese economy is rebounding. Official figures released last week show gross domestic product in the first quarter of the year grew by 8.1% from the same period in 1999 -- the most impressive performance for 12 months and 1.3 percentage points up on the last quarter of last year. Powering the improvement were exports, which ballooned by 39%. That is good news for the rest of Asia, which will experience trouble completing its recovery from the Crisis if China remains weak. And yet, amid all this good news, there is still no sign the Chinese people are any more prepared than before to go shopping with the kind of enthusiasm that will move consumer demand upward. Retail prices fell 1.9% in the first quarter, adding another three months to the longest bout of deflation in modern Chinese history. Until that problem is fixed, say economists, China's recovery will remain fragile.

So who are these consumers who won't respond to the repeated urgings of economic czar Zhu Rongji to take their savings -- estimated at 20% of the country's disposable income -- and spend, spend, spend? And is there a secret to inducing them to part with their cash? As Alexandra A. Seno has been finding out, it's best to start by discarding the clichés. In the fast-changing Chinese marketplace, the old beliefs about what works no longer apply. And even some of the new ones are beginning to look a little doubtful. Consumerism, she says, is a work in progress. To find out how much things are changing, read on. You'll be surprised.

1. For music, fashion and more, the trend capital of China is the capital of Japan
If you're wondering about the next big thing in China, look east to Shanghai -- and then keep gazing all the way to Tokyo. That's where you'll find the epicenter of all that's cool in China these days. "The Japanese influence is very strong, especially in pop culture," says MTV Mandarin channel managing director Harry Hui. "Just about anything Japanese-related is hot." And that includes the Chinese girl group Fantasy, who were little more than three ambitious lasses from Shanghai until they were despatched for six months to a Tokyo pop factory. Repackaged, they returned to China as a hip, in-your-face dance band -- with platform shoes, spiky hair, midriff-bearing outfits and a fan club. "They became a huge hit," says Alan Ng, marketing manager at their former record label, Avex Trax. Fantasy's music may be almost indistinguishable from that of any of the other mix-with-water groups produced by Japan's "Fame" schools, but their Japanese look and style hit the right note with Chinese youngsters. The cover of their self-titled CD is peppered with Japanese text -- even though it was never intended for release in that market. Fantasy instantly sold more than 100,000 legal copies in China and an estimated 1 million pirated versions.

And it's not just for trends in music that young Chinese look to Japan. The latest craze in street fashion is found in Japanese magazines -- which, in turn, are a reflection of all the weird and eye-popping things going on each day in the faddish Harajuku district of Tokyo. "Japan is the world capital of kawaii [cuteness]," explains Guy Murphy of the Bartle Bogle Hegarty ad agency in Singapore. "It reinterprets products from the U.S. for an Asian palette." And for young Chinese who know nothing of the old days of any color as long as it's gray.

2. The Internet's for the future. Right now, the supermarket's the real thing
It may be the big thing everyone is talking about, but precisely how e-commerce is going to change the lives of China's masses remains a mystery. The country's goods-delivery infrastructure is clunky and there are just not that many computers around, in per-capita terms. "China is not yet ready for shopping on the Internet," says a consultant with an international accounting firm in Guangzhou, southern China. "Phone lines are lousy and, frankly, people are not well educated about e-commerce. It will be many years yet."

So if it's not the Internet, what is the invigorating new force transforming China's retail scene? Answer: the good old supermarket. "That's where you see the market economy winning over the command economy," maintains Matthew Dodds, client director in Hong Kong at the ad agency FCB. "It's the victory of the aisle versus the counter." In state-run department stores, buyers must ask an often surly salesclerk for permission to inspect goods kept behind a glass counter. Now, though, store shopping is a hands-on experience for millions of Chinese as supermarkets sprout across the country. The government approves, offering supermarkets preferential treatment, including low-interest bank loans, tax reductions and discounted rents.

Carrefour of France, an early foreign entrant, co-runs 22 hypermarts in China, four of them in Shanghai. Domestic supermarket chains like Lianhua (1998 turnover: $510 million) and Hualian ($395 million) operate hundreds of stores -- including in remote Lanzhou, the capital of Gansu province, on the Tibetan border. Mom and pop stores are feeling the pressure. Estimated to number 9 million nationwide in 1997, they are being forced to improve their service and selection of goods. Many won't survive.

Top 10 Brands:
Cracking the China market is hard work but not impossible. The proof is that plenty of products have built up a large following. When 16,677 people were polled in 30 Chinese cities, here's how the leading brands fared in terms of how many consumers patronized them

Domestic brands(product) -- Often use or own the product

1) White Cat(dish detergent) -- 51%
2) Arawana(cooking oil) -- 48%
3) Kang Shi Fu(instant noodles) -- 37%
4) San Xiao(toothbrush) -- 32%
5) Gold Lo(battery) -- 18%
6) Robust(bottled water) -- 12%
7) Zhong Hua(toothpaste) -- 12%
8) Fulinment(cooking oil) -- 11%
9) Haier(refrigerator) -- 11%
10) Tang Tang(instant noodles) -- 11%

International brands(product) -- Often use or own the product

1) KFC(fast food) -- 45%
2) Safeguard(body soap) -- 36%
3) Lux(body soap) -- 35%
4) Coca-Cola(soft drink) -- 33%
5) McDonald's(fast food) -- 33%
6) Rejoice(shampoo) -- 29%
7) Colgate(toothpaste) -- 28%
8) Kodak(film) -- 27%
9) Contac(cold medicine) -- 23%
10) Nestlé(instant coffee) -- 23%

Source: 1999 AC Nielsen China Millennium Report

3. What gets them excited in Beijing may leave them cold in Shanghai
For Beijing sweet tooths, the chocolate of choice is Dove, a simple British confection that comes in bar form. In Guangzhou, bordering Hong Kong, the choice is more likely to be Ferrero Rocher, a far more elaborate product imported from continental Europe and bearing a price tag to match. The difference in preference is not simply price or taste (though they count). Superstition plays a more important role in things in the south, and the fact that the European chocolate is wrapped in gold foil makes it auspicious, particularly as a gift.

In politics, one country, two systems may be a workable concept for China's relationship with Hong Kong and Macau, but in business it is more like one country, 30 markets. The differences across the 9.5 million square kilometers are significant when it comes to what works and what doesn't. In Shanghai, Japan's Suntory is the favorite beer, but ask for it in Beijing or Guangzhou and the barman is likely to give you a quizzical look and offer you a Yanjing or Zhujiang instead. Nearly one person in two in Fuzhou owns a credit card. In Shanghai, that figure falls to as low as one in five. In Beijing, the heaviest skin care users are women between the ages of 20 and 24 and 30 and 34. In Guangzhou, teenagers are the ones who feel they need the help.

Then there is the matter of access to goods. "For inland places, you can't do your advertising in the same way you would in a more sophisticated market like Shanghai," says Miranda Li, Grey Advertising's Hong Kong-based strategic planner for China. In areas where a full range of products is not available, advertisers often do better with top-of-mind messages, which inform consumers about the brand without discussing details. No point wasting your budget on newspaper ads in those markets, either. Billboards are the thing.

4. Everybody fusses over the "little emperors," but the old are the best target
The photos tell the story -- but you have to know what you're looking for. In most Chinese family snaps, the sole child is the center of attraction, with the rest of the group fawning over him or her (usually him). So it's only natural to focus advertising dollars on this so-called "little emperor," right? Well, no. The best consumer target in China is not the child enjoying all the attention, but the adults dishing it out. David McCaughan, Asia Pacific director of consumer learning with McCann-Erickson in Hong Kong, says the real spenders are the middle-aged or older. "They are very valuable, and yet their increasing importance is under-reported [by the media]. Compared to them, you can forget the little emperors."

It all goes back to China's one-child policy, which was introduced in 1970s in an attempt to limit population growth. The result is that there is a distinct bulge in consumers born before the controls took effect. Not only are they at the height of their earning power, but they have specific needs. "Aging has brought on a demand for tonics and vitamins as these people seek to improve their quality of life," says McCaughan. Last year, more advertising dollars ($451 million) were spent on health supplements than on any other category of product. Ad bookings in value increased by a whopping 174% from the previous year. By comparison, spending on promoting computers was $77 million, up 117%.

China has an estimated 130 million people over the age of 60 -- and about 5,000 of them log on each week to 51666.com, an Internet portal that caters to the not so sprightly. Co-founder Warran Cai, a former finance-industry professional, says he thought up the idea (the portal's numbers sound like "I want to have a happy old age" in Mandarin) while observing his parents. "They have money to spend, but are bored," he says. Cai's company recently promoted a Yangzi River cruise. About 500 people paid $100 each to be on it.

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