Matthieu David: Allison Malmsten and I today we are going to have a market tidbit on the Stay-at-home Economy in China and we wrote a report a few weeks ago, about this stay at a home economy which was of course impacted by what happened in February, March, April with the Covid-19, the coronavirus and we mentioned through the report a new type of segmentation which is not totally new with the Covid-19, but which is new with the expansion of the internet and apps and so on, Zhai generation, Zhai people – what are the Zhai people, what do we say within the report?

Allison Malmsten: Yeah, so Zhai people is basically definition for people who prefer to stay at home than go out and previously this would include maybe more introverted people, as also related to the Japanese word Otaku, which is related to the Otaku economy which is the economy of watching anime at home, playing video games all day, but now the Zhai economy, and especially since Covid-19 has expanded to include a lot of different services that you can do at home – so the original definition was a little bit geekier, but now it really includes everyone, even people who work out, anybody who has to go to school or anybody who has to telecommute into work.

Matthieu David: So, we couldn’t mention not only the Zhai people but the Zhai economy, meaning you could become a Zhaist from time to time and the pandemic made some more people Zhai people right.

Allison Malmsten: Yeah, and so originally the Zhai economy was a little bit more male than female, about 55% male, 45% female and the age group was mostly 18 to 34-year old’s. It’s a very digital group of people and they’re very plugged in. traditionally they would be gamers but yeah, like I mentioned now it really includes just anybody even shopping for groceries as participating in the – if they’re doing it from home, they’re participating in the Zhai economy from home.

Matthieu David: So, we know that people spent more time online during the Covid-19 pandemic and we know that they actually emphasized some use – they already had but they also had new use of the internet. What are the trends which could have explored and impacted the stay at the home economy with Covid-19?

Allison Malmsten: So some of the trends that we can talk about an increase in social media use and then online shopping is a really big one, of course before in China a lot of people shopped online but now it’s even more so and including online fitness and then, of course, remote work and study platforms is also increasing and lastly mobile gaming and other entertainment including attending concerts from your living room.

Matthieu David: Yeah, I’m talking about fitness app – there is one app which was a winner during this lockdown which is the app Keep – K-E-E-P – what kind of app succeeded in this category, fitness, news app, can you mention a few of them?

Allison Malmsten: Yeah, since you mentioned Keep – what Keep did is it’s an at-home workout app and what they did is they hogged onto all of the short video platforms like Douyin, TikTok and they – for one they invited celebrities or professional athletes like a volleyball player Hui Ruoqi for example and then the athletes would also teach classes and so that was a really big factor to attract a lot of people into doing fitness from home and so its inspired a lot of people to engage in fitness when originally China’s population of gym-goers was relatively low.

Matthieu David: Interesting, so you mean that deliveration through some kind of KOL or people with an authority in fitness in order to get new users and new –

Allison Malmsten: Yes, and this started – they mostly did this during the Covid-19 so as you can see, the way the pandemic has impacted Chinese people it can be really surprising.

Matthieu David: You mentioned that not only eCommerce went up but also entertainment apps, would you mind sharing what kind of app went up and for what kind of use? We all know that Douyin was a big winner in 2019 and it should be not surprising that it would be the winner for the Covid-19 lockdown.

Allison Malmsten: Yeah so actually there are three short video apps that we’ve really looked at. Douyin, Kuaishou, and Xigua so they all have slightly different user bases and they all increased quite significantly. So, for example, Douyin in December 2019 had 459 million monthly active users and then come March it is now 518 monthly active users and Kuaishou and Xigua have similar statistics and each of these groups they target slightly different user base so Douyin is more GenZ and millennials tier I to tier II cities, Kuaishou is a little bit the lower-tier cities and Xigua is actually known for its high-level content and it actually has a more male user base, so you can see that these are all tapping into and expanding in those unique user bases, so the short video market is really expanding from Covid-19. Additionally, we can also talk about online reading, around half of the Chinese chose to read novels every day during this time and reportedly a majority of them – 86.2% of them plan to continue reading online after the epidemic. So, we will see how long this lasts but its another area that has really grown during the pandemic.

Matthieu David: Interesting, something we forget but the biggest market for books is China and reading novels on a smartphone or on an iPad would be quite natural actually, an increase during the Covid-19 lockdown, that’s what you are saying and its quite interesting how people are going to continue to read novels.

Allison Malmsten: Right. And according to a survey a lot of people will keep reading, but then again self-reported like everybody likes to think that they will continue to read but we’ll see how that plays out.

Matthieu David: You mentioned eCommerce and a lot of people who were not allowed to go out had to use and to rely on eCommerce and – I was going through the report, I was actually surprised by the low level of users for Hema for instance where I would have expected it to be much higher in terms of active users, but still, of course, it increased massively during the epidemic in China. What about the grocery eCommerce more specifically and do you see that as a game-changer or just a period of time or a few months where people had to use it?

Allison Malmsten: I do think it could potentially be a game-changer because once you’ve used it once it really releases a lot of the friction to using it the first time. Everybody was basically – they have a lot of pressure to use it for that first time but now the app is downloaded on their phone, their payment method is plugged in and so it’s a lot easier to maintain a consumer than to acquire a new one and it looks like the monthly active users for Hema and some of the grocery apps, they stayed pretty stable between January and April and in April China was – it was very open. People could really leave their apartments and go grocery shopping almost like normal again and they still maintained a lot of their userbase.

Matthieu David: And what’s surprising to me is that we’re talking about 2.8 million monthly active users for Hema which is for the size of China very small and it increased massively again during Covid-19 but the base was much smaller than what I expected. Was this your feeling too when you were reading the report?

Allison Malmsten: Yeah for the amount of attention that Hema specifically has gotten I would have expected the monthly active users to be possibly a bit higher but what’s not surprising is the amount of growth, I mean its grown like nearly seven-fold from December 2019 to January 2020 so over a month-long period. So I think that’s what’s the most interesting to me is that it’s grown so much and then it continues to grow through February, March, April and so a lot of the users they appear to be staying on the app, granted they might not be ordering the same amount of volume as they were before, but its still definitely has made a big impact in China.

Matthieu David: Carrefour left China like nine months before the Covid-19 lockdown and they could have benefitted from that. I feel that’s really the wrong timing for this player to go out, I mean they could have benefited from a very unpredicted event like this. You mentioned also online education and it grew naturally because students were not at school and actually, they just went back to school a few weeks ago and I think it was early June or mid-June –

Allison Malmsten: Yeah so online education absolutely exploded and this is mostly to do with schools, they still require an education and so these students they have to download these apps and they have to learn the way of telecommuting and so what’s interesting is that some of these apps have actually grown 50 fold, for example [inaudible 11:41] is an app that it used to have only a 124,000 weekly active users but now that’s 6 million – 6.1 million, so that’s quite a bit and what’s also kind of funny is if you look at – for some of these telecommuting apps if you look at the reviews on the Chinese app store, the reviews are actually quite negative, because if you look at what the reviews are saying, tis a bunch of kids, the reviews say like – my school makes me do this online instead of playing my video games, it’s a very disruptive app, I wish it didn’t exist. So that really shows that a lot of the user base is students who whether they like it or not they use these apps for school.

Matthieu David: Funny. Was not designed for it initially?

Allison Malmsten: Yeah well, I think the students are just mad that they have to go to school when they could be sitting at home gaming, participating in other parts of the Stay-at-home Economy in China.

Matthieu David: Yeah, not focusing much on the app and the function but the fact that its taking time out of their games.

Telecommunication, of course, the time spent on telecommunication has increased a lot. What can we conclude on that, what are the key learnings on telecommunication apps and meeting apps for work, for meeting with family, to get news, what kind of learnings can we get?

Allison Malmsten: So, some of these telecommunication apps they have a massive amount of users and a short amount of time. On the first day of resumption of work on February 3rd, 200 million people logged onto DingTalk to work from home. So that’s a lot – whether the telecommuting apps will continue to be used in the future – of course, Covid-19 is a huge factor that has again – its kind of lowered the friction to use it, it’s already downloaded on their computers, but whether people continue to use it really depends on the trust in the workplace. That’s a really crucial factor and then there’s also demand for working across regions. 80% of large and medium sized enterprises in China set up offices in at least two different areas, so telecommuting will definitely continue to be used on a large scale but it will be interesting to see if downloading, if having used this apps before during Covid-19 will make it easier for a large amount of people to start working from home and even start working from home on a daily or like, permanent basis or if it’s just going to be something that they will continue to use only for meetings.

Matthieu David: Interesting, I guess we will have to update this report in 3 or 4 months to see how the Stay-at-home Economy in China has been impacted for the long term, or it was just for the short term that it was impacted during Covid-19. Thanks, Allison, for sharing.

Allison Malmsten: Yeah thank you for having me.

Find the full Stay-at-home Economy Report 

This article Market Tidbits transcript #2: The rise of the Stay-at-home Economy in China is the first one to appear on Daxue Consulting - Market Research China.

Matthieu David interviews Vincent Djen, Director of Cheng Kung Garments and CEO of REMAKEHUB. The textile industry has consistently been a labor-intensive industry. In this episode, we explore what the future hold for the garment industry and how a circular economy fits into that. Are Chinese consumers already requesting fashion products made from recycled materials? Can textile factories be digitalized yet or is there still a long way to go before that happens? Find out the answers to these questions and more in this new China Paradigm interview.

• 0:00 Guest introduction
• 5:59 How did the current outbreak affect the garment industry?
• 7:51 Is the winter collection delayed as a result of the coronavirus outbreak?
• 8:17 The story behind Cheng Kung Garments
• 10:31 How and why did Vincent Djen decide to take over the family business?
• 13:28 Cheng Kung Garments – the current size of business
• 14:27 What are the highs and lows of a season in the garment industry?
• 17:05 How much of Cheng Kung Garments’ production is in-house and how much is outsourced?
• 20:53 Is China still the best place for the textile industry?
• 24:31 Why is the textile industry still so labor intensive?
• 26:39 What are the costs of using robotics for manufacturing instead of people?
• 28:56 What are the initial costs for entrepreneurs who would want to get into the textile industry?
• 33:01 Is there support from the Chinese government to make factories more innovative?
• 37:03 How is 3D printing helping the textile industry?
• 41:09 How does Recycling fit into the day to day activities of the Cheng Kung Garments factory?
• 44:06 Mechanical vs Chemical Recycling – how many times can a product be recycled?
• 46:42 REMAKEHUB – what and why have specific products been picked for recycling?
• 48:12 Why was adding traceability for waste products recycled by REMAKEHUB important?
• 49:42 REMAKEHUB – following the “Cradle to cradle” design concept
• 50:50 Do big fashion companies already use recycled products?
• 52:50 Is it easy to tell if a finished product is made from recycled materials or not?
• 54:03 Is recycling mandatory for companies or is it still an optional feature?
• 56:18 Are consumers already buying products because they come from recycled materials?
• 57:51 What are the challenges of creating a brand in the fashion industry?
• 1:00:26 What is Vincent Djen’s greatest business goal?
• 1:01:28 What books have inspired Vincent Djen in his entrepreneurial journey?
• 1:02:43 What does Vincent Djen read to stay up to date with China?
• 1:05:24 What productivity tool does Vincent Djen use to run his business?
• 1:08:25 What unexpected business success or failure has Vincent Djen witnessed in China?

One relevant episode

We believe, that China, with 20% of world population and as the second world economy, is impacting every single business, small to big. That is why it is a new paradigm. How does China impact your business is the ultimate question we will answer through those podcasts.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article China Paradigm 116: Contributing to the Chinese circular economy is the first one to appear on Daxue Consulting - Market Research China.

Meituan officially launched its own ride-hailing APP Meituan Dache (美团打车Meituan ride-hailing) for Shanghai and Nanjing’s markets.

Meituan Dianping is a Chinese website and APP for food delivery services, consumer products and retail services. As a very typical representative of mobility in China, Meituan Dianping was originally called Meituan. After merging with Dazhong Dianping it changed its name to Meituan Dianping.

As a leading food delivery APP, Meituan also started to develop its ride-hailing service in China, which is a significant step of its business strategy to improve the system of mobility in China. Meituan Dache, Meituan’s ride-hailing app in China, ranked third in the App Store Free download list after its official launch in Shanghai for a week in February, 2017.

On March 21, 2018, Meituan officially announced its first batch of expansion cities of new ride-hailing business, including Beijing, Shanghai, Hangzhou, Xiamen, Chengdu, Fuzhou and Wenzhou. Also, Meituan began to recruit drivers in these cities. However, the plan was not implemented after a year-long period of stagnation.

Challenges for Meituan: Competition and regulations

After entering Nanjing, Meituan heavily subsidized the drivers to grasp more opportunities to compete with Didi. Also, Meituan divided the drivers into three levels and gave different subsidies accordingly. For instance, at the beginning, the standard earning for new drivers was 2,200 yuan per week. After reaching the standard, the drivers can get 800 yuan extra bonus per week.

Hence, the cost associated with its ride-hailing drivers increased exponentially, from 290 million RMB in 2017 to 4.46 billion RMB in 2018, with an average monthly investment of 370 million RMB in 2018.

Date Source: Meituan Dianping 2019 annual report – Meituan’s ride-hailing driver related costs (million RMB)

In order to expand the market share quickly, Meituan launched a price war against Didi through subsidies in Shanghai and Nanjing. But the war did not last long since Meituan cut its subsidies shortly after. To maintain its market share in Nanjing and Shanghai, Meituan lost 50 million dollars per month. Additionally, the transportation sector intervened and warned Meituan against disturbing social order by starting price wars.

The Meituan Dache APP drained Meituan’s finances

According to the Q1 2019 financial report released by Meituan, the new Meituan business, including the travel business, spent 31.3% of the sales cost but only contributed 20.8% of the revenue. This added to a total loss of 439 million RMB in Q1 of 2019.

The cost of sales of Meituan new business decreased from 5.2 billion RMB in Q4 2018 to 4.4 billion RMB in Q1 2019 and the revenue also decreased from 4.2 billion RMB in Q4 last year to 3.9 billion RMB in Q1 2019.

As for the two financial figures, the report explained that it was mainly due to the significant reduction of subsidies for ride-hailing services in China in Q1 2019 and improved profit margins of new businesses and other divisions. Meanwhile, Meituan will continue to restructure mobike’s overseas business in order to reduce the loss of the bike-sharing business.

Merged to Meituan APP from Meituan Dache APP

Since late April 2019, although Meituan’s ride-hailing endeavor has once again been launched in Nanjing, Shanghai and other 17 cities, it is no longer the former Meituan ride-hailing APP. Meituan Dache was transformed from the self-management team to an aggregation platform.

The new Meituan ride-hailing APP in China provides travel services for users by accessing travel service providers such as Caocao travel service, Shouqi car-hailing service and Shenzhou special car service. This means that Meituan no longer did its own business, but instead became an aggregation platform.

Users can go directly to ‘ride hailing’ from the restaurant booking page, which allows them to call a car in real time or for reservation. Meanwhile, users can choose from a menu of car types including taxi, economy, comfort, business and luxury by Shouqi Taxi, Caocao Taxi and Shenzhou Private Car.

Source: Meituan App open interface

If the users of Meituan ride-hailing want to call a cab to a restaurant, they can also directly click the ‘ride-hailing’ button on any restaurant business page in the Meituan APP. The system will identify the location of the user and the address information of the restaurant, automatically fill in the starting and ending address. As a result, Meituan created a ‘one click’ solution to call a car directly to the restaurant, all within the same app.      

Didi Chuxing started its food delivery business in China

Source: losborgia.com – Didi launched the food delivery business in China

Didi Chuxing Technology Co., formerly named Didi Dache, is a Chinese transportation company. As the leading company in ride-hailing in China, Didi Chuxing (滴滴出行) launched its food delivery service locally. On March 6, 2018, the first 9 cities to launch Didi Takeaway (滴滴外卖) were Wuxi, Nanjing, Changsha, Fuzhou, Jinan, Ningbo, Wenzhou, Chengdu and Xiamen. Didi Takeaway wanted to win the first batch of merchants and users by reducing commission and issuing rewards. Wuxi city was the first target city for Didi, in June 2018, and then Didi entered Nanjing, Taizhou, Chengdu and Zhengzhou in July. Didi Takeaway has posted their discounted information on the platform, such as 1 RMB ice cream, 2 RMB tofu pudding and 2.5 RMB barbecue. These discounts have helped Didi attract many users in a short time. However, Didi failed to enter the sixth target city, Ji’nan, due to the low profitability in previous five cities.

So far, Didi has not entered a sixth city and the previous five cities are still operating normally. Nevertheless, according to consumers, because the subsidies lasted only a short time and there were only a few merchants in the app. Additionally, some said Didi poorly designed the interface of the takeaway platform, hence Didi delivery was largely forgotten in the market.

Didi has invested 1 billion rmb in food delivery service in China in 10 months

In December 2017, Didi launched their food delivery business in China. Some people think that as Meituan entered the ride-hailing market in China, Didi fought back by entering the food delivery Chinese market.

There have also been media reports that profitability of UberEats, a food delivery business run by its international rival Uber,  inspired Didi.

However, although Didi invested more than 10 billion rmb in food delivery business in China, the result wasn’t as good as expected. On 15^th February 2019, Cheng Wei, founder and CEO of Didi Chuxing, announced that Didi will focus on its most significant ride-hailing business in China, continue to increase investment in safety and compliance while improve efficiency, so the non-core business may be closed.

Didi will shift the market for its food delivery business abroad

Mobility in China is becoming more mature and competitive. As a result, companies try to develop into overseas markets. Didi launched its food delivery service ‘Didi food’ service in Osaka, Japan in April 2020.

Source: Twitter.com – Commercial of Activities by Didi post on twitter in Japan (Summer delicacies for you to eat! Activities in progress)

Meanwhile, DiDi Food announced its expansion to Aguascalientes, Toluca, Chihuahua, Torreón, and Saltillo in Mexico on 22th April, 2020. So far, the company has already been operating in Mexico City, Guadalajara, and Monterrey. The mobility in Mexico is still in its infancy compared to the mobility in China.

Additionally, Didi has expanded restaurant delivery service from convenience stores and pharmacies to encourage people to stay at home during the COVID-19 epidemic.

87% of restaurants in the Didi app are small and medium-sized enterprises. Sales of these partner restaurants have risen 45% since the lockdown began. So far, restaurant enrollments have increased to 75% per week, while delivery partner enrollments have increased to 250% per week.

Source: kr-asia.com – Didi wants to challenge Uber by bringing Didi Food delivery service to Mexico City

The challenges that Meituan and Didi are facing

Didi and Meituan are definitely the giants of mobility in China. However, there are still big challenges as they try to overlap the ride-hailing business and food delivery business in China.

As an instrumental APP, the simple platform of Didi is far from being a life-oriented aggregation platform, as it focuses primarily on ride-hailing. At present, users have not yet cultivated the habit of ordering food from Didi, since users are used to the aggregation platform like Meituan or Ele.me (an online food delivery service).

Different from the ride-hailing business in China, which basically needs only online operation and maintenance, Didi needs a large offline business develop team to expand its food takeaway market.

Also, it’s not easy for Meituan. The transportation bureau intervened and warned Meituan against disturbing social order by starting price wars on the day Meituan launched in Shanghai. They announced that all registered cars and drivers of Meituan ride-hailing business in China must obtain the relevant business license for online ride-hailing in Shanghai and the relevant data need be connected to the regulatory platform.

In addition, the Shanghai Municipal Commission of Communications, Municipal Public Security Bureau, Market Price Bureau also warned Meituan that they shall not disrupt the normal market order for the purpose of crowding out competitors or monopolizing the market by operating at a price lower than the cost. Meituan’s should change its advertising slogans such as “starting with one yuan”.

Wang Gang, CEO of Didi analyzed that the competition between Meituan and Didi is not just about ride-hailing business and food delivery business, but “a battle for access to secondary traffic”. Whether Meituan is involved in ride-hailing service in China or Didi is involved in food delivery service in China, both parties can take good use of their users’ consumption scenarios as the basis and form a data circulation system about their users’ consumption preferences for ‘basic necessities of life’. If successful, it will greatly enhance the development of mobility in China.

Author: Qing Zheng

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This article Mobility in China: Opportunities and challenges of when ride-hailing meets delivery is the first one to appear on Daxue Consulting - Market Research China.

China has been the world’s largest automotive market for years. That is why carmakers around the world are fighting to sell their cars to Chinese consumers. However, in a market mainly dominated by Chinese brands (42%), what are the trends and growth drivers that international carmakers can follow?

The automotive sector is one of the top pillar industries for China’s economy and a major employer. In 2019, for example, the automotive sector contributed 9.6% of the total retail sales of consumer goods. The sector also accounted for around 10% of total employment in China.

COVID-19 impact on the automotive industry in China: decline in sales

COVID-19 placed significant burdens on the automotive industry in China. Hubei Province where the outbreak started, accounting for about 9% of the country’s auto production. Wuhan, Hubei, as one of the key development cities of the country’s six major automobile industrial clusters, not only gathers many vehicle manufacturers, but also has more than 500 automobile parts enterprises.

The auto industry is especially facing major challenges both on supply and demand side—new passenger car sales in the Chinese market slumped by over 80 percent in February 2020. Forecast shows that China’s automotive market will decline 15.5% in 2020.

Data Source: Statista, PwC, China’s auto market size

China’s first quarter vehicle sales saw the biggest impact. According to the China Association of Automobile Manufacturers, sales of passenger cars declined 42.4% year over year during that period. SAIC, one of China’s largest manufacturers, reported a 44.9% percent drop year to date in April. Its SAIC-Volkswagen and SAIC-General Motors joint ventures, dropped 50.4% and 47.7% year over year in retail sales from January to April respectively.

Government policies to help the automotive industry in China

To stimulate the automotive market, government launched some policies. 10 cities released incentive schemes. For instance, Guangzhou announced a subsidy of 10,000 RMB for New Energy Vehicles sold between March and December. Additionally, a State-level subsidy to New Energy Vehicles was extended until 2022.

Epidemic highlighted imbalance of car brands in the Chinese market

The epidemic has exacerbated the imbalance between the various car brands. From January to March 2020, the total sales volume of the top ten enterprise groups was 3.295 million units. It had a year-on-year decrease of 41.7%, which was 0.7 percentage points lower than the industry decline. It accounts for 89.7% of total car sales, which is 1.1 percentage points higher than the same period last year. This shows that under the impact of the epidemic, the market share of small brands has shrunk even more.

A phenomenon worth noting is that compared with last month, the sales of major foreign brands also showed a rapid growth, of which the growth rate of Korean brands is particularly significant.

COVID-19 boosted electric cars market

China’s reaction to the crisis shows a commitment to new technologies, signaling how the crisis could build resiliencies moving forward. The real opportunity after COVID-19 lies in the shift from internal combustion engines to cleaner, electric vehicles in China. China is set to keep its long-term strategic goals for automobile electrification and meet climate change goals set by the Paris Agreement.

In March 2020, the production and sales of electric vehicles were also significantly better than that of the previous month. The growth rate was rapid and the year-on-year decline was narrower than that in February. For example, electric car maker Wei Lai released the delivery data for March 2020. The delivery volume reached 1533 units, an increase of 11.7% year-on-year and an increase of 116.8% month-on-month.

The auto industry in China slowly rebounds back

On February 2020, due to China’s recovery from the coronavirus outbreak, car companies ushered in the first wave of resumption of work. They include Geely Automobile, Great Wall Motor, Changan Automobile, Xiaopeng Automobile, Weilai Automobile, Tesla Shanghai Super Factory and so on. The outbreak of the epidemic has also made car companies pay more attention to the online car sales model. Many brands have launched online car purchase activities during the epidemic, thereby stimulating consumers’ desire to consume.

In March 2020, as the industry’s orderly resumption of production, the monthly production and sales volume rebounded significantly, but still did not reach sales level of 2019.

Data Source: China Association of Automobile Manufacturers (CAAM), China car sales 2019/2020

Retail sales of light passenger vehicles also surged ahead in March, as reported by the China Passenger Car Association. Year over year, March 2020 sales were still below 2019 levels, but 26%, not the 80% drop seen in February. Sales in April 2020 have begun to catch up with just a 2% drop year over year.

Automotive brands show signs of recovery

From the perspective of different brands, Changan Automobile sales reached 119,000 in April 2020, an increase of 32% year-on-year, ranking first. In April, the company achieved sales of 105,400 units, an increase of 44% month-on-month and 2% year-on-year. Great Wall Motor sold a total of 81,000 new cars in April, an increase of 35% month-on-month.

Chery Automobile increased by 15% month-on-month in April 2020, but continued to show negative growth year-on-year. 

Volkswagen’s China terminal sales in April 2020 were 16.57 units, an increase of 9.9% year-on-year and an increase of 41% month-on-month.

Weilai (also known as NIO) delivered 1,533 vehicles in March 2020, an increase of 117% QoQ.

Data Source: China Automobile Association, Weilai sales January-March 2020

Therefore, key automotive brands show the signs of recovery, however this process will take time.

In 2020, mainstream automakers supposed to have many new models launched on the market. However, due to the impact of the coronavirus epidemic, it is difficult to carry out offline listing activities such as test drive, auto show, and press conference.

Data Source: China Automobile Center, Summary of originally planned models to be launched in the first quarter of 2020

Chinese auto industry still has big potential

Despite the significant impact of COVID-19 on China’s automotive industry, the market potential is still quite huge. China is still expected to become the largest vehicle market with around 260 million units in operation. At 173 units per person now, there is room in China for more light passenger vehicle purchases.

However, after COVID-19, the market will definitely not simply snap back to where it was before the pandemic. According to a forecast from IHS Markit , light vehicle sales will decline 15.5% in China for 2020.

Why 2018 was a turning point for car manufacturers in China?

For the first time in twenty years, sales in the automotive industry in China are declining

In 2018, for the first time in 20 years, China saw its new car sales decline by 2.8%. In 2017, 28.88 million cars were sold in China compared to only 28.08 million in 2018.

Sales in most provinces of the China declined in 2018 except Guangdong, which saw an increase of 5.3% compared to last year, which can easily be explained by the rapid development of the local economy (Guangdong has had the highest GDP for 29 years in China).

Despite this decline, China remains the world’s largest automotive market, accounting for about 30% of total global car sales in 2018. Compared to the 28 million cars sold in China in 2018, only 5.2 million cars were sold in Japan, 16.5 million in Europe and 17 million in the United States in 2018.

But then what explains this decline in car sales in China?

Alternatives to cars are increasingly successful in China

One of the main reasons for the decline in car sales in China in 2018 is that there are many relevant alternatives. Chinese car shoppers are increasingly value minded and open to the alternatives to buying new cars. Moreover, the younger generation of Chinese is increasingly sensitive to environmental issues and tend to consider more environmentally friendly options.

In recent years, car-hailing apps have been gaining popularity in China. By the end of 2018, there were more than 100 car-hailing platforms in China, and the total number of car-hailing app users has exceeded 330 million.

This is the success of car sharing apps such as Didi Chuxing or bicycle sharing apps such as Mobike, which have seen their number of users increase in recent years:

Didi Chuxing

Didi is now one of the main alternatives to owning cars in China.

The business model of this Chinese transportation network company can be compared to Uber’s model. The cost of fares is very low and the simplicity of the service, easily ordering a fare on the app, make China gradually becoming the largest ride-hailing market in the world, with a value of US$30 billion.

In 2018, Didi held more than 80% of China’s ridesharing market.

Mobike

Mobike, a fully station-less bicycle sharing company in China, also offers a great alternative to private cars in China, especially in big cities.

Bikes are often used to connect to buses and subway stations, what we can call intermodality. For example, in Shanghai, approximately 1 in 5 users take bikes to make subway and bus connections (Mobike, 2018).

Thus China has now become the leading country both in terms of ride sharing and bike sharing in 2018, and this can be bad news for car manufacturers in China.

Second-hand car market shows growth in China

The Chinese craze for used cars is also an essential reason for the decline in car sales in China in 2018.

In 2018, second-hand car sales in China rise with a growth of 11.5%. Sales are even expected to reach over 20 million in 2019.

As consumers prioritize value for money, they become more price conscious and lose confidence with spending. Online marketplaces for second-hand cars, like Renrenche (人人车), Uxin (优信) or Guazi (瓜子), are also developing fast and allow customers to find the best price quickly without having to visit multiple brick and mortar shops.

Despite this, consumers continue to buy private cars in China, whether for practical reasons or for pleasure. According to the graph below, 58% of them buy a car to travel comfortably on holidays. Driving has been a very popular way of travel (average 300km) in China. In Tier-3 and Tier-4 cities, the school bus hasn’t been very popular, so many parents also need safe and convenient transportation for their children.

New-energy vehicles in China have become very trendy

Electric cars sales are increasing

Electric or hybrid cars have been very successful in recent years in China, thanks in particular to the support of the Chinese government but also because buying an electric vehicle avoids the cost of purchasing a license plate, which is a considerable saving.

In 2018, the sales of new energy vehicles in China consistently grew reaching 1,25 million units sold.

Buyers of new energy cars in China are mostly urban and young: 40% of China’s electric car sales in 2018 came from 6 large Chinese cities which are Beijing, Shanghai, Shenzhen, Tianjin, Hangzhou, and Guangzhou because of the awareness of the pollution problems inherent to combustion vehicles and the gasoline-car restrictions that have been implemented in these cities. Most of them are also the first person in their family ever to own a car.

China’s biggest electric carmaker: BYD

BYD Company Limited was China’s top-selling electronic car manufacturer in China in 2018. Created in Shenzen in 2003, the brand launched its first electric car model, the E6, in 2011.

In 2018 BYD sold a total of 520,687 cars in China including 247,811 electric vehicles, achieving a year-on-year jump of 25%.

The best-selling BYD model in China in 2018 is the Song, 91,426 units sold, for an average price of $28,000.

BYD’s marketing strategy in China is to develop a flexible and segmented offer to reach a wider audience: BYD then decided to go on all-in on hybrid rather than pure electric with one of its model, ‘Qin.’ It is a more flexible option for consumers, who can drive it as an electric car for their daily commute and reach much farther distance without having to worry about charging.

Thanks to its various plants in China the company also has a competitive advantage to integrate all of the key components in-house. And with the help of subsidies, BYD has been able to build economies of scale, pushing down their cost per unit and allowing them to spend more on research and development.

High-connectivity: Cars in China have to be mobile-first

Connected vehicles in China have to be mobile-first

A connected car is a vehicle connected to the Internet through its communication system. It allows the driver to connect his smartphone to the car, but also the car itself to connect to the surrounding cars and infrastructure.

Since China is a mobile-centric nation with mobile commerce representing a quarter of the country’s overall retail market ($1.5 trillion in sales in 2019), it is normal to find this requirement in the 2018 car trends in China.

Thus the global connected-car market in China is expected to grow 270% by 2022 and 41 million people will make use of in-car connectivity by 2021.

According to a 2017 Kantar TNS study, 79% of Chinese respondents plan to buy a connected car in the future, compared to about 50% for Americans and Europeans.

According to Jack Ma, Alibaba’s chairman, there is no doubt that the future of cars in China is high-connectivity:

‘’Today, 80% of your smartphone’s functions are not relevant to making phone calls or conversation. I believe that in the future, a car will have 80% of its functions not related to just transportation.’’

But Chinese consumers are more and more difficult to please in terms of connectivity services; they are seeking innovative in-car services and are even ready to pay subscriptions for content.

Which is why automakers and tech giants are all racing peers to new tech horizons!

Integration of Alibaba’s Tmall Genie in BMW vehicles

The partnership between BMW and Alibaba is an excellent example: Alibaba Group’s smart assistant, Tmall Genie, will launch in select vehicles from the BMW Group in China by the end of the year.

Tmall Genie will be fully integrated into BMW vehicles, offering drivers several entertainment and shopping options in the car. Drivers will be able to use Tmall Genie to buy online, watch movies, listen to music, check the weather or make appointments appointments in BMW.

Top innovative car brands in China

Volkswagen in China has delivered its 30 millionth car to Chinese customers

For the company which connection with China started in 1978, 2018 was a real milestone. They achieve sales record with 4.21 million vehicles delivered to customers in China including 196,300 imported cars, which corresponds to a + 0.5 % evolution compared to 2017.

The best-selling Volkswagen model in China is the Lavida with 504 000 units sold in 2018, a 4-door sedan which has been sold exclusively in China since 2008. Depending on the generation, its price is between 110,000 RMB and 160,000 RMB.

Because Volkswagen was the first foreign car manufacturer in China, it can now compete directly with Chinese competitors. And the brand’s communication strategy is really to emphasize this authenticity and improves its reliable brand image.

To do that, SAIC Shanghai Volkswagen wants to show how close to Chinese consumers it is.  At the end of 2018, a campaign announcing the launch of new models then revealed a desire to align the brand’s image with China’s powerful economic growth:

The timing of the publication, that was the 40th anniversary of the policy of openness and reform, was ideal.

To attract the growing target group of young, middle-class customers, Volkswagen also decided to launch JETTA as a brand in February 2019 (it was only a Volkswagen model before). The idea is to target first-time buyers, who account for 81% of the customers in the entry segment, by offering high quality, safety, stable value, and fresh design. In 2018, the brand also announced the launch of the SOL brand in partnership with the Chinese auto manufacturer Anhui Jianghuai Automobile, whose first model is an electric SUV.

Geely in China: ‘’Making Refined Cars for Everyone’’

Geely enters the automotive industry in China in 1997 and is now among the 500 largest companies in China. In 2010 Geely group bought the Swedish carmaker Volvo.

In 2018 Geely sold 1,500,838 units in China, an increase of 20.3% from 2017 and had a 6.9% market share.

The brand has a very young customer base with 51% of customers born in the 1990sor later, it’s a new generation of young innovative consumers who have a global vision and a global mindset. Thus, Geely communicates on high connectivity and ultra-modern design to directly target this audience. They often highlight their design teams and the famous designer Peter Horbury they work with to show their modernism.

The best-selling Geely model is the Bo Yue, a compact crossover SUV with 255 695 cars sold in China in 2018.

Geely is now trying to expand internationally by developing its battery manufacturing business with CATL Geely Power Battery Co. Ltd and acquiring new foreign brands like Proton’s Norwich-based subsidiary Lotus or Daimler recently. The brand also invests heavily in new energies cars with its ambitious project Blue Geely, wanting 90% of its sales to be consist of Evs in 2020.

Landrover in China: designing ‘’China SUV of the Year’’

Jaguar Land Rover entered the Chinese automobile market in 2010 and has witnessed exponential growth each year until 2018. A total of 492,388 Jaguar Land Rover units were sold in China in 2018.

Land Rover’s strategy in China is to demonstrate a commitment to the Chinese market by offering unique designs and models that meet consumer requirements and preferences. That is why in 2012, JLR entered a joint venture with Chery Automobile Company to manufacture Range Rovers to build vehicles designed specifically for the Chinese market (Jaguar XFL and XEL are good examples). Thanks to this, Land Rover in China has won numerous awards that allow it to raise brand awareness:  recipient of the 2018 ‘China Reputation Award’ for the second time, Range Rover Velar wins ‘China SUV of the Year’ and ‘China Car Design of the Year.’

How do carmakers promote their cars in China?

Offline promotion: How to keep a substantial brick and mortar presence for car manufacturers in China

Offline promotion remains very important in the automotive industry in China today. Indeed, despite the development of the massive development of e-commerce and m-commerce in China, nearly 90% of car purchases were made at 4S stores in 2018. This means that Chinese consumers still appreciate contact with sellers and want to be able to go to offline stores to get information and buy a car.

• 4S stores in China

4S stores are today the most popular distribution channels for the vehicle brands in China. There are more than 28,000 4S stores in China. They have dominated the offline purchase channels in tier-1, tier-2, and tier-3 cities; now they are expanding to tier-4, tier-5 cities and rural areas.

Consumers choose 4S stores as they provide all in one service: ‘‘4S’’ means Sale,  Spare part, Service and Survey. So, they cover all business related to vehicles such as sales (new cars and second-hand cars), maintenance, car wash, auto finance, car rental, etc.

It is also interesting to note that the competition among 4S stores is increasing, trying to fight on price, discount activities, test-drive services and insurance.

• Exhibitions, events, and shows: the entertainment marketing strategy

There are more and more events and exhibitions in China that attract millions of people each year. For instance, Auto Shanghai, the Shanghai Motor Show which has made its mark among international shows, host every two years more than 900,000 visitors from 18 countries. The 2019 edition is currently being held (April 23-28).

Automotive shows are an excellent way to stand out from the competition and showcase its best models to demonstrate the brand’s research and development capabilities.

Despite their international scope, the domestic players are most active at these shows with more than 70% of new products produced by Chinese carmakers.

• Showrooms, storefronts and flagship stores

Car manufacturers in China are now investing more and more in showrooms in major cities to impress consumers: stores are no longer just places to buy cars but luxury spaces to live a real experience.

In 2018 NIO invested CNY80 million (USD11.7 million) in a store in the iconic Shanghai tower and paid more than CNY100 million annual rent.

The brand also pays a yearly rent of about CNY80 million for a shop in Beijing’s Oriental Plaza mall.

Online promotion: Using KOLS and social media to boost your sales in China

In China, websites and social media are dominating the promotion channels for vehicle brands in 2018.

With a perfect online service layout, automotive E-commerce platforms have real marketing advantages. Automotive E-commerce represented by Youxin, Emao, and Taobao makes full use of the business sector (new cars, used cars and auto finance). They are user-centric, E-commerce data-based, product and service innovation-oriented, aiming at creating a  full life cycle Eco-marketing platform. It is a good source of information before buying a car in China.

Also, almost half of consumers obtain information about cars from automotive websites, since those websites usually have comprehensive knowledge about car brands and models.

On social media, young auto enthusiasts (post-90s and younger) have a stronger willingness to share content about vehicles with others. Half of the auto enthusiasts spend 5-15 minutes on every online post (website and social media) about vehicles.

Social networks have therefore become strategic for car promotion in China. This is why many brands now use KOLs (Key Opinion Leaders) to convey messages in a more subtle way. Indeed, more than 70% of vehicle consumers follow at least three KOLs, their purchasing behaviors are highly influenced by KOLs’ opinions and experience.

New retail: How the Alibaba strategy applies to the Chinese automotive market

New retail in the automotive market in China is more consumer-centric.  This is a trend that has been widely followed by car manufacturers since the success of Alibaba’s New Retail strategy launched in 2016.

By collecting consumers’ data (such as interests, price and design preferences), vehicle brands are able to provide cars, auto-configuration and services based on consumers’ requests. Thus, the consumer’s journey is shorter because the touch points are blended: for example, Wechat content is now a touch point for each step of the car buyer journey in China.

This is the strategy that Ford decided to implement in partnership with Alibaba: they launched the Super Test-Drive Center in Guangzhou to allow people to buy a car from a staff-less machine in under 10 minutes.

Customers just have to go to the Tmall app and choose the model they want to test-drive via the online catalog. To register, customers must take a picture of their face and once in the store, once the customer shows their face to facial recognition,the car chosen online arrives from the multistory structure. Then, the customer can test the car for a few days (3 days max) and order it online.

How could international carmakers improve their marketing strategy in the Chinese market?

Target a young audience

New cars buyers in China are young and connected consumers. As they gain purchasing power, they are the future of the Chinese automotive market.

Do not neglect offline communication channels

The paradox of the explosion of e-commerce in China is that buyers are still demanding physical presence or human contact. Thus, offline channels must be up to the task.

Keep a close eye on your online reputation

Control your reviews and comments and opt for an influence marketing strategy because brand reputation plays a vital role in the buying cycle of a car in China.

Rely on well-made design

Content and design provide an important first step in customer experience in China in 2019: work on a modern and sophisticated design for your website, your products, and your communication.

Leverage to e-commerce and new retail

For automakers, innovation linked to the e-commerce platforms and deepening relationships with end users will be key to benefit from the increasingly technology-enabled car market in China.

Author: Steffi Noël

Daxue Consulting offers further analysis of the automotive market in China with a forward-thinking approach to topics such as digitization, high-tech implementation, artificial intelligence, and many others. To know more about the evolution of the automotive industry in China, do not hesitate to contact our project managers at dx@daxueconsulting.com.

This article Automotive industry in China: How carmakers compete for first place is the first one to appear on Daxue Consulting - Market Research China.

How COVID-19 impacted China’s aircraft industry

The darkest period of China’s aircraft industry

The epidemic has frozen China’s aircraft industry. Chinese domestic residents were scared of the contamination during  travel. As for expatriates and Chinese students who study abroad, it was nearly impossible for them to fly back to China as Chinese authorities closed their borders and implemented the ‘Five One policy’. Hence, the sudden drop in passengers cut off China’s aircraft companies’ cash flow and exposed them to the risk of bankruptcy.

Source: daxue consulting, China’s five-one airline policy during the COVID-19 pandemic

During the Chinese New Year holiday, the occupation rate of flight seats was about 80%, which however decreased to under 60%, and even 40% after the outbreak . In February, China’s aircraft industry lost about 1.2 billion RMB in the domestic market and 300 million RMB in international market every day. If we have a look at the medium-term impact of COVID-19 on the sector, the escalating loss totaled more than 100 billion RMB until May. Thus, there is no doubt that the Coronavirus caused long-term impact on China’s economy and it will need three to five years for China’s aircraft industry to tide over this dark period.

Source: cannews, immediately following the announcement of COVID-19, the domestic flights on January 24^th to 28^th experienced a major gap in supply and demand.

The self-rescue plans of China’s aircraft companies

It was urgent for China’s aircraft companies to take measures to stop the bleeding of resources. Many companies called their jets to an emergency halt to reduce the cost of staff and fuels due to the poor occupancy rate and complicated isolation regulations. Thus, the risk of bankruptcy forced Chinese aircraft companies to implemented technical and organizational transformation. Many of them targeted live webcast to sell discounted tickets, headrests and some special products. It is surprising that the self-rescue plans worked, and they got money to compensate the loss and maintain normal operations.

The outbreak of COVID-19 boosted China’s online shopping market, and the live-streaming is the key to open the door towards Chinese netizens. Therefore, many China’s aircraft companies sold tickets by using Chinese KOLs or creating their own livestreaming rooms. For example, during China’s 6.18 shopping carnival, China eastern airlines promoted a new weekend ticket, which is valued 3,322 RMB and allows passengers to fly to any mainland city until 2021. This promotion piqued Chinese consumers’ traveling desire, and they sold more than 100,000 tickets in one single day! Through these successful self-rescue activities, China eastern airlines not only raised about 300 million RMB cash, but also increased the number of travelers. 

The private jet market has soared in China

After the epidemic has paralyzed China’s general aviation, more flexible and safer private jet has become the first or even the only option for many people, creating the busiest quarter in the history of China’s private jet market. Many wealthy Chinese students who were stuck abroad during COVID-19 chose private jets to come back to China and the price of private jet charter rose dramatically. For instance, the number of foreign private jets flying to China increased 227% during Q1 2020, compared with Q1 2019. Additionally, the price of chartering a private jet with 14 seats rocketed by 30% from 1.35 million RMB to 1.74 million RMB in March. Some student even paid an astonishing 180,000 RMB for a ticket home.

More and more Chinese wealthy choose private jet as their transport tool since it is more convenient and shows a sample of status at the same time. After the outbreak of COVID-19, private jet charter users increased by 300%, and 80% of them were newcomers. Apart from the soaring of private jet market, Chinese billionaires also squandered money on private jet purchasing. Among 466 business jets in greater China, there were 163 private jets owned by 113 Chinese billionaires, which increased by 34 from the year before. Therefore, the vice president of OHFLYER, Haiyang Wang, said that the demand of private jet in China will definitely be higher than before COVID-19.

The development of China’s aircraft manufacturing

The Chinese plane-makers’ fight back against western manufacturers’ grip on the sector

For the past decade China, has been developing its own planes to cast off western manufacturers’ cord on the sector. But the planes made by Commercial Aircraft Corporation of China (Comac), the ARJ21and the C919, have been plenty criticized. It is believed that Chinese-made jets will not rival those of Boeing and Airbus in the short-term. With only 90 seats, the ARJ21 has been rejected by the aircraft industry as inferior to planes from other aircraft manufacturers due to frequent delays and loud noise. On the other hand, the C919, Comac showed  bigger ambitions. Carrying up to 168 passengers, the C919 is designed as China’s first large aircraft to compete with Boeing’s 737 Max and Airbus’s A320neo. Furthermore, Comac is developing a third plane, the CR929, cooperating with Russia, and it is scheduled to be delivered in 2021. However, there still are some risks that Boeing and Airbus will also roll out their new high-performance planes when the CR929 entered the market.

Despite criticism, as a state-backed company, Comac is full in potential with high-tech aircraft manufacturing. It is not strategically correct to underestimate Chinese ability to penetrate the aircraft market. “The aircraft landscape is likely to shift from a European-Us manufacturing duopoly to accommodate a third part, and that’s probably the Chinese.” Shukor Yosof, founder of aviation advisory firm Endau Analytics originally told BBC.

Which markets are China’s plane-makers targeting?

As of now, Comac has received about 815 commitments for the C919 from 28 Chinese airlines and domestic leasing firms. Besides, its main partners are China’s three major airlines, Air China, China Southern and China Eastern.

Right now, only China’s aviation regulator has certified its jets to fly. As for foreign market, its jets may also operate in parts of Asia, Africa and South America that recognize Chinese certification. Then the permission from the US Federal Aviation Administration (FAA) and the European Aviation Safety Agency (EASA) are necessary for it to expand beyond those markets. However, western countries’ green light is still far from certain. Hence, turning around from international market, Comac mainly targets the greater China and foreign zones certificated with fly permission.

Challenges encountered by China’s aircraft manufactures

The main challenges of China’s national aircraft manufacturing companies, like Comac, are technological problems and high cost of components. Taking the C919 as an example, the development of the plane stemmed from 2007, cooperated with more than 200 companies and involved more than 20,000 people. Yet the engine of the C919 is manufactured by French SNEMAC and American GE. Thus, the mismatch of high-cost and low-performance makes China’s plane-makers lack of competitiveness. At the same time, getting the green light of foreign aviation regulators is also a big puzzle, which takes a long time and is full of uncertain.

As for small and private aircraft manufacturing companies in China, their biggest challenge is not about aircraft-related technology, “but getting the license from Civil Aviation Administration of China (CAAC),” Deng Chunpeng, general manager of a private aircraft producing company says. It won’t take a long time for them to solve technical problems like airframe design, the development of engine and components packaging. But the licenses including Production Certificate (PC) and Type Certificate (TC) will take years to get.

The expansion of China’s airport infrastructure

The gap between China’s economic development and airport construction

The U.S, Australia, and Canada have 20,000, 2,000, 1,200 general aviation airports respectively, but there were only 235 in mainland China in 2018. As of 2020, China has programmed and built 244 airports, with a 3.7% annual growth rate. Obviously, the development of China’s general aviation industry is not keeping pace with its overall economic advancement. As for long-term prospects, until 2025, China is planning to strengthen the air transport hub effects of Beijing, Guangzhou and Shanghai airports, and connect 93.2% cities of China.

Source : chyxx.com, The development of China’s general aviation airports

The construction of Beijing Daxing International Airport is aimed to stuff the gap between China’s economic soaring and airport infrastructure. As China’s air transport pivot, Beijing Capital International Airport had become the second airport annually receiving more than 100 million tourists, behind the United States’Atlanta International Airport. However, this airport was built in 1958, which means obsolete facilities cannot support such enormous pedestrian flow anymore.

The Beijing Daxing airport

Occupying 1.4 square kilometers and invested 80 billion RMB, Beijing Daxing International Airport has been dubbed “the 7^th wonder of the world” by the Guardian. Owning such a laurel is not merely because of its immense terminal, but also advanced facilities and user-friendly designs. It is able to annually receive 100 million passengers with four runways for large aircrafts.

As for the interior, passengers just need 8 minutes to arrive at the furthest boarding gate after passing the security check. Besides, Daxing airport’s creative layout largely reduces travelers’ transfer time: 30 minutes for domestic transfer, 45 minutes for international transfer and 60 minutes for domestic-international transfer. So far new airport subway line has been in operation, commuting from south center city in 40 minutes. Therefore, the completion of Beijing Daxing International Airport has eased the air traffic pressure of Beijing, and symbolized China’s efforts on airport construction.

The distribution of China’s aviation network

Beijing-Tianjin-Hebei, Yangtze River Delta and Pearl River Delta are the hubs of China’s aviation network. In recent years, relying on Chinese government’s strategic supports and rapid economic development, Chengdu-Chongqing and Xian account for increasing proportions. In China’s airports passenger flow rank of 2019, the top 5 were Beijing Capital International Airport (100 million passengers), Shanghai Pudong International Airport (76.1 million), Guangzhou Baiyun International Airport (73.4 million), Chengdu Shuangliu International Airport (55.8 million), and Shenzhen Baoan International Airport (52.9 million).

Although the Chinese government suspended all flights to Beijing due to the second outbreak of COVID-19 in mid-June, China’s aviation network won’t change noticeably for the long-term.

Takeaways of China’s aircraft industry post COVID-19

The COVID-19 outbreak is the bust of the century for the global aircraft industry, and China, of course, cannot escape from the misfortune. The shock caused by the epidemic on the sector will need three to five years to adjust. On the positive side, the huge potential market will definitely boost China’s aircraft industry recovery. Besides, thanks to their successful self-rescue plans, many Chinese airlines maintained their cash flow’s normal operation and stimulated people’s traveling desire.

However, China’s aircraft manufacturing and airport infrastructure didn’t follow the pace of economic advancement. China’s plane-makers need to implement technological transformation to improve their aircrafts’ competitiveness, and Chinese government need to speed up the airport construction. If you want to get more information about China’s market, please email dx@daxueconsulting.com

Author: Olivier Liu

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Real Estate in China is in a Downward Spiral

Chinese real estate investors have struggled with unfavorable market conditions long before the outbreak of COVID-19.

COVID-19 is only “hastening widespread structural changes” to the real estate market, as expert and journalist Mark Cooper observes.

Chinese policymakers, foreseeing dangers in the country’s financial system, have cracked down on corporate borrowing. In an effort to bolster China’s slowing economic ascent, Beijing regulators have introduced ‘de-risking’ initiatives to curb risky lending practices.

This long-term campaign has effectively reined in investors who are now limited in their borrowing and financing powers.

COVID-19 marks a compounding of pressures on the already-slowing commercial property market in China.

COVID-19 Pushes Changes in Consumer Behavior

While the Chinese commercial real estate sector is subject to nationwide regulation, it relies heavily on consumer behavior.

It comes as no surprise that consumers are acting differently amidst a global pandemic. Shopping center footfall has decreased by as much as 90%, and hotel occupancy has similarly plummeted.

Wakeman and Cushfield data reveals downward trajectories in office rentals and prices as office workers across the country are working from home.

Additionally, Real estate transactions for new construction homes in Shanghai between February and March decreased by 56% compared to last year.

Home sales, in particular, have been adversely affected. The Wall Street Journal cites a sales decrease of around 90% from the same period in 2019. Buyers and renters have been unable or unwilling to view properties, which has driven the closure of showrooms. Consumers are more likely to tighten their purse strings, further depressing the demand for new homes.

COVID-19 and its surrounding conditions have ultimately discouraged consumers from pursuing property rentals and home purchases.

Companies Adopt Reactionary Tactics

To respond to the decline in interest, real estate developers have adopted incentivization tactics to convert reluctant customers.

Forbes reports that developers have implemented drastic pricing measures to entice hesitant home buyers during this time.

Evergrande Group, the third largest Chinese developer by sales, slashed its home prices by 25% in February and 22% in March. The company successfully bucked the trend of plunging home sales.

Image Source: Caixin, Data source: CRIC, COVID-19 impact on the Chinese real estate market

Other industry leaders are extending their terms of service to entice customers. Real estate giants like Country Garden and Sinic Holdings have begun offering 30-day cancellation periods to provide a risk-free incentive for buyers.

Caixin Global also reports that property developers are stepping up their borrowing through bond sales. By issuing bonds, companies are taking advantage of lowered rates and increased liquidity to endure the housing slump.

According to Reuters, local governments are selling prime real estate to buttress their revenues. Smaller property firms are similarly liquidating their assets by selling their land.

In a show of optimism, some larger developers are shrugging off their sales decline as a short-term predicament and purchasing these freed-up properties.

As such, large development companies are either reacting to the crisis or leveraging its effects for future benefit.

Commercial Real Estate Industry Could Recover Despite COVID-19 Setbacks

A sense of optimism seems to be a common thread among commercial real estate companies and investors.

Major developers like Evergrande are undeterred by their performance in the first quarter, continuing to set their goals as high as 30% more than last year.

Analysts are also remaining hopeful about the Chinese commercial property sector. Guangzhou-based GF Securities speculates that “the outbreak has merely postponed demand in the market, demand that will return.”

The market had already seen some recovery by March, when the sales of the top 100 developers had surged 136% from February. Stay-at-home restrictions are being increasingly relaxed, and the rate of infection in China has rapidly slowed and the economy recovers. Many see this as a sign that market normalization is on the horizon.

However, China’s real estate market is one that continues to fight an uphill battle. As policymakers have committed to “prudence in the property sector,” and as COVID-19 rages on as not only a nationwide but global crisis, it may be wise to remain cautious about growth in commercial real estate.

Author: Emily Landkamer

Emily Landkamer is an Editorial Associate for Clutch, a B2B research, ratings, and reviews platform in Washington, D.C. She writes content on the accounting sector to help businesses make an informed decision about accounting and properly budget for their operations.

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Burberry’s China market entry strategy

In September 2010, Burberry bought out its first Chinese franchise partner in a £70 million deal, giving it greater control over its presence in the country. As of now, Burberry has over 57 stores in 31 cities in mainland China, including eight in Beijing, nine in Shanghai and three in Hangzhou. As China’s share of the global luxury market expands further, from 33% in 2018（when Chinese luxury consumers spent about $122 billion on high-end goods） to 41% in 2025 (when Chinese luxury consumers will spend between $173 billion and $181 billion), giving Burberry more market growth potential in China. Burberry’s strategy to enter China’s luxury market is mainly as follows.

Franchising

As a medium-cost method with rapid expansion, franchising is regarded as an increasingly critical method, which helped Burberry to enter the China’s luxury market with professional, local management. Franchising gives retailers the opportunity to build a global business in a short time. At the same time, franchising does not bring huge financial pressure on the domestic retail business.

However, the main drawback of franchising is the lack of control over the brand. Thus, it is crucial to find a right partner to eliminate possible control difficulties.

Flagship stores

Opening a flagship store is a method to enter China’s luxury market with the highest level of control and involvement, emphasizing branding rather than generating profit. Two years after seven openings of flagship globally in 2012, the “Dreams of London” was introduced in Burberry’s China flagship store in Shanghai. In the flagship store, products equipped with high-tech chips trigger multimedia content in the mirror, which displays the in the brand showroom.

Inspired by the global flagship store at 121 Regent Street in London, the space combines the best of British craftsmanship and materials. Burberry’s flagship store in China showcases the extraordinary performance of the brand, helping Chinese luxury consumers feel the multi-sensory image of the brand, aiming to increase brand awareness and achieve brand resonance.

Source: luxuo.com, Burberry Opens Flagship Store in Shanghai

At the beginning of expansion of Burberry in China, as the market knowledge and management experience acquired in the western countries may not be appropriate, Burberry tended to conduct marketing through low-control intervention, such as wholesale, franchising, concession, etc., to test the market reaction. After a few years, when the retailer had accumulated enough local experience and knowledge, it decided to accelerate its organic growth through the use of franchises and bring operations in-house. This has allowed Burberry to tighten its grip on brand identity at different times. Thus, maintaining the global exclusivity of the brand image.

E-commerce in China

Internet sales help international retailer measure its international sales if it decides to open the physical store in a new foreign market. As a market entry method to enter China’s luxury market, internet is a form of export that enables retailers to promote their products beyond the country of origin through online platforms, mobile devices and social media and establishes a direct and mutual relationship between retailers and consumers.

Burberry in China has accumulated about 1.51 million followers on Weibo, a very popular Chinese social platform, and the number of followers on Tmall sales platform has now reached 2.16 million.

Burberry launched its Wechat Mini program on Wechat on Chinese valentine’s day (Qixi) in 2018, the mini-program campaign takes the form of a game. The campaign encourages fans to play the game with their partners. After completing the game, users will be able to get access to Burberry’s latest collection, including two Qixi bags sold exclusively in China.

Source: Jingdaily.com – Burberry Launches 2 Handbags Just for China on First WeChat Mini-Program

Late last year, Burberry and Chinese tech giant Tencent struck an exclusive partnership to develop social retailing in China. Burberry and Tencent will pioneer a concept that combines social media and retail to create digital and physical Spaces for participating communities to interact, share and shop.

Burberry’s first step will be to open a store backed by Tencent technology that offers a unique experience that connects the social and online lives of luxury customers to their physical environment. This will be a unique testing and learning space, serving as a laboratory for experimental innovation that can be extended to other parts of network of Burberry in China.

Source: Burberryplc.com – Burberry and Tencent enter into exclusive partnership to develop social retail in China

Current strategy in China

In the past, Burberry in China has tended to adopt a low involvement and control approach to enter China’s luxury market, such as franchising, licensing and concession, to maximize its market share and sales. Having accumulated a lot of resources and experience, Burberry has recently started to use overseas partnerships to further increase revenue and brand equity through stricter control of its flagship, self-owned and other wholly-owned stores.

Target customer in China

McKinsey estimates that China’s luxury spending will nearly double between 2020 and 2025.

From the perspective of age, the post-’80s (Generation Y) accounted for more than half of the consumption of luxury goods in China, making them the main force of luxury consumption in China. In addition, two-thirds of the post-’90s generation (Generation Z), who tend to be only children because of the one-child policy, said their parents (mapping as Generation X) approved of luxury purchases.

In addition to target Generation Y (the current luxury consumer main force), Burberry also sees the potential of younger consumers. From the perspective of Burberry’s entry strategy and marketing strategy in China, Burberry has been continuously entering into various popular social platforms in China and launching events with advanced technology on the social platforms for young Chinese generation, such as the events held on WeChat Mini Program, which are deeply favored by young Chinese generation.

China, the fastest-growing market for luxury goods, continues to be underpinned by a growing middle class and the latest sign that consumers remain confident.

Marketing strategy in China

Multi-channel marketing strategy in China

Burberry sells five product categories (accessories, Women’s, men’s, children’s and beauty) in three strategic regions, Asia, EMEA and the US, through both online and offline channels. Although the global revenue of Burberry in 2018 reached 2,733 billion dollars, decrease by 1% compared with last year, luxury sales in Mainland China increasing by 20% in 2018.

The revenue from offline channels is larger than that from online channels in China; however, it is a significant channel to create a seamless brand display. Burberry adopts a multi-channel marketing strategy in China combining online and offline.

Physical store

So far, Burberry has operated 57 stores in 31 different cities of China, including two pop-up stores and one flagship stores located in Shanghai. Physical stores are likely to bring about a number of functions that cannot be replaced by online channels. The purpose of in-store shopping lies not only in goods acquisition, but also in the shopping experience, the social activities, as well as the entertainment.

Burberry’s stores in China are designed to provide customers with superior customer service and experience. Also, offline stores still account for the majority of its revenue. However, for Chinese luxury consumers buying brands like Burberry, offline stores can also help solve the problem of counterfeiting.

Integration of online channels

Despite its crucial contribution, the influence of physical stores might be geographically limited. Thus, the integration of online channels helps to create a comprehensive channel to communicate products and enhance brand awareness (regardless of regional restrictions). For the Chinese market, Burberry is present on popular social platforms including Weibo, and WeChat with seamless commercial accessibility on the platforms.

The seamless integration enables Burberry to extend purchase opportunities beyond markets where it has a direct presence. For instance, Burberry partnered with social platforms to allow followers globally to experience the flagship opening event like “Dreams of London” in Shanghai.

Moreover, Burberry invited the followers on WeChat to watch the women’s wear show at London Fashion Week (AW14) on social platform. As described above, Burberry launched WeChat Mini program for fans to participate in the game and release the limited edition bags in China.

The integration of online channels expands the accessibility through the Internet, because it dilutes the exclusive brand image and value of Burberry and promotes the brand’s visibility and participation in China.

Collaborate with Chinese celebrities and KOLs

In China, choosing a popular and suitable spokesperson via celebrity endorsement is a key to success. In 2016, Burberry introduced Kris Wu (Chinese actor, singer), who is hugely popular with the young Chinese generation, as the first non-British spokesman. Burberry’s retail revenues went from declining to growing by more than 20% in two months. The following year, Burberry announced Dongyu Zhou (Chinese actress) as the brand’s first female ambassador in Asia. Zhou’s unique temperament and extraordinary acting skills have endeared her to the young Chinese generation.

Kris Wu and Dongyu Zhou were invited to Burberry’s Spring/Summer 2018 fashion show at London Fashion Week. Burberry wanted to leverage the popularity from two celebrities to appeal to China’s millennial luxury shoppers.

In 2019, Chinese actresses Wei Zhao and Dongyu Zhou have landed new roles as the faces of Burberry’s Chinese New Year campaign. As an actress, director and pop singer, Wei regards something of national treasure in China. Since she starred in a hit TV series in 1998, she has accumulated a lot of popularity in China. Unlike the new generation of stars Kris Wu and Dongyu Zhou, the Chinese customer that loves Wei is more concentrated in Generation X and Y.

Source: luxurysociety.com – Zhao Wei and Zhou Dongyu star in Burberry New Year ads as downturn fears emerge

Creating cartoon characters as brand endorsements

To celebrate the Chinese New Year in 2020, Burberry created its cartoon rat character called Ratberry. Named ‘Bobo Rat’ in Chinese, it represents the Year of the Rat, which is integrated with the Thomas Burberry Monogram for the brand’s Holiday Collection. Also, Dongyu Zhou posted Hashtag #Ratberry# on Weibo for several times, interacting with followers while receiving many likes and comments.

Source: Chinafilminsider.com – How Burberry Won Over Chinese Consumers With ‘Ratberry’ Campaign

Burberry in China collaborated with different celebrities to appeal to Chinese luxury consumers of different generations. In attracting the millennial luxury consumers, Burberry had also consolidated current main Chinese luxury consumers. From this perspective, Burberry has set up a good model for luxury brand in China.

Luxury brands are increasingly partnering with KOL on social platforms and Burberry in China is no exception. In addition to Weibo, Burberry also cooperates with many Chinese local Kols on Xiaohongshu (China’s foremost social shopping and UGC platform).

Author: Qing Zheng

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This article Burberry in China: Sales increasing faster than any other region is the first one to appear on Daxue Consulting - Market Research China.

Why China’s street vendor economy suddenly boomed

The long-time enemy of the proper city image

Street vending is not a newly coined word. In 2010, there were over 20 million street vendors registered, and this number could reach 35 million if unregistered ones were included.

Over the several past decades, “street vending” had always been synonym of “dirty, cheap, low quality”. It was the target of elimination in urban planning, and sometimes led to guerilla-like hide-and-seek, between strict city administrators and unrooted vendors.

The reasons for this severe, if not inhuman treatment include three layers of considerations

Firstly, the quality and authenticity of the products sold on street were not guaranteed or certified. There were often counterfeits which hurt the consumers’ rights, yet the vendors were not traceable and thus could not be held accountable after the transaction.

Secondly, the fluid public activities were threatened. Since the street vendors weren’t registered or certified, the locations of their operations were not predetermined according to city planning. In addition, some vendors made loud broadcasts about their products, which was a source of annoyance to many. These posed risks on a city’s basic function and on habitants’ daily activities.

Last but not least, litter of street vendors damaged the beauty and hygiene of the city. Since the random locations were not under the vendors’ responsibility, it was difficult to incentivize vendors to clean up before they changed location. What’s more, if the town hall was not as harsh in eradicating street vending activities, there would be more people taking their chances, putting the city order in jeopardy.

To sum up, it was a highly informal and grey economic sector where self-employed people, good-intentioned or not, bypassed the regulations and were at the mercy of passers-by and police.

The Post COVID-19 high unemployment rate provoked the sudden endorsement of street vendor economy in China

With China’s economy hurt by the COVID-19 and the GDP growth rate being uncertain, boosting employment is a natural path to revive economy. The Prime Minister Li Keqiang mentioned more than 40 times in the opening of 13^th National People’s Congress in May 22th that his priority is to promote employment.

Keqiang is particularly concerned with the bottom-of-pyramid, poor population. According to National Bureau of Statistics of China, there are about 600 million people living with a monthly disposable income of only around 1,000 RMB, equivalent of $4.2 per day. While China is reaching a comprehensive construction of a moderately prosperous society by the end of 2020, the income inequality is still a serious issue. The top 20% is accumulating fortune at the fastest pace, and the bottom 20% is barely lifted out of poverty.

Data source: National bureau of Statistics of China, Annual disposable income in China by class

With the economic slowdown, the number of unemployed urban dwellers reached a record high after years of decrease. Many lost jobs or suffered from a salary cut due to COVID-19. Not to mention, the bottom-of-pyramid population whose livelihood was threatened even more.

Data source: National bureau of Statistics of China, Rising unemployment in China

Under this context, the Civilization Office of the Central Communist Party Committee has explicitly excluded occupying the road as one of the civilized city assessments by end of May. Suddenly, everyone became interested in China’s street vendor economy and wanted to profit from it.

On Baidu index, the blue line shows the search index of “Street vendor economy”, which soared in early June. It is accompanied by the search of “new policies of street vendor economy”, as people enquire about the legitimacy of this potential opportunity.

Source: Baidu index, search of Street vendor economy skyrocketed

The business case for China’s street vendor economy

The benefits of the street vendor economy

The items sold by the street vendors are usually low-unit-priced daily necessities, such as clothes, food, beverage, fruits, electrical appliances, nothing too fancy or high tech.

The obvious value created by street vendors are therefore two-fold. On the one hand, the vendors enjoy an additional stream of income, however unpredictable. On the other hand, the habitants living in the neighborhood have an easier access to daily necessities. Street vendors, therefore, contribute to the resolution of the famous supply chain issue in fast-moving consumer goods: last mile delivery.

The deeper value created by street vendors are also two-fold. Firstly, the nominal unemployment rate will drop, meaning that the human capital is put to use. Secondly, the local consumption heavily curbed by COVID-19 will be somewhat revitalized, largely thanks to the convenience of night markets.

The Prime Minister Li Keqiang stated in a press conference of the recent National People’s Congress held in May, that there are 200 million people in China working in unofficial, self-employed mode, and that the government has to support them by lifting unnecessary limitations. He publicly praised Chengdu for creating over 100 thousand job opening by setting up 36,000 street vending stalls legally. Zhou Tianyong, Director of China Center for Strategic and Policy Studies under Northeast University of Finance and Economics, estimated that 50 million jobs could be created with the promotion of China’s street vendor economy.

The inherent drawbacks of the street vendor economy

Will street vending be effective in reviving Chinese economy?

The shortest answer is no. The Chinese economy has three major drivers: investment, exportation, consumption. The China’s street vendor economy is not in any way even comparable to them. It is, however, a mechanism to alleviate unemployment for certain cities and a way to earn the next meal for the unemployed.

A longer examination looks at whether it is a profitable business, worth giving it a try

First of all, it is not a scalable profession. The vendors are required to literally start from scratch every day in one physical spot, limiting their marketing reach. Even if the town hall allows for street vending, it only gives permission to certain streets on certain hours. Usually, the street vendors are only allowed to operate in the evenings when the public roads are least occupied and can thus serve as a night market. It is therefore difficult to build up a large customer base or a brand. Without the trust from loyal customers, the range of business street vendors can aspire to is limited, often to food and beverages, fruits, books, toys etc. .

Then, street vendors are hardly meaningfully differentiated. They are usually the retailer, not the manufacturer, so whatever they can source, others can too. As they are spared of the rent on the public roads, the entry barrier is practically non-existent. This gives rise to high and almost perfect competition and erodes profit margins for everyone.

Finally, the legal environment still poses uncertainties. The central government officials haven’t given a unanimous direction on this issue and local policy makers are still pilot testing. While there are 27 cities publicly endorsing the street vendor economy, their policies are to be unpolished and subject to change. This uncertainty prevents people from investing too much upfront. Yet without investment, it is even more difficult for the unemployed to create the much-needed differentiation to make ends meet.

At its core, street vending is an elementary business model, existing way before the advent of mobile payment and e-commerce. It is therefore fundamentally difficult for street vending to reclaim important market share away from its enhanced counterparts of retail.

A successful future of China’s street vendor economy depends on public and private collaboration

Key success factors for street vendors

As it is a basic retail business, the 4Ps in the marketing textbook can serve as a guideline. The Product has to meet the essential needs of the local community, be it food or entertainment. The Promotion techniques such as portfolio bundling or discounts have to be perceived as meaningful. The Price and Place are the key purchase criteria, so competitive sourcing plays a big part. Those key success factors cannot be ignored if people want to participate in street vendor economy.

Furthermore, street vendors have to comply to the hard and soft regulations imposed on them. They’ve lost the trust in the eyes of government’s officials in the past by being short-term oriented. Now it’s their chance to show compliance and discipline, by making it easier for the city to manage them. Being a responsible and respectful player will benefit themselves in the process.

A dependable public policy stance

An important question for the government is whether it regards China’s street vendor economy as an end in itself or only a means to an end. If the local government only regards street vending as an expedient tool to boost employment and economy, without putting in place a legal framework that protects street vendors from precariousness of the profession, the future will not be bright. If one day the economy recovers in China, the employment rate climbs up and suddenly the street vending is again the enemy of an impeccable city image, millions of street vendors could be outlawed again.

Local circumstances vary and will largely determine whether and how street vendors are endorsed

Chinese cities are too diverse in terms of economic development and strategic positioning to adopt the same measure. Beijing the capital, shouldering the responsibility of national dignity, doesn’t take kindly to the prevalence of street vendors. Shenzhen the mega-city with the highest GDP per capita, is also cautious with the adoption of street vendor economy. Shanghai, on the other hand, blends the street vendors in its famous night market, while meticulously setting the obligations and rights of the self-employed vendors.

On Weibo, China’s biggest microblogging platform, street vendor economy reached over 630 million views in just days. The highest participated topic related to it is “warmed up but not in fever”. Over 33 million netizens expressed balanced view on China’s street vendor economy, supporting the “city by city” approach.

Source: Weibo, China’s street vendor economy has 630 million views

For local decision makers, it could be an opportunity to regulate this grey sector that shadowed the China’s street vendor economy for such a long time. Several measures could be put in place. First, register all the street vendors for a better management. Second, limit the time and space for street vending activities. Third, set up quality control measures to protect the consumers and keep hygiene. Fourth, take advantage of the internet to facilitate application, registration and tax issues.

Before, the government has been very harsh on the street vendors. As local policies gradually take shape, a more nuanced management system could benefit not only the unemployed, the community, but also the human image of the government in the eyes of the public. In fact, this is exactly what the local governments are doing. A more human but clearly defined boundary has been set for a better management of street vending activities. Transparency, accountability, order, convenience and entertainment are woven harmoniously in China’s new street vendor economy.

There is a possibility for a win-win future of China’s street vendor economy, which would allow it to once again become a part of China’s nightlife.

Author: Della Wang

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This article China’s street vendor economy: A band-aid or permanent solution for post-COVID-19 unemployment? is the first one to appear on Daxue Consulting - Market Research China.

With a market size of 75.7 billion RMB in 2016, China is a rising market for music education. This can be attributed to government support, China’s booming economy, and the upgrading of citizens’ consumption. Another factor not to be overlooked is the importance of music certifications to Chinese families.

Western instruments account for more than half the musical instrument market in China

Musical instrument education is one of the major segments of the music education industry. Since the economic openness from the late 1990s, China has gradually been influenced by western culture, as a result, western musical instruments now account for more than 59% of the market in China. This also coincidences with the fact that three of the top four musical instruments in the music education market are western: piano, guitar and ukulele.

Obtaining certification is the key driver for music education

The key driver for Chinese parents to encourage their children to learn to play a musical instrument is passing the music certification tests. According to the industry report, more than 90% of the market output comes from the training for graded tests. Although most Chinese parents do not support their kids to apply for art colleges, they still wish their kids could learn some artistic skills, for example, music instruments. The grading test certification is proof of their kids’ success and a test of the teacher’s capability. Having high-level certification is also a stepping stone for entering better schools or universities. For junior/senior high schools, students with music instrument certification could get extra marks to compete. For the entrance examination for college (高考), universities provide a special channel for these students with high-level artistic skills. This is the reason why music instrument education is so popular and those instruments in the test list (the certification will only be available for those music instruments listed in the test system) are more favored by the market. For the long-term, people with the certification and the skill can find jobs in music education.

Consumption upgrading: Chinese households are willing to pay more for musical instruments

By looking at the urban households’ annual consumption by category, Chinese citizens are spending more on recreation and cultural services and equipment (including musical instruments). The amount has already reached 832 billion RMB in 2010 and is estimated to reach 3.54 trillion RMB in 2020. This indicates that people are more willing to pay for their music-related entertainment. Combining with the consumption upgrade, there is a trend that Chinese people would consume higher-end products.

Source: National Statistics Bureau

The future market potential is in tier-2 and tier-3 cities

Apart from the increase in expenditure of music-related products, the expansion of the middle class also shows new market development is in tier-2, 3 cities, and is moving from the coastal regions to inland China. This doesn’t mean that there is no potential in the most developed areas, but rather these markets are becoming saturated with high-level competition. For now, Beijing, Shanghai and Guangdong are the three key regions for sales of music instruments, the number of music instrument schools and their economic factors. However, for music education or instrument sales, the market has already shown the trend towards inland China. For example, in recent years, more kids from more remote provinces have participated in the Shanghai International Youth Piano Competition. And their performance is as good as the ones from developed provinces.

Source: McKinsey Quarterly

The four most popular musical instruments in China: piano, guzheng, guitar and ukulele

Piano, guzheng, guitar and ukulele are the four most popular musical instruments based off the frequency of searches on Baidu. The standardized test for piano started in 1993, and it is the western instrument with the longest history in China. There are currently more than 30 million children in China are learning to play piano, and with an annual growth rate of around 10%. In Chinese parents’ mind, playing the piano is a symbol of elegance and dignity. Guzheng, which is a type of zither, is the most popular traditional Chinese music instrument for education. The first reason is that guzheng is easier to learn than other traditional instruments, the other reason is that guzheng, with more than 2,000 years of history, is a typical representation of Chinese music culture. By 2018, there are more than 5 million people learning guzheng. As for guitar and ukulele, their targeting older students, mostly adults. The lack of a standardized certification is the main reason that fewer parents would pay for their kids’ guitar/ukulele class. However, because the guitar and ukulele are easy to learn and portable, these 2 instruments have an even larger market size than guzheng.

Guitar and ukulele are gaining more attention in recent years due to the popularity of music TV shows

Baidu index is a figure which shows the popularity of certain searches on Baidu. The graph below illustrates that generally, all four instruments are gaining more attention in the market. Although guzheng is the top Chinese traditional instrument, its index is the lowest compared to the other three western ones. China is getting more open to western culture and meanwhile is integrating the music culture. For example, Zhang Chao, a Chinese composer, has added Beijing opera element into a piano score. Or on the contrary, Wang Zhongshan, guzheng artist, has played pop music with guzheng. Among the 4 indexes, ukulele’s is the highest since 2015. Ukulele is a new instrument for the China market and has only been receiving the public’s attention for a few years. However, thanks to music TV shows like “the Voice of China”, people have become familiar with the ukulele.  The guitar is also gaining popularity due to the popularity of music TV shows and festivals.

Baidu index of keywords: piano, guitar, ukulele and guzheng

Piano market is mature: demand is for high-end brands

For the piano market, the best-selling brands online are YAMAHA, Bruno & Sons, Carod, Zhujiang (珠江) and KAWAI. All these brands are middle- or high-end, 4/5 are foreign brands. According to the sales data for the last 12 months, the average price of piano sold is around 12,000 RMB/unit, which shows that the piano market is already a mature market for high-end products. There is a sales peak in August because students start their summer vacation then and have more time for lessons. The sales volume is extremely high in October 2017, which is caused by a company called Yun Fei piano’s renting business. They have successfully rented around 6,500 pianos within one month. However, this renting business also met some difficulties. For example, some consumers refuse to return the piano, which has led to many lawsuits. This phenomenon demonstrates that there is a huge market for renting service while the relevant regulations are not settled to protect the benefits of leaseholders.

Source: taosj.com

From the summary of people who mentioned the keyword “piano” in Baidu searches, notable inland regions such as Henan, Hubei and Sichuan are highlighted on the map. Classic music is these people’s common interest, meaning the mainstream music style for piano playing is still classic music. “#piano score#” is the most popular topic among them, they are looking for and discussing scores. This implies a market potential for online music scores.

The most famous pianists in China: Lang Lang (朗朗), Li Yundi (李云迪)

Lang Lang and Li Yundi are the two most famous pianists in China. People like to compare the achievements of them. The most relevant topics people search on Baidu when searching “Lang Lang” are Li Yundi, piano, score and many video playing platforms. The last one might imply that video playing platform is one of the key information sources for people interested in piano. This could be considered as a marketing channel for music education or instrument sales.

Lang Lang, one of the most Chinese famous pianists, messager de la paix. He was also awarded Bernstein art achievement award in 2002.

Li Yundi, a talented pianist, has been awarded the golden prize in the International Chopin Piano Competition when he was 18 years old. Before then, it had been 15 years that no one got the prize. He is the “benchmark” or the “idol” for kids learning piano. Because of this, people are stricter about his mistakes, so many related topics in 2018 are still about his mistake in one concert in 2015.

Li Yundi, one of the most Chinese famous pianists. He was the champion of the 14th International Chopin Piano Competition in 2000.

Guzheng is a market solely for domestic brands, while foreign companies can export raw materials to these brands

For the guzheng market, like this a traditional Chinese instrument, all the vendors are domestic brands. Yangzhou is the base for guzheng manufacture. This would be a market difficult for foreign companies to enter. From the social listening of guzheng on Weibo, it can be concluded that TV dramas have a strong influence on people’s interests and preferences. Brands could sponsor or partner with some TV dramas with musical elements.

China Conservatory of music is one of the centers of guzheng culture, also is the center for other kinds of music studies. Normally, those music instruments stores and schools are located near these conservatories of music, where the key offline distribution locations are. For example, the famous music street, Fenyang Road (汾阳路), in Shanghai is on the street where Shanghai Conservatory of music is. There are 39 music instrument schools and around 30 stores.

Guzheng is listed separately from other traditional Chinese instruments in Chinese Golden Bell Award for Music, which shows its importance and a large base of learners. The Chinese government is also encouraging the development of traditional culture. This would influence the trend for future courses set up in schools. This might be a negative influence on western music education’s business in China. However, there are still other business opportunities. For example, exporting the steel wire of guzheng strings or the paint for those traditional instruments.

Famous guzheng artists in China

Wang Zhongshan (王中山), professor of China Conservatory of Music, president of guzheng association under Chinese Musician’s Association. He has created many new skills to play guzheng, contributing to the development of the modern guzheng playing system.	Yuan Sha (袁莎), professional guzheng supervisor of China Conservatory of Music, head of Zhong Zheng Art Troupe. She has traveled to more than 30 countries for culture exchange performance and has recorded a one-year-long guzheng educational lectures for CCTV.

Most guitars sold online are low-end, an opportunity for high-end brands is in offline distribution

For the guitar market, most of the guitars sold online are low-end. There are basically 2 reasons behind this. First, beginners would prefer to buy cheap guitars, and they usually do so online. Second, for those intermediate and expert players, they would like to collect limited edition on second-hand e-commerce platforms or in offline channels. Offline distribution is still the key for music instruments especially for high-end brands, although e-commerce is expanding fast these years in China. Meanwhile, domestic brands have already taken low- and part of the middle-end market in the guitar industry, the opportunity for foreign brands is not to compete with the price but the quality and user experience.

Based on social listening on Weibo, rock and heavy metal music are the main music styles for those people interested in guitar topics. Although classic guitar is listed in the grading test system, this is still not the mainstream for guitar culture, also because it’s difficult to learn. Besides those KOLs within the guitar industry, young idols who play guitar have a strong impact on a wider range of potential/existing learners. Sichuan province with the fourth largest population and fast developing economy is the inland province with the highest potential for music education. The starting point could be Chengdu, the capital city of Sichuan.

Famous guitarists in China

Liu Yijun, used to be the guitarist in the band “Tang Chao (唐朝)”, is recognized as the greatest guitarist in North China of his era. He is also the first Chinese guitar player who can press the keyboard from the back of the neck. Li Yanliang (guitarist of Chao Zai Dynasty Band), another famous guitarist in China, who has been awarded Best Music Arrangement Award in China original music award. People care a lot about their daily movements, their performance. Besides these guitarists and bands, there is another important KOL in the guitar industry, Jiang Wei. He is the CEO of GuitarChina, the largest BBS platform in the guitar market. Along with BBS, Guitar China also has its own online and offline distribution channels. They also have official accounts on all key social media platforms for marketing. GuitarChina has developed a partnership with most of the brands in the guitar industry and hundreds of music education schools in China. This company would be the touchpoint for marketing in this niche market.

Liu Yijun (刘义军), the first metal rock guitar player in China, the first Chinese guitar player who can press the keyboard from the back of the neck.	Li Yanliang (李延亮), has been playing guitar for more than 30 years, been awarded Best Music Arrangement Award in China original music award.

Besides music TV shows, music festivals are also the stimulator for guitar culture

As mentioned before, music festivals have brought popularity to guitar and pop music. The number of outdoor music festivals in China has dramatically increased from 24 in 2007 to 148 in 2014. And the number of audiences has doubled from 2011 to 2014. The most successful music festivals in China are Strawberry music festival (草莓音乐节) and Midi music festival (迷笛音乐节). This is where people are inspired by new trends in the music industry. Besides sponsoring, brands can also rent a booth in the inside bazar to display and sell products.

Source: Daxue Consulting

Ukulele is new to China, although with high popularity, still a market for low-end products

For the ukulele market, most of the products in China are low-end. This is because for China market, the ukulele is an instrument even younger than guitar, meaning a majority of the players are beginners. Besides, the ukulele is not regarded as a formal music instrument, firstly because that it is not in the grading test system, secondly, because that ukulele is more like “little guitar” for the Chinese market. Although ukulele is new to the China market, China is already the main producer of this instrument and is estimated to produce around 90% of ukuleles in 2022. Middle- and high-end brands have already entered China’s market, the next step is to educate consumers to accept higher-end products.

The screenshot shows the related topics people searching for then search the keyword “ukulele”. Half of the most related topics are learning material/skills for beginners, implying that most people tend to learn ukulele by themselves. Two reasons behind this: firstly, the ukulele is easy to learn, especially for those who already play the guitar; secondly, people play the ukulele more for music initiation or entertainment, they are not willing to invest heavily on this. The other popular topic is about the difference between ukulele and guitar. For the very beginning, it’s a marketing strategy to sell ukulele as “little guitar”, but for a long-term strategy, brands need to marketing ukulele as an independent product.

The existing market for ukulele is still the coastal region and people who are interested in ukulele don’t have a clear preference for the music style. The domestic brand, Tian Lai Cun (天籁村), has conducted the business model of “sales + education”, which is the common model for music instrument education in the current market. The ukulele summer camp organized by them is the most popular topic among those people. The “bundle sale” of musical instrument and education is an effective marketing strategy to increase consumer stickiness.

Famous ukulele players in China

Liu Zongli is one of the most famous ukulele artists in China. He is the spokesman of an aNueNue ukulele. This brand covers middle- to high-end products. They also provide educational classes on a live-streaming platform: Meipai (美拍).  Liu Zongli has also provided teaching material to CCTV, which assists the spread of ukulele culture. The actual boom of ukulele started from the rising of music TV shows like “the Voice of China”. Liu Weinan, a participant in this show, introduced ukulele to the public by playing “lemon tree”.

Liu Zongli (刘宗立), one of the most famous ukulele artists in China, spokesman of aNueNue Ukulele. He has more than 4,000 students and has provided teaching materials to CCTV.	Liu Weinan (刘伟男), has participated in the Voice of China Season 4. He was famous for his performance in this show by playing a ukulele. This also increases the exposure and recognition rate of ukulele in China.

A new opportunity in the music education market: intelligent instruments

Intelligent music instruments are the trend in the industry. First, this follows the government’s guide of “Artificial Intelligence + education”, which encourages to the conversion of AI technology to the education industry to compensate for the limits of teachers in the current system. Secondly, intelligent musical instruments could ease the stress of high expenditure on instrument consumption and classes. For example, one high-end intelligent piano costs 7,000 RMB, which could teach you the entry-level knowledge about playing the piano. If you buy a middle-end traditional piano (5,000 RMB), attend training class (200 RMB/class) and have a personal tutor to monitor your practice (50 RMB/hour), in total that is more than 10,000 RMB. Thirdly, intelligent instruments could guarantee a systemic and standard training process. This avoids the problem brought by changing teachers. The final benefit of an intelligent instrument is that it could monitor your daily practice at any time, which saves the money for hiring a personal tutor.

Popular intelligent instruments in the market: piano, guitar, ukulele

There are three popular intelligent music instruments in the market already: piano, guitar, and ukulele, coincidently are the three top instruments in the education industry. The main principle of this kind of instruments is that the LED lights on it are linked to an APP on tablets and mobile phones. Students can follow the movement of those lights to play. The ONE is the most mature brand for intelligent piano, whose spokesman is Lang Lang. “Learning piano with your family” is also their selling point. Popular and Populele are designed by a technology company based in Beijing and were awarded the iF Industrie Forum Design in 2017. The target market for intelligent music instrument is still limited for entry-level education, while this is already a huge market for development.

The ONE intelligent piano Spokesman: Lang Lang	Populele by Popular Inc	Popular by Popular Inc

“Side-products” of music instrument education: instrument maintenance, second-hand sales, electric teaching material, personal tutor, music competition

There is also great potential for those “side-products” of music instrument education: product maintenance, second-hand sales, teaching material, personal tutor and music competition. Maintenance service is a long-term business for musical instrument sales and education. For example, for the guitar market, even the in-store staff is not professional about the maintenance knowledge of strings. As for the second-hand market, from the Baidu index, it can tell that this market has expanded dramatically since 2015. This indicates a huge market for imported second-hand pianos, especially for high-end ones. Along with the development of intelligent music instruments, electric teaching materials is also the trend in the education market. Tier-1 cities have already started programs for testing the performance of electric teaching material. For those kids who use traditional pianos, they would still hire personal tutors to monitor their daily practice if the budget allows. This market is at least twice larger than a formal teacher. For example, a kid will only attend piano class 1-2 times/week, but he/she needs to practice 3-4 times/week. The music competition is getting popular and paid more attention to the market in recent years, including local ones and national wide ones. This is a chance for kids/players to present their skills, to prove their talent or add experience on their CV. This is a marketing channel for more exposure rates and high-level reputation. Brands could sponsor the competitions financially and provide free products as gifts.

Daxue Consulting has done thorough research on instrument markets in China

Daxue Consulting is ready to help you understand the musical instrument market in China and give you all the data you need to be prepared to make critical decisions—regardless of whether it is the actual market entry or the potential success of your products on e-commerce websites. We are also able to get opinions from a large number of respondents so that you really know what the people are thinking and feeling. Sensory research, in particular, is one of our strengths.

We have already conducted research projects for our customers on very specific parts of the musical instrument market in China, involving the following points:

• An overview of the specific market segment, with market drivers and market trends as well as opportunities and challenges;
• Competition mapping, including five case studies focusing on similar companies in the industry;
• Online analyses using the Baidu Index and most popular e-commerce websites;
• Geographical areas analysis, highlighting good places to start a business, and;
• A detailed customer analysis.

We used various methods to collect data and reach our conclusions. In-depth interviews with brand managers and retailers as well as distributors were one important part. Focus groups with customers and online surveys proved useful too. Other methods included desk research, in-depth interviews with retail consultants, benchmarking, and a corporate financial reporting evaluation.

Contact our project manager who worked on the musical instrument market in China by dropping an email to dx@daxueconsulting.com.

This article The Chinese music education industry’s main driver: grades and certifications is the first one to appear on Daxue Consulting - Market Research China.

Rap music penetrates China under a western influence

The first rap singers in China spoke English because many believed that the Chinese language and its tones don’t fit the genre. One of the first Chinese DJs to rap at the time, DJ V-Nutz (Gary Wang), explained in 2007: “I would say that we don’t have a Chinese style yet. If you really want me to say, what is Chinese style, I would say it’s young. Local kids really enjoy western things right now. Then maybe after 10 or 15 years, maybe they can have their own style.” At that time, certain aspects of the hip-hop culture were making their ways onto Chinese billboards and charts, but not on the airwaves.

Source: VICE, Gary wang partying at ‘The Shelter’ a hip-hop club in a Beijing bomb shelter

The beginning of rap music in China

In 2003, the multinational Beijing hip-hop group Yin Ts’ang was the first mainland Chinese hip-hop group to release an album to critical acclaim. The group was made up of global nomads: two Americans, a Chinese Canadian, and a Beijinger. The diversity of the group – which is considered one of the pioneers of Chinese rap music – reflects Western influence in the beginning of China’s rap music.

Source: The New York Times, The rap group Yin Ts’ang

Yin Ts’ang’s first hit was ‘In Beijing’ (Zai Beijing), from the group’s 2003 debut album, ‘Serve the People.’ The title melts a traditional melody played on the violin against a hip-hop beat. The song, whose Chinese lyrics explore the hidden corners and great deals of the Chinese capital, took the underground music scene by storm, eventually finding its way into karaoke rooms, the internet, and even the playlist of a radio station in Beijing.

The group defends its lyrics in Chinese, which awaken the Chinese urban youth. “Before that, kids listened to hip-hop in English, but maybe less than 1 percent could actually begin to understand”, said Zhong Cheng, a member of the Yin Ts’ang.

Rap music hits Sichuan

2006 saw the rise of another famous rap group from Chengdu called Big Zoo, with several mixtapes and freestyle releases. The group won several domestic awards before fading away in 2011. With its verses in Sichuan dialect, the group is commonly regarded as the one who led the development of the rap of Chengdu, and more importantly, the birth of a new urban subculture in Southwest China.

In the late 2000s, hip-hop venues are flourishing in China, and 2009 saw hip-hop being broadcasted for the first time by the China Central Television for the annual Chinese Lunar New Year Gala.

If the 2010s distinguishes China’s rap as a new genre of music, making Chinese rap at that time is still a profitless and often subversive activity. Thus, it is only in 2017 that Chinese hip-hop scene will burst with a dedicated TV program.

The reality TV show ‘The Rap of China’ has catalyzed the rise of hip-hop in China since 2017, exploring the new potential market to achieve monetization

The underground and metallic decor of ‘The Rap of China’

“Do you have freestyle?” the sentence of Kris Wu, one of the judges of the TV show ‘The Rap of China’ (Zhongguo you xiha, or Zhongguo xin shuochang) went viral on Chinese social networks. The show consists of detecting new talents in Chinese rap, many of them previously underground, via a freestyle contest. Before the start of the 2019 season, the hashtag #TheRapOfChina reached 8.7 billion tags on Weibo across more than 44.23 million users discussing the show.

Through this TV show, iQYI (the Chinese video platform behind the show) explores the potential market of Chinese rap deeper by realizing the monetization of the rap industry. On top of Mainland China and Taiwan, the show is widely distributed to other Asian territories, bringing Chinese hip-hop culture to a broader audience. The show is such a hit among the young generation that it plays a big role in the trends of lifestyle and entertainment consumption in young people.

Since 2017, ten years after Gary Wang’s prediction about the future of the Chinese rappers, the buzzword ‘rap’ peaks according to the Chinese show’s episodes. Surprisingly, Chinese youth use the word ‘rap’ much more than its Chinese counterparts ‘嘻哈’ (xiha, meaning hip-hop) or 说唱 (shuochang meaning rap). The word ‘freestyle has no equivalent in Chinese, and many of the show’s participants mix Chinese and English in their verses.

Source: Baidu Index, the buzzword ‘rap’ peaks according to the Chinese show’s episodes

The Rap of China’s audience brings together Chinese Generation Z

Watching the program, the characteristics of Chinese rap immediately hit the viewer. The show is aimed at young Chinese urban culture, with an industrial and underground design, as illustrated in the image above. Chains, cans of paint, toolboxes, and other construction materials are part of the show’s decor, reflecting the rapid urbanization of China experienced by Chinese youth. The dark atmosphere immerses the viewer in the ambience of underground hip-hop clubs, often located in shelters and basements of major Chinese cities.

The audience brings together the Chinese generation post 95s and 00s. According to Baidu Index, around 70% of the Chinese people who search for ‘rap’ on the Chinese internet are under 30 years old. More surprisingly, females account for 55.8% of the total searches.

Source: Baidu index, daxue consulting analysis, age and gender distribution of rap fans in China

As for geographical distribution, rap consumers are mainly balanced between first- and second-tier cities, Beijing being the number one and Chongqing the 8^th. The keen interest for rap among people from Chengdu city and the Sichuan province near Chongqing city is linked to the emergence of a new kind of rap, called ‘trap’ that shakes western China.

Data source: Baidu index, daxue consulting analysis Geographical distribution of rap fans in China

‘The Rap of China’ highlights Chinese-youth market potential

But what strikes the viewer at the very first glance is the ability of the show to be overcrowded with advertisement messages. The 2019’s season host the financial application 有钱花 (you qian hua, have money to spend) as the main sponsor of the show. The logo of the application appears everywhere, at the top of the show’s logo, at the bottom right corner, and in the decor of the show. The show even features promotional rap clips that highlight the brands’ products. Thus, marketing promotion is at the heart of the competition since participants must compete in promotional clips.

Brands sponsoring the most-watched show among Chinese youth reflect the market potential for brands targeting young Chinese. Thus, outside of the main sponsor, spirits brands such as Absolut Vodka and 江 小白 (Jiangxiaobai), a Baijiu brand from southwest China, are highlighted. A brand of shampoo, Clear by Unilever, appears regularly. Pepsi is also very visible during the show, as is War Horse 我马 (Wo Ma), a Thai Chinese energy drink brand. The American chewing gum brand, Extra, in Chinese 益 达 (Yi Da) and a brand of sanitary pads, are presented through rap clips during the show.

The brands sponsoring the 2019 season of ‘The Rap of China’ reflect the lifestyle of the new Chinese generation.

Rap as a route to gen-z marketing

With all these brands popping up during the show, one can wonder about Chinese young generation’s market potential. Gen Z, or the post-95 generation, includes nearly 170 million people in China. Even though many are not part of the workforce, it doesn’t keep them from spending money. Thus, 70% of them receive at least 3,000 yuan (USD420) in pocket money, while 21% are getting more than 10,000 yuan per month.

Moreover, according to Mckinsey’s China consumer report 2020, “young, free-spending consumers in lower-tier cities are today’s growth engine.” This critical set of consumers is unaffected by slowing growth and rising cost of living that affects top-tier cities in China.

In China, the target consumer does not just start at twenty-somethings with full-time jobs in the office. Many in their late-teens already have cash on hand even if they don’t have a fixed income. And advertisers on ‘The Rap of China’ know this.

Exploring Western China’s largest cities of rappers

As ‘The Rap of China’ displays, hip-hop music incorporates street fashion and internet culture, which is embraced, learned, and made by the young Chinese generation. The demographics analysis of the keyword ‘rap’ on Baidu display East provinces as the epicenter of the trend. However, in the west, we also see Sichuan province being hit by the phenomenon. A new hip-hop revolution called trap occurs in Chongqing and Chengdu, the two largest cities of the west. Trap music is a subgenre of hip-hop, characterized by the significant use of tuned kick drums and bass, and an often-dark ambience and lyrical content.

Meet Chengdu’s hottest rappers: Xie di, Higher brothers, Ty.

In Chengdu, Sichuan province, hip-hop is even hotter than its infamously spicy cuisine. Here lies the Higher Brothers, China’s hottest hip-hop export. This band of four friends is the first to make it internationally with their DIY lyrics, recording, and production. Their ‘Made in China’ clip on YouTube is the most viewed among Chinese hip-hop videos, almost hitting 20 million views.

Source: 88rising’s YouTube channel, Higher Brothers’ clip ‘Made in China’

Like Big Zoo’s former rap, they melt Sichuan dialect, Mandarin and English in their lyrics. But they never do it on purpose, mainly focusing on the meaning of the words in each of these languages, and how it sounds. If no one knows why trap takes off in Chengdu, the Sichuanese dialect could be the reason. This twangy local dialect is said to lend more naturally to the musical style than Mandarin, China’s official language.

The legendary Chengdu City Rap House is the heart of Chengdu’s rap. It’s one of the most influential hip-hop labels in China, best-known for nurturing the success of the Higher Brothers. The collective gathers other super-famous rappers from Chengdu, like Ty. and Boss Shady (Xie Di).

Chengdu’s rappers are up against strict censorship

The latter has known a burst of popularity in 2014 by bringing Chengdu’s rap to a Chinese talent TV show called ‘The Voice of China.’ In 2018, the rapper released a dialect-heavy track called ‘Fuck Off Foreigners’ (Gua laowai). The song’s harsh lyrics towards foreigners got him banned from performing in China for an entire year. But Shady is not letting censorship get him down, announcing its partnership with Ty. to build a new record label.

Ty., Chengdu’s most successful solo rapper domestically, also experienced the throes of censorship through his breakout track ‘Hooked on drugs’ (Hai yao shang le yin), in 2014. The rapper appears then in ‘The Rap of China’ with a more commercial-friendly rap featuring other artists, including Boss Shady. A longtime friend of the Higher Brothers, he is also featured in some of their newly released tracks.

Source: VICE, YouTube, Ty. (left) and Boss Shady (right)

But a new unpleasant rivalry is coming from another neighboring western city, whose rappers have built their popularity on the back of the success of ‘The Rap of China.’

Chongqing, the Atlanta of China

This city is Chongqing, China’s third-largest city, and home to 31 million people. The commonly nicknamed ‘fog city’ or ‘bridge city’ is often compared to Atlanta, Georgia the birthplace of trap music in the United States.

Here lies the GOSH music label, gathering the most influential rappers of Chongqing, with well-known names across China, such as GAI, Bridge, and Wudu Montana. These three rappers all appear in the wildly popular reality show ‘The Rap of China’, with GAI winning the first season, in 2017.

However, GAI’s first burst of popularity came in 2015, along with the release of ‘Gangster,’ a controversial track in which the rapper claims to be a gangster. The track has soon been banned on the multiple Chinese video websites, people questioning the fact that this song could instigate criminal activities.

How a matcha-shop-owner-gone-rapper popularized Chongqing’s rap music

Popularizing rap using Chongqing dialect with similar dialects, GOSH label is maximizing its influence over the southwest region. The first rapper to sing about the fog city is Wudu Montana (Wudu literally meaning ‘fog city’ in Chinese), a matcha tea shop owner. Just like the Yin Ts’ang crew, his first hits told about his daily life growing up in the vast city, and its development since the 90’s. It is this street culture that he tries to transmit in his sounds. According to him, “Chongqing has changed a lot, things that were once small are now big.”

Source: VICE, YouTube, Wudu Montana (left) and Gai (right) on stage

Another rapper, whose name also resonates with the city and its many bridges, has recently become the Chongqing’s new rising star. Bridge is perhaps Chongqing’s rapper whose look is the most explosive. Dreadlocks and large bubble glasses are the hallmarks of this energetic rapper. According to him, trap allows people to express things with beats, just like the Chinese poets did in the old days.

Bridge during his participation for the season 2 of ‘The Rap of China’

Chongqing’s rap is more aggressive than Chengdu’s. This is reflected in what those rapper call ‘attitude.’ If people tend to compare Chengdu and Chongqing’s rap, we see that these rappers have their own shining characteristics, whether they come from Chongqing or Sichuan.           

Chinese rap is going outside of China

That being said about ‘The Rap of China,’ Chengdu, and Chongqing’s rap, we are obviously currently witnessing the rise of the Chinese rap music. But what about globally?  Is there any opportunity for Chinese rap to catch foreign audiences, while foreign streaming music and video platforms are blocked in China?

88rising, a multimedia company and music label for Asian rap in the US

A New-York based company launch in 2015 made its top priority to raise the profile of Asian hip-hop in the United States. Its name is 88rising (the 8 is the luckiest number in the Chinese culture), an Asian-focused record label and media company. The company, which only features 3 to 4 Asian artists at a time, focus on exporting Eastern culture to the West, one viral hit at a time. Among the featured artists, the Higher Brothers’ crew represents the Chinese branch.

Since the Higher Brothers signed in 2016 under 88rising’s banner, the Chengdu’s rap group completed two US tours in front of sold-out crowds. The first move of 88rising to translate the Higher Brothers hype in the United States came with the viral YouTube video ‘Rappers React to Higher Brothers’, where famous US rap artists reacted very positively to their ‘Made in China’ hit. Since then, the crew released its long-awaited new album, ‘Five Stars’ still under the 88rising label.

Source: Higher Brother’s Facebook page announcing their participation at 88rising’s music festival in Los Angeles, 2019

Much of the power of 88rising is due to the fact that it operates more like a PR agency than a record label. Miyashiro, 88rising’s CEO, estimates that only 30% of the company is dedicated to full-time music. In comparison, the other 70% is split between video production, business development, and fostering direct relationships with streaming music and video platforms, their digital playground.

But in China, relationship with Spotify’s teams are not enough, with most foreign streaming platforms blocked and replaced by local equivalent. This explains why 88rising decided to break the Chinese walls by employing a dozen full-time staff in Shanghai.

In 2019, Higher Brothers won the award for hip-hop artist NetEase’s label of the years, 88rising taking the award for Chinese music streaming of the year at the same event.

Could censorship be the glass ceiling of the rise of China’s rap music?

Ironically, one month after receiving these awards, several 88rising tracks were pulled from NetEase, ostensibly for lyrical content failing outside the requirements of Chinese censors. Even the wildly popular reality show ‘The Rap of China’ fall under the state broadcast administration regulations, which prohibited depictions of the hip-hop culture, including tattoos and obscene lyrics. Making rap about drugs, sex, violence, and politics is out of the question.

The beginnings of hip-hop – including trap music – in China were primarily influenced by western culture. Western lyrics often include violence and anti-system verses, a path that Chinese rappers tried at their expense.

Even with censorship, however, the success of rap in China among the young Chinese generation is real. By moving west towards Chengdu, Chinese rap has only proven its uniqueness: it is incisive, technical, and requires great dexterity to mix Chinese dialects, Mandarin, and English. It focuses on the style and character of the rapper, verses from Chinese rappers appearing in the process of building a full-fledged character, with coolness and attitude at its center.

Author: Maxime Bennehard

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This article Feeling the beats of the Chinese rap culture is the first one to appear on Daxue Consulting - Market Research China.