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.

Chinese superstitious beliefs can be divided into three categories:

Traditional and secular Chinese superstitions

Originating from feudal society, these superstitious beliefs evolved into customs and religions but vary by region. The traditional secular superstition is mainly to believe that certain activities, ceremonies, numbers, natural phenomena, and dates will bring good luck, and taboo certain numbers and phenomena. For example, Chinese choose auspicious wedding dates according to the lunar calendar, because they believe that selected date can bring joy and harmony to marriage.

Believing the existence of ghost and gods

People believed that there are gods, demons and ghosts in the world, who have the ability to control the natural phenomena and the birth, aging and death of human beings. For example, on July 15^th of lunar the , people in south worship river gods in hopes of fair weather and a good crop yield in the coming year. In modern China, these ceremonies based on superstitious beliefs are becoming less common.

Believing fate

Many superstitious Chinese believe in fate or destiny, and that their live path is arranged from birth. Hence, when they feel they are at a cross-road in life, some people may go to fortune-tellers for help to relive anxiety about their future.

Superstition and spirituality products in China

Due to such a long history of superstition, spirituality products in China have rich opportunities to develop. From crystals to amulets, from fortune-telling to tarot and horoscopes, the spirituality and occult industry is a big business today, but it still remains under researched in the domains of marketing.

The Healing Crystals market in China

Healing crystals are thought to promote physical, emotional and spiritual healing. Different colors and types of crystals have different functions. For example, pink crystals can bring more love and kindness in your life, while purple crystals help you get a better performance in study.

The Donghai Crystal Market, located in Lianyungang, Jiangsu province, China produces 70% of the national reserve of the precious material, is known as the “Land of Crystals”, producing 80% of Chinese crystal products. Donghai Market receives 1,000 foreign tourists and local visitors daily, 5,000 daily visitors during the peak and a total of 300,000 visitors a year. The annual turnover is between 469 million RMB and 480 million RMB. With the rapid development of the “Internet Plus”, Donghai Market also caught the express train of internet development, forming an “online + offline” omni-channel sales system. So far, there are more than 30,000 crystal online stores in 27 domestic and foreign e-commerce sales platforms. The cumulative sales volume of crystal exceeded 160 million on Double 12 Day. The price range of crystals on Taobao is from 60 RMB to 5,000 RMB.

Source: Popo. Inside of Donghai crystal market

Amulets market in China

Amulets originate from Southeast Asia, including Buddha amulets, ghost amulets and Guman Thong. People worship amulets with sacrifice in hopes of achieving aspirations such as getting promotion and getting rich. There are 3,000 online shops on Tabao with average sales of 300-500 items per month. The price varied from a hundred to more than ten thousand. In term of people’s comments on Zhihu, amulets made by Luang Por and ajahn are popular in the market.

Foreign superstitions influence: The tarot and astrology market in China

Tarot was introduced to Chinain the late Qing dynasty from Europe but is now prevalent in the 21^st century. Tarot cards it is a tool for analyzing, predicting and advising people.

Astrology which is also from Europe has become enormously popular among young people in China. Astrology is the idea that stars can shape personalities and destiny. It is a name given to a group of stars in the sky that make up a certain pattern, and everyone has their own astrology based on their birth date, time, and location.

Both Tarot and astrology possess a potential in China’s spirituality and occult market. In 2005, the China Tarot Association (CTA) was established with 270,000 members, and the overall downloads of astrology and Tarot reached 80,000 times in App stores. According to the survey launched by China Youth Daily, 70.3% of the respondents say that there are many people like astrology around them and 20% of them follow the guidance of astrology and tarot cards to arrange their relationships and career paths. The most popular tarot shops on Taobao has more than 3,000 orders in a month, and each order costs around 100 RMB to 200 RMB.

Read more on how astrology is used in Chinese marketing

Fortune-telling market in China

Chinese fortune-telling has thousands of years’ history; known as ‘suanming’ in Chinese,it is a practice of predicting information about a person’s life. Among many kinds of Chinese superstitions, fortune-tellers have the most active believers. 362 million have visited physiognomist, which is a fortune-teller who analyzes fate or personality based on facial characteristics, in the past 12 months. In comparison, Nearly 145 million people in China believe in Fengshui, 141 million believe in the God of wealth

More than 91% of Chinese do not have scientific literacy  are more likely to believe fortune-telling. However, fortune-telling, as an ancient and mysterious business, has becomes popular in venture capitalism in China. The “Internet plus” fortune-telling business seems to have entered a stage of vigorous development, and AI fortune-telling is the product. Opening up WeChat’s mini programs, there are many AI fortune-telling programs come out. Users only need to upload their face photos and the intelligence software will decode photos and generate an analysis report.

Until December 2019, according to data from Tianyancha, more than 50 projects of AI fortune-telling have been financed. A certain Guangdong culture company makes an annual net profit of 500 million RMB by fortune-telling.

Interest trends of superstition and spirituality products in China

From Baidu index’s result, fortune-telling‘s search trend transcends the other 4 categories with absolute advantage. Thanks to the long history of traditional superstition, fortune-telling is more popular and credible in China. Guman Thong is on the second place, because the effect of Guman Thong is exaggerated on Internet, covered with a veil of mystery. There are many stories of raising Guman Thong on forum that saying how it helps them achieve their desires, and what punishments you will get if you do not treat them well which further strengthening awe towards Guman Thong and making people believe Guman Thong indeed has superpower.

Source: Baidu index, search trends of Chinese superstitious and spirituality products

Distribution and promotion methods

Social media

These sellers are active on all kinds of social media such as Douyin, Bilibili, Kuaishou and Weibo, and mainly focus on short video platforms. At the first stage, sellers need to cultivate their social media account by filming divination videos to attract followers. Once audience feel like videos are efficacious, they will contact video bloggers for paid one-to-one consultation, and bloggers will sell spirituality products to audience.

Source: Douyin, Tarot divination

Source: Weibo, July’s astrology predictions on the Chinese internet

Source: Kuaishou, Tarot divination

Source: Bilibili, Tarot divination    

E-commerce

Consumers also will search key words like “Fortune-telling” and “Tarot” in Taobao to seek one-to-one consultation. Usually, consumers pay online via e-commerce platforms, and add sellers’ WeChat for deep consultation.

Advertising

The most common advertising method for superstitious service is through Baidu and Tianya forums related to Chinese superstition. Fortune tellers or superstitious product distributors will leave their WeChat ID on the Chinese web for people to add.

Consumers of superstitious, spiritual and occult products in China

According to the Baidu index, 60% of Baidu searches of spirituality products are from 20-29 year olds, meaning they are a significant part of market online. People from 30-39 years old also occupied a large proportion around 30-40%. Two factors are at play to explain this data, first is that people of this age group are computer savvy and are simply more likely to turn to Baidu than local temples. Secondly is these two age groups are in the most anxious stages during the whole lifetime. They are at an age where they make a lot of important life decisions, like marriage, having children, and career path. Once they encounter problems, asking for help online is their top of mind. The data also shows that 70% of them are female

Data source: Baidu index, age distribution of e-commerce spirituality products’ consumers

Based on these two insights, divination questions on social media are mainly targeting females aged from 20-39. For example, on Bilibili and Douyin, you definitely will find that most of videos are around marriage, romantic relationships and careers, targeting females. For example, “your next relationship” and “will you end up together”. These are exactly what females from these two age groups confront.

Source: Bilibili, Tarot divination

Is scientific literacy really the end of Chinese superstitions?

The rise of scientific literacy is somewhat of a threat to many traditional Chinese superstitions. However, the modern society does make room for the evolution of the spiritual and occult market in China. Especially, due to their busy work schedules and family pressures,  many people feel helpless and search for answers. For some, spiritual products are what support them to keep going.

Hence, scientific literacy is not the end of the Chinese superstitions market. In fact, they seem to go hand-in-hand,  Al fortune-telling projects is one piece of evidence, along with the popularity of Tarot card short videos. Although some prefer Chinese fortune-telling due to its long history in China, younger generations around 20-39 show a high interest in foreign superstitions. Younger generations show a higher acceptance of new things and they are active in social media, meaning they are likely to be imbued with new values and thoughts.

Listen to 100 China entrepreneur stories on China Paradigms, the China business podcast

Listen to China Paradigm on Apple Podcast

This article Traditional and modern Chinese superstitions: Ghosts, gods, fate, and wedding dates is the first one to appear on Daxue Consulting - Market Research China.

Data source: Zhiyan consulting, Size of China’s tableware market

Currently, China’s tableware market is mainly segmented into metal tableware, ceramic tableware, glass tableware, plastic tableware and wooden tableware. Metalware accounted for 53% of the market in 2017, followed by ceramicware (24.6%). Disposable tableware occupies 15.8% of the total market, and the primary product is disposable chopsticks.

Data source: Huajing Industrial Research Institute, China’s tableware market share

Segmentation tableware market in China

China’s main eating utensil – chopsticks

Worldly recognized as central to east Asian culture, Chopsticks are a necessary household item. Chinese chopsticks are normally made of unfinished wood or bamboo. Chinese were taught to use chopsticks long before spoons and forks were invented in Europe (the knife is older, not as an instrument for dining but as a weapon). Chopsticks were strongly advocated by the great Chinese philosopher Confucius (孔子) who believes a dining table should be free of sharp objects. Chinese people, under the cultivation of Confucianism, consider the knife and fork bearing sort of violence, like cold weapons. However, chopsticks reflect gentleness and benevolence, the main moral lesson of Confucianism. Chopsticks make a large part of China’s tableware market, and disproportionately represent the disposable tableware segment.

China’s stainless steel tableware market

Due to traditional eating habits, Chinese people tend to use wooden or plastic chopsticks and ceramic tableware, while western people use more stainless steel tableware. Following industrial and economic growth, revenue for global stainless steel tableware sales increased from 5.96 billion US dollars in 2012 to 10.38 billion US dollars in 2017. In China’s stainless steel tableware market, exports account for more than half of production volume with increasing growth in recent years. 

Data source: China Customs, Exports of China’s stainless steel tableware market

China’s ceramic tableware market

Ceramic tableware is a ceramic product close to people’s daily lives. Recent years have witnessed volatile growth in the size of the industry. According to statistics, the scale of the ceramic tableware market in China increased from 44.45 billion yuan in 2011 to 52.38 billion yuan in 2017, increasing by 17.84%.

The ceramic tableware industry is mainly driven by an increase in the number of households and a rise in the renovation of kitchens. Rapid growth in the food & beverage and home décor market in China is largely responsible for the growth of ceramic tableware consumption.

With increasing quality requirements of imported ceramic tableware products in overseas markets and the overall rising manufacturing cost of domestic manufacturing, ceramic tableware manufacturers that do not pay attention to product quality will face pressure.

China’s disposable tableware market

Data source: Huajing Industrial Research Institute, Size of China’s disposable tableware market

The booming of China’s food delivery market has been contributing to the rapid growth in the disposable tableware market in China. In 2016, the scale of China’s disposable tableware market  was 30.47 billion yuan, which increased to 33.59 billion yuan in 2017. According to analysis, one disposable lunch box is consumed for 15 yuan. China consumed 19.8 billion disposable food boxes in 2017, so the consumption of disposable food boxes in China exceeded 40 billion in 2019. It is predicted that this number will reach 45 billion in 2020. Considering the strong growth of  China’s food delivery market and takeout industry, the number of disposable tableware driven by the food delivery sector in the future will be huge.

Data source: China Business Research Institute, Size of the disposable food boxes market in China

Relevant eco-friendly policy inhibits the growth

With the tightening of China’s environmental protection policy, the prevention and control of plastic pollution will be further strengthened. In the near future, the raw materials of China’s disposable food box will be converting from non-degradable plastic materials to more environmentally friendly and degradable materials.

On January 19, 2020, the National Development and Reform Commission and the Ministry of Ecology and Environment announced the “Opinions on Further Strengthening the Control of Plastic Pollution“. The policy points out that the use of bio-based products that meet food safety requirements should be encouraged in the food and beverage delivery industry. By the end of 2020, the use of non-degradable disposable plastic straws will be prohibited in the catering industry nationwide. With the introduction of the environmental protection policy, many offline restaurants and online takeaway platforms have responded quickly, saying they would not actively provide disposable tableware.

The outlook of China’s disposable tableware market

Overall, with the growth of the food delivery and takeout sector, China’s disposable tableware market still maintains a steady growth trend, and the market prospects are still good. However, with the conversion of plastic materials to environmentally friendly materials, the cost of disposable tableware will rise. In the future, enterprises that have scale advantages of eco-friendly tableware and can effectively control costs will gain competitiveness in the industry. Small companies with poor quality disposable tableware will be gradually eliminated, and the market share of large enterprises will continue to increase.

Tableware brands in China

One of the top Chinese tableware brands: Supor (苏泊尔)

Supor (苏泊尔) is China’s biggest and the world’s second-biggest kitchenware research manufacture. There are five research bases located in Hangzhou (杭州), Yuhuan (玉环), Shaoxing (绍兴), Wuhan (武汉) and Vietnam, with more than 10,000 workers. The company sells its products in 41 countries and territories. ASD is also a Zhejiang (浙江) company, which was founded in 1978. It mainly produces kitchenware and kitchen appliance. It controls its own research, manufacturing and marketing for its products.

Western tableware brands in China: Zwilling (双立人)
ZWILLING J.A.HENCKELS, founded in 1731, is a knife manufacturer based in Solingen, Germany. Henckels is one of the largest and oldest manufacturers of kitchen knives, scissors, cookware and flatware. It has been a part of the Werhahn-Group since the year 1970. The company maintains several brands, including Zwilling J.A. Henckels, J.A. Henckels International and BSF. Currently, the brand with a long history is still thriving, seeing growth (including acquisitions) of about 8 percent per year since 1995. It earned sales of around €700 million in 2017. In addition, the company independently operates its retail shops, studios and partnerships both in Germany and internationally, with over 200 shop-in-shops in China. In April 2018, ZWILLING opened its world’s largest flagship store in Shanghai. The store includes a shop presenting the full ZWILLING range, a cooking school, a classic elegant bar and a restaurant called ‘The Twins’. 

Source: Zwilling’s Weibo account

ZWILLING attaches great importance to the Chinese market due to the growth of the Chinese middle class. “Today, China is the most important and the largest market for the Zwilling world, bigger than the USA and bigger than Germany,” Dr. Schiffers, Zwilling’s global CEO, said.

Listen to 100 China entrepreneur stories on China Paradigms, the China business podcast

Listen to China Paradigm on Apple Podcast

This article The tableware market in China: Is disposable tableware on its way out? is the first one to appear on Daxue Consulting - Market Research China.

According to White paper on mental health of Urban Residents in China, among 1.1 million people in the sample, nearly 75% suffer suboptimal levels of mental health  while only 10.3% enjoy a healthy mental status. The paper also indicates that there is a relationship between the mental health and physical health. 50.1% of people who have physical health also suffer mental health problems. Specifically, people who are diagnosed with tumours, diabetes and hypertension are more likely to have anxiety and depression.

A more recent survey by Teenager newspaper reported that in 2018, more than a third of the young adult in the age group 14-35 were at risk for depression and 10% had severe depression. The rate of young adults with no mental health issues dropped by 5.3% between 2008 and 2018. The risk of mild-to-moderate depression increased 5% (compare to 2008) and the risk of severe depression was also higher than in 2008. All the evidence points out the fact that more and more people in China are facing mental health problems. Additionally, the Chinese government announced a series of documents (Health China movement健康中国行动) to urge local school and institutions to pay more attention to children and teenagers’ psychological wellbeing. It is therefore important to understand the current development of China’s mental health care market and how it is organised.

Mental health care market in China: The growth of C2C psychotherapy online platforms

According to iiMedia research, the scale of e-commerce users of therapist services in China exceeded 20 million in 2018, and it is expected to triple in 2020. Rather than offline services, Chinese tend to choose online therapist services as it is more convenient and private. There are a large number of consumers needing a therapist for emotional setbacks as well as depression. This research suggests that with the development of user education the growth of the e-commerce market for therapist services will slow down in the next few years, and the services will refine themselves with more diversified segments.

Data source: iiMedia, Chinese go online for therapy sessions

Song Guo Qing Su (SGQS松果倾诉) and Hao Xin Qing (HXQ 好心情) are the e-commerce psychotherapy platforms that are trending. Both SGQS and HXQ use a C2C business model to deliver their service. SGQS attracts many independent yet less qualified therapists to join the platform. A client can choose either to communicate via text or a call and the therapists will charge accordingly. The price is in a wide range and usually much cheaper than the professional therapist in the hospital. However, SGQS does not guarantee the quality of the therapists. The same kind services are proposed on Tao Bao (淘宝) as well.

In contrast, HXQ is relatively more professional in terms of quality of therapists. According to HXQ website, the therapists registered with HXQ are all from public hospital psychiatry, neurology and psychology department doctors. Almost 20 thousand psychiatrists, accounting for 80% of the psychiatrists nation-wide, are registered with HXQ. HXQ uses the cloud and big data technology that share the sources with the supply chain of the medical and health products. Hence, HXQ is not only a provider of psychological consulting services but also a health supplement retailer.

Image source: Sohu new report, CEO of HXQ’s presentation about online mental healthcare market in China

Supply in the the mental health care market in China

In a China Paradigms interview, Zhang Ying Fei, a psychological therapist in China points out that the Chinese mental health market is underdeveloped. Even though many people want to become a therapist and some of them do obtain a certificate, low future income and high upfront investment are obstacles. In order to get the certificate, aspiring therapists need to invest time and money for training, which normally lasts six months to one year.

Independent therapists face unstable income and high investment in training

The supply of therapists in China is short partly due to the sacrifices that therapists must make. According to Zhang, “Even if someone has the certificate they are not going to be a therapist. Who can really be a therapist; according to what I observed are those that are really determined and so they have to sacrifice many things; their time, their current job”

See our China Paradigms episode with Zhang Ying Fei

Zhang says the length of the training is not enough to train people professionally. Therefore, extra investment of time and money is needed for more professionalism. This normally takes a few years and the student needs to be financially independent to do so. The low income is another obstacle, being an independent therapist in China does not guarantee a high income. It is quite the contrary, most of the people take this profession as a part-time job because of the low income and unstable consumer leads. The pay is around 200 to 300 yuan per hour which is a relatively low return on the prior investment. Additionally, there is time needed to manage the clients.. To summarize, there are four obstacles to become an independent therapist: high investment in time and money for training; low future income; unstable consumer leads and difficulty of self-managing clients.

Opportunities and challenges in mental health care market in China

Data driven technology to improve the service

Mr Chen, the CEO of Hao Xin Qing (HXQ) says the next step of HXQ is to strengthen the online systems and attract more registered doctors to join the platform. Due to the relatively conservative Chinese society which possesses a stigma against mental disorders, in combination with expensive consulting fees, Chinese people with mental sub-health are often not willing to seek professional help.

According to 2019 white paper on Mental and Psychological, 92% of Chinese who suffer mental health problems never receive any treatment. Problem such as depression and anxiety are often ignored. Some of them even refuse to admit they have mental problems. Providing an online platform protect patients’ privacy and reduce the cost for both sides. The white paper indicates that indirect mental treatment via online platforms costs an average of 350 Yuan while the direct treatment via off-line hospital costs 1,032 Yuan. Around 50% reduction on cost via online platforms. In the future, HXQ will consider introducing the offline services for their patients if there is need for rehabilitative treatment.

Future market entrants will have to discuss the growing challenges. First, the therapist’s certificate in China is easy to obtain. This reduces the quality of the therapists and increases the complaints from the consumers. This lack of regulatory policies in the mental health market makes it difficult for people with complaints to report.  Secondly, there is no standard fee in the industry. Companies charge differently, raising concerns about the quality of the service as well as barrier of client trust. Therefore, regulations are necessary for the future to guarantee the growth of the mental health market in China.

How did COVID-19 effect the mental health of Chinese people?

Listen to our Daxue Talks episode with David Ammerschlaeger

This article The mental health market in China awakens through digital channels is the first one to appear on Daxue Consulting - Market Research China.

China’s startup hype started from the central government

Entrepreneurship and innovation have always been on the mind of top decision makers

Since 2008, China’s central government has already extended a warm welcome (in the form of grants and other perks) to attract top talents back to China. Its goal is to promote high-level innovations and technological breakthroughs, which naturally contributes to employment and economy.

In 2014 in the Summer Davos Forum, the Prime Minister Li Keqiang first coined the term “Mass Entrepreneurship and Innovation”. In 2015, he kept advocating the entrepreneur spirit in the National People’s Congress and many other important occasions. Since then, the notion of starting up and being your own boss gained momentum.

Over the years, the Chinese government has focused on the youth as the main propeller of innovation

The plan called “Implementing Opinions on Deepening Innovation and Entrepreneurship Education Reform in Higher Education Institutions” issued by the State Council in 2015 further lowered the entry barriers for university graduates to start a business. All sorts of business plan competitions were put in place with generous grants to realize the winning proposals. For example, China College students’ Internet Plus Competitions are target local graduate students, while the Chunhui Cup targets overseas students. Also, startup experiences could be converted into school credits. What’s more, university entrepreneurs can extend their school years if they decide to pursue a business idea.

All those measures were established to reach the objective in 2020: a sound university entrepreneurship education system, significantly enhanced students’ innovative spirit and skills, and a significant increase in the number of students engaged in entrepreneurial practices.

Internet is transforming almost all the industries, representing great opportunity for mass innovation

The term “Internet Plus” was coined to inspire people with the prowess of information technology, and is regarded as a national-level strategy. All the aspiring entrepreneurs in China’s startup scene are thinking how to disrupt a traditional industry with the mighty internet.

Online to Offline (O2O) is a famous term born in this context. The logic is to combine the online and offline experience to facilitate life. Ride-hailing market leader Didi, food delivery platform Eleme, e-commerce giant Taobao, short-lived bike-sharing unicorn OFO are all examples of the O2O business model. The customer value chain has one part done online, usually product configuration and mobile payment, and another part delivered offline.

In addition to O2O business model, Internet Plus also gave birth to new business models in various industries. Coupled with media, it became new media, embodied by WeChat official accounts. Married with finance, it turned into FinTech, which made investing, money wiring, and short-term renting way more convenient. E-commerce is the best illustration of how internet switched the retail business online and scaled up its influence while cutting down fixed costs.

The benefit of internet spills over to non-for-profit areas too. For example, online education market leader Hujiang put forward a Corporate Social Responsibility program in 2015, with an aim to mitigate the education inequality in China. Ant Forest, a carbon-reduction program introduced by Alipay increased user stickiness by planting real trees on their behalf.

The mobilized public and the honorable badge of failure

The unwavering support from the government and the widespread of internet capabilities enabled the creative minds to unleash their potential.

According to National Bureau of Statistics, the improvement of general business environment in China has given rise to business registrations. Especially in the tertiary sector, where the legal entities registered with IT services has quadrupled from 2013 to 2018. Other booming industries include technological services, leasing and professional services, with a CAGR of 23%. Public administration and social organizations only grew 2% on an annual basis. Those figures clearly outline the confidence and concentration of digital services promoted in the entrepreneurial wave.

Data source: National Bureau of Statistics, Number of Chinese legal entities in 3 sectors

The increased ease of starting up and technological advancements propelled the establishment of enterprises. Compared to individual economic units, registered enterprises soared in 5 years, taking a whopping 75.6% of total legal entities.

Data source: National Bureau of Statistics, Number of Chinese enterprises registered has soared

Furthermore, the tide of Mass Entrepreneurship and Innovation translated into the numerous young enterprises. In 2013, SME (small and medium enterprises) represented 95.6% of the total registered companies. In 2018, they represented 98.5%, showing the liveliness of Chinese entrepreneurial energies.

Data source: National Bureau of Statistics, Young enterprises take the lead

There are many stories and lessons about startup failures, which is how 95% of startups end. But with the mainstream endorsement and regulatory privileges, failures are more and more seen as a badge of honor. For the new generation of Chinese entrepreneurs, many are driven by dreams and opportunities, some are forced to venture for lack of job prospects, yet others are blindly following suit. In 2011, only 1.7% of university graduates opted for starting up a business. This percentage peaked at 3% in 2016 then slightly dropped to 2.7% in 2018. This change implies that government promotion was effective, and that China’s startup scene is cooler headed than before.

On the one hand, it’s the government’s job to put all the necessary support in place to ensure new ideas come out alive after market selection. There are more and more incubators, governmental subsidies, and free startup resources and mentors. On the other hand, it’s entrepreneurs’ job to hone their entrepreneurial skills and think long and hard about their fundamental business logic.

The fallen unicorns made investors more cautious about the fundamental business logic

After the two roles played by the government and the entrepreneurs, the third player in China’s startup scene is the investors. Whether it’s business angels or venture capitalists or private equity firms, they are the guardians of solid business sense and financial resources.

The loudest failure in the recent history of China’s startup scene is the bike-sharing platforms. Began in 2014, OFO and Mobike had been the super stars to solve the last mile mobility issue. Even with around 8 billion RMB of investment across several rounds for each company, they had been controversial in their ability to generate profit, to respect public order, and to protect local environment. In the end, OFO filed for bankruptcy and Mobile got acquired by Meituan for merely 2.7 billion RMB.

This contrast of capital zeal and the market failure illustrate the short-term mindset of some investors. To claim the maximum market coverage, which seemed to be the key success factor in the sharing economy logic, the companies and the capital both prioritized buying bikes over risk control. The lack of a sustainable company culture and conflicts of interest at the top management level went unaddressed.

Source: Sina Finance, the mountain of abandoned sharing bikes

Such a vivid example will lead the investors to favor sound business models over those benefiting from over-evaluations of other investors. It’s good for the society because it creates less bubbles, but it also means tougher financing for the entrepreneurs. For any newcomer in China’s startup scene, there are several dangers that could be detrimental to its fundamental business logic.

Competition and acquisition from conglomerates like BATJ

It’s almost a common knowledge that once a startup is big enough, it will be bought by one of the tech giants in China. The famous Baidu, Alibaba, Tencent, JD and other rising giants like ByteDance, NetEase, Didi, Meituan won’t hesitate to make a bid to make their own ecosystems stronger.

But first of all, the startup has to survive the competition by those giants. A great dark-horse example is Pinduoduo, whose founder Colin Huang recently became the second richest person in China. The notion of Social + Ecommerce in the long tail market made this startup successful, in an era where everyone thought Alibaba and JD had occupied all the room of growth. In theory, the existing e-commerce giants could quickly take over Pinduoduo in its cradle. In practice, neither of them followed the startup to compete in lower-tier cities.

Tencent, being the social networking giant, strategically invested in both JD and Pinduoduo, to combat with Alibaba in the e-commerce arena. That’s the best outcome for the startup, with the owner taking 46.8% of the shares and 89.8% of the voting rights.

Other startups don’t have the same luck, many were bought to be dissembled into existing projects of the giant company. For example, ByteDance bought Zhaoxi Calendar, a niche time-management app, whose product team was integrated into Lark, another acquisition realized only 2 month before.

Copycats and price war

Even if a startup didn’t make enemies out of the tech giants, diligent copycats and the resulting price war could put an end to their cash inflow.

The Chinese market never lack duets. Didi and Uber China in ride-railing sector, Meituan and Eleme in food delivery online business, Mobike and OFO in bike sharing economy. When there is oligopolistic competition, the consumers are the happiest. Huge amounts of discounts are up for the taking, as long as they lead to market share. However, price wars are destructive to both competitors, as the customers attracted by low price are not necessarily loyal. Once the price incentives are out of the table, usually due to the serious drain on financial resources, the market share might shrink back.

One sure thing to note about China’s startup scene is that, there is no shortage of copycats. Demonstrating this, there are more than 20 startups which share the same shared-bike business model.

Source: Tencent news, Shu Ke Shi, 20 startups in bike sharing industry

Illegal activities that suck the margin into the shadow

Luckin coffee has made its fame by publicly stating financial fraud to SEC. Its business model was clearly unsustainable, as it had a loophole in its expansion strategy. It’s strength in marketing and storytelling did not compensate its unsatisfactory risk control department. And this Achilles’ heel has costed its healthy financial performance.

Basically, Luckin’s expansion strategy is based on customer referral. As a startup, the number of referrals is directly linked with GMV, KPI, and valuation of next financing round. It’s therefore understandable how much marketing and budgetary resources are pooled to facilitate leads conversion. However, instead of using elaborative verification methods to ensure the referred customer is a real person, Luckin only used a phone number to validate the referral. Once the referral is validated, both the referrer and the referee enjoy discounts. The result of a weak risk control is constant loss of profit due to a highly developed grey industry of fake phone numbers.

In the highly competitive battlefield as the China’s startup scene, nothing is too despicable to be true. Entrepreneurs owe it to their teams and investors to pay attention to not only the legal competitions, but also illegal activities.

In conclusion, China’s entrepreneurs keep pushing forward despite setbacks

China’s startup scene is quite lively thanks to the government’s Mass Entrepreneurship and Innovation guidelines, mobilized public and responsible investors. Even though system-level crises, industry-level fluctuations, and company-level setbacks keep striking one after another, the qualified entrepreneurs will seize the opportunity in the distressing time, fearless as always.

Author: Della Wang

Interested in starting a business in China?

Start with China Paradigm and learn about over 100 China entrepreneurship ventures

Listen to China Paradigm on Apple Podcast

One industry with many startups in China? Learn more about China’s AI industry.

This article China’s startup scene: Lively, relentless, and unmatched by anything else is the first one to appear on Daxue Consulting - Market Research China.

Delayed retirement in China is to be expected in the coming years

Current official scheme of retirement in China

Currently, all men retire at age 60, while blue-collar women at 50 and white-collar women at 55. Workers in health-harming professions such as underground, high-altitude, labor-intensive jobs enjoy a 5-year reduction. So do men and women who can prove their illness or disability.

This has been the case since the founding years of People’s Republic of China in the 1950s, regardless of the fact that the life expectancy rose from 57 to 77 years old in the past 60 years. Globally, as societies age, most developed countries set the retirement age around 65, and treat men and women equally. This gap reveals a delicate yet imperative task for China to make retirement reforms before it can no longer afford to.

Considerations for reforming retirement in China

The modification of official retirement scheme requires comprehensive understanding of the 5 following issues, according to Gongcheng Zheng, professor at Renmin University of China.

1. Life expectancy: an extension of life expectancy naturally entails to an extension of working years.
2. Labor market: if the labor supply surpasses the demand, then keeping the elderly in the workforce would hamper the career progression of the young; inversely, if there is not enough labor supply, the elderly has to be withheld.
3. Education: the more educated the worker is, the more human capital goes to waste if the worker is let go too early.
4. Societal aging: as the population ages, the average age of the general workforce also has to rise, respecting intergenerational equality and sustainability. Otherwise, the Chinese elderly might overburden the working adults.
5. Gender equality: if the female workforce quit the labor market sooner than the male counterparts, then the nation essentially deprives women of their rights and voices in the active participation of the society.

Currently in China, all five of these issues check out. According to National Bureau of Statistics, life expectancy and the level of education keep rising over the years. Urgently, the labor supply shrinks at a rate of millions every year and is expected to continue. Jian Su, the director of China Center of Economic Research pointed out to Tencent news that the 410 million second-wave baby boomers born from 1962 to 1978 will exit the labor market, further reducing the domestic labor supply for another 20 years. What’s more, the aging trend is irreversible, and feminist groups have louder and louder voice. No matter much how people debate over the years, the delayed retirement is coming in China, recently confirmed by Ministry of Human Resources and Social Security (MOHRSS for short).

Data source: National Bureau of Statistics, the China’s workforce keeps shrinking

A possible reform rollout plan

There has not yet been an official announcement of reform rollout plan, but the clock is ticking. According to the Outline of the 13^th Five-year Plan of the Ministry of Human Resources and Social Security (MOHRSS), a reform of retirement in China needs to see the day by 2020.

Source: daxue consulting analysis, possible retirement reform rollout plan

Considering the delicacy and severity of such task, the then-Minister of MOHRSS Weimin Yin emphasized the importance of baby steps and flexibility. After the announcement, the society will be given another 5 years to adjust to the new reality. In addition, individuals should have some discretion over the exact exit age in a set range, depending on their profession, location and health condition. Furthermore, provincial differences should be taken into account, as the 5 issues discussed above don’t score the same across regions.

Life after retirement marks a new search for meaning

The psychology of retirement

It is widely acknowledged that retirement is a process, not a simple action. Before the set retirement date, the retiree-to-be would already start daydreaming about their retired life. Then comes the honeymoon phase where they rediscover the joy of freedom and novelty. However, soon they would taste frustration as the rhythm slows down and lack of meaning seeps in. In this stage, many would feel lost, upset or even depressed for the loss of goals or feedback loops. After self-readjustment and assistance from the family and society at large, most of them would recover and find a new direction in fit with their retired life. Finally, and ideally, they will again be at peace and ease with their new expectations and limitations, effective in their objectives and content with their self-value.

According to the 4^th National survey on China’s elderly in 2015, watching TV and volunteering are among the top choices of activities for retirees. Traveling for Chinese seniors, on the other hand, is getting popular too.

Data source: Ministry of Civil Affairs, Top activities for Chinese retirees

According to the Report on the Living Conditions of China’s elderly initiated by China Research Center on Aging, the newly retired seniors in China represents a new driver for internet growth. As mobile consumption spreads to the older generation, more and more of the retired people turn to internet for recreation. 

Data source: China Research Center on Aging, Top online activities by Chinese retirees

Reinsertion to society is a rising demand to revitalize the newly retired

According to the Report on the Living Conditions of China’s elderly, a total of 17% of male and 10% of female retirees still exercise a profession. Out of the working retirees, 86% of them are in the agriculture industry, 7% in construction industry and very few in social or service sectors. It’s safe to say that a staggering majority of Chinese working retirees live and work in rural areas.  

In cities however, many retirees find it hard to be reemployed, due to high legal risks posed on the employer and a reduced number of suitable opportunities. As a consequence, only 7% of the urban retirees are back to working life, compared to 40% in rural areas. Most retirees who successfully re-enter the urban society  are those with transferable expertise, such as accounting or medicine. Compared to Japan and Korea whose government issue policies to support retiree reinsertion, China is lacking.

Fortunately, the private sector is actively finding solutions, such as an online labor market dedicated to the retirees. With endorsement from China National Committee on Aging, the precious human capital resided in healthy retirees will hopefully be re-empowered after their retirement in China.

Increased income is also a main motivation to improve life after retirement in China

It is great news that the financial situation of the elderly in China improved drastically over the years. According to the 4^th National survey on China’s elderly in 2015, the urban retirees annual income per capital reached 23,930 RMB in 2014, while that of rural retirees was 7,621 RMB. It implied a 5.9% and 9.1% of CAGR from the year 2000 for the urban and rural retirees respectively. Furthermore, the income gap between the urban and rural areas got reduced. While the guaranteed income dropped from 90% to 80% of total income for the urban retirees from 2000 to 2014, that of the rural retirees increased from 14% to 36%.

Younger retirees could use more income

A deeper look at the source of income shows that labor income cannot be neglected for the younger retirees. In fact, income from work outweighs pension, family provisions or minimum guaranteed income until the age of 68, based on a paper published by Peng Du, professor of gerontology in Renmen University of China. After 68, family provisions take the lead, while pensions fluctuate around 20% of the total income.

This explains why, the younger bracket of the retirees (aged 60-69) actively looks for opportunities to put their energy and expertise to use. As loving parents, they generally don’t want to be a financial burden to their middle-aged children. Working after the official retirement age gives them more income to lead an easier life in the future.

In summary, the in the future, Chinese will retire later but better. And once they retire, many would search for new forms of meaning and income. Even though there is still a lot to develop in the silver economy in China, the rising life expectancy presents new challenges and opportunities for the elderly industry in China as well as for the retirees themselves.

Author: Della Wang

Learn more about the consumption of Chinese retirees, check out our silver economy report

This article Retirement in China: Preparing for 410 million second-wave baby boomers to exit the labor market 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

Learn more about Chinese consumption after COVID-19

Listen to 100 China entrepreneur stories on China Paradigms, the China business podcast

Listen to China Paradigm on Apple Podcast

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.

The number of students going abroad is mounting every year as increasing numbers of Chinese students are looking for an experience overseas. Between 2008 and 2016, the number of students studying abroad had increased from 179,800 to 544,500 showing overwhelming growth. In 2017 alone, 608,400 students left China for overseas study. This fast growth has been developing since 2010 and has been growing year on year. Today, China is the largest source of international students and is expected to grow. Yu Minhong, the founder and CEO of the New Oriental Education and Technology Group as well as a member of the Chinese People’s Political Consultative Conference’s National Committee, estimates that the number of students studying abroad will peak at 700,000 to 800,000 each year. However, the coronavirus outbreak has caused Chinese students to re-evaluate their study abroad plans, gradually initiating a shift in destination preferences and post-grad decisions.

Why is China’s study abroad rate increasing?

The price of student exchanges has also become increasingly more affordable as the booming economy has allowed more parents and students to meet these heavy costs. This has allowed more Chinese students the opportunity to go overseas in order to increase their chances of employment after graduation. This is especially important as 2010 brought a higher percentage of unemployed graduate students causing students to look for ways to differentiate themselves in the job market. Many students, however, despite the abroad experience often return home with the compound annual growth rate (CAGR) being 14.9% for returnees and 11.7% for students going abroad. This is as many students intend to go back after studying or find the job market overseas too difficult with them often having lower revenues. The government also offers incentives to returnees in China with them having better opportunities in larger cities which they would not have been able to access without foreign education.

Chinese students studying abroad: Destination preferences

Due to China’s massive population, it sends more students abroad than any other country and this number is still rising. This is seen with growth in the number of returning Chinese students overtaking the number of students studying abroad in 2016. The United States (US), however, has been the preferred destination for many Chinese students with it remaining the top destination year on year.  The quality of a US education is reputable and many Chinese students study in the US may hope to stay and live there after graduation in order to enjoy the lifestyle of a developed country. Further, many Chinese international students prefer to study in English speaking countries with the US, Australia and the UK making up approximately 60% of outbound students. China is also the largest source of international students in many countries with Chinese students accounting for 30% of students in America, Canada, Australia and New Zealand.

However, what may have been a popular destination could be fading due to the pandemic and various political clashes (such as trade war).

According to a report on the economic impacts of the pandemic published in April by the US-China Economic and Security Review Commission, a host of issues can reduce Chinese demand for higher education in the US in the following academic year. These include delays or cancellations of US entrance exams in China, travel restrictions, and the perpetuating uncertainty of when US college classes will be in-person. The economic impacts could be severe as nearly a third of all tuition payments to US public universities stem from international students. Also, cancelled university recruitment events in China and inability to work with local recruitment agencies could further contribute to the decrease in enrolment (learn more on how the coronavirus has impacted Chinese students’ study abroad decisions).

Prior to the coronavirus outbreak, there has already been a decline in enrolments from Chinese students in US schools, most of which are part of the larger picture of rising Sino-US political tensions. For instance, visa refusals have been a common problem facing Chinese students. As such, the development and job opportunities back home prove to be attractive reasons for the drop in Chinese students seeking to settle overseas after graduation, which was 85.4% in 2013 but 79.4% in 2016.

Other countries are also increasing their awareness in China as they gain market share slowly and Chinese students are ready to assess new destinations. It is clear, however, that English speaking countries have an added advantage to attract Chinese students who want to better their English speaking skills. Some regions have become more popular with East Asia and the Pacific taking a significant portion of Chinese students with the convenience of location. This is with Japan as the 4^th most popular country and South Korea as the 6^th most popular country in 2016.  This is also with Chinese students accounting for 57.3% of international students in Japan and 49.3% of students in South Korea. Many students also studied in Hong Kong due to its proximity.

Why do Chinese students study overseas?

Chinese students abroad: Social, personal and professional benefits

When surveyed it was found that 82.5% of companies and employers give returnee employees privileged treatment. A CCG survey found that almost half of the Chinese students surveyed who studied abroad believed that they were more competitive than their peers who studied at domestic universities. This is proven true with 20% of companies promoting returnees faster and 17.5% preferring returnees for core positions and 50% of state-owned enterprises claiming that they welcome returnees into core positions. These figures alone show the importance employers place on abroad studies with these high percentages indicative of the professional benefits provided to those with an overseas degree.

Another benefit this provides for Chinese citizens the influence abroad education has on Hukou. Hukou is strict and complicated household registration system which also doubles as a domestic passport that regulates the Chinese population both socially and geographically. It determines factors such as where a person can live and work, where their children can go to school particularly so if they belong to a rural area and the social welfare benefits they can receive. Returnees from abroad studies get a more flexible Hukou transfer policy which helps them settle down in tier 1 cities and gives them more opportunities in terms of experience and salary. Further, preferential policies are also provided by the government to get returnees to start a business by providing grants and incentives such as free or discounted offices or tax-free cars. This is in order to attract Chinese talents back to China.

Besides the social and professional benefits provided by organizations and the government, there are personal benefits for Chinese students who go on exchange. This is evident as 64% of Chinese international students pursue abroad education in order to enrich their personal experience. This includes improvement of their English skills, the knowledge they gain of a different culture, overseas life experience and an international network. These benefits can be gained by any student studying overseas but English based exchanges are particularly beneficial for Chinese students who have been studying English throughout a school. This is as it gives students a chance to gain practical experience in a different environment that makes them more employable in the long run. Other than Chinese and Spanish, English is one of the most widespread languages in the world. It has gained increasing importance with English being an official language in at least quarter of the world, with 400 million people speaking English as their first language and 1 in 5 people being able to speak or understand some English. The role of English in China cannot be understated especially as it is integral for professionals to compete within the business environment. This is illustrated with parents understanding this importance as they start English education early in order for their children to start off more competitively, thereby spiking the demand for English teachers in China.

Another major benefit is also the waiving of the Gaokao entrance exam. Gaokao is the test undertaken by high school students in order to study at university and it is known worldwide for being an extremely difficult and stressful exam. The test has been said to determine the course of a student’s life and is the only way to enter university. The supply of university spots is also known for not meeting demand- making the pressure on high school students enormous. Those who previously did not anticipate abroad studies and those determined to study overseas do not need to pass Gaokao which takes a significant amount of stress off of students.

Chinese studying overseas: Criteria for students picking universities

As studying abroad is very important for students and parents a lot of thought goes into picking the university and country they will be studying at. A big determining factor to consider is the country itself. This requires evaluating the country itself by its size, population, economy and development degree. Chinese people prefer countries which are bigger and have a larger population, higher economic power and the development degree which makes the US the most popular country to go to. Some students are also concerned about the culture of the country itself.

Further, the school awareness in China that is the school’s brand reputation is very important. This is evident with 61% of students in a survey conducted by WSE choosing school reputation as the top consideration of school selection, with the success rate following at 48%, school location at 40% and expected income level after graduation being at 39%. This is as about 80% of international Chinese students go back to China after graduation which makes the school’s awareness and reputation important when considering job prospects in the future.

Moreover, the ranking itself is very important with many different versions of school rankings applying in China to help students and parents make decisions. This includes the QS World University Rankings and the Academic Ranking of World Universities and ranking in the top 100 is very beneficial to students wishing to return to China.

Additionally, the curriculum offered by the school itself is vital. This is with weight in decision making relating to the design of the curriculum, the composition of it, the availability of course choice, the quality and exclusivity of each course and even the internship opportunities that the school supports.

Lastly, whilst all of the above is extremely important, the cost is often a major determining factor. This includes the cost of tuition, living expenses and scholarships available. As such, many students go to Hong Kong for further study due to the lower expense and some European countries provide free public education for the same reason. This is evident with 45% of students being concerned about the cost of studying abroad, compared to only 27% of parents. Cost is especially important as 89% of students traveling abroad self-finance their study so they are very receptive to scholarships or less expensive locations.

International education: How do Chinese people look for information to choose the right university?

Chinese study abroad agencies and specialized education companies are important in helping students to pick countries and universities to study abroad at. They offer a broad range of services to students and help foreign universities and programs get more visibility among students. Due to the services offered, student’s families are willing to a pay a large amount of money for these services which include counseling services on programs, assistance in preparation, application and admission processes, test preparation, English classes as well as international study tours. The Beijing overseas service association also can help abroad institutions to select good partners among agencies to promote institutions in China.

Further, as stated, online information is very important with Chinese students spending a significant amount of time looking at the best destination, university ranking and application process. As such, a good online presence is essential for an overseas university- especially if it is not a top ranking one. Particularly, 31% of students depend on social media when researching for their study destination. They also look to the alumni network for recommendations and feedback as students trust advice from those who have attended the school itself. As such, it is important for universities to have good ambassadors as Chinese students want to hear about the university in a more personal and informal way.

Trends in types of study undertaken by Chinese students

The types of study undertaken by Chinese students themselves vary with the type of study they undertake. This is with Master and Bachelor degrees at the forefront of reasons for going overseas for study, with other avenues collectively making up the remaining 31%. There is, however, a preference for longer study programs over shorter ones. This is with slower growth for shorter study options in comparison to the faster growth experienced by Bachelor and Masters degrees. This is as shorter exchanges are not as popular with Chinese students who prefer to spend the duration of their program overseas with four or two years being favored over a few months.

There are also trends evident in the degrees undertaken by Chinese students. This is with both engineering and business management as the most popular degrees chosen by students. However, in 2016 subjects shifted as more students paid attention to their own preferences over parental preferences and what is expected of them. This was evident as the Center for China & Globalization reported a decline in 2016 with students studying engineering, computer science and IT, math and statistics and social sciences, whilst the number of students who chose to study business management, foreign language and literature and education increased. Further, it was mentioned that subjects relating to business management, trade and corporate management and finance have increased as development in China has created more demand for professionals in these fields.

Market difficulty in China for student exchanges in lesser-known countries

Consulting agencies specializing in overseas programs still promote the US and other popular speaking countries such as the UK, Canada and Australia. As such, standing out from those countries can be quite challenging for smaller countries. This is as knowledge of the country studied at and a school’s ranking is very important for students. This is due to the implications it has for the employability of students, especially those wishing to return to China. Further, social recognition and prestige also play a role beyond professional necessity which can also be a determining factor for parents and students, especially from tier 1 cities.

Study abroad: The Belt and Road Initiative and its effect on Chinese international students

According to Forbes, the Belt and Road Initiative will affect 60% of the world’s population with the participation of 76 countries from Asia, Africa and Europe. The trade and infrastructure undertaking is thought to be one of the most ambitious undertakings in human history and is viewed as ‘a sort of 21st-century silk road’. Along with connecting through trade, Beijing currently offers 10,000 places each year for students who come from countries within the Belt and Road Initiative with China attracting more than 200,000 students from 64 of 68 Belt and Road countries in 2016. Further, since 2013 when the launch of the Belt and Road initiative took place, Chinese students have also flocked to Belt and Road countries with 24 educational agreements being signed between some of these countries since April 2017. This initiative opens up substantial and wide opportunities to educational bodies of countries within the initiative, with the Chinese government wanting to strengthen both educational and trade bonds between countries.

Opportunities for brands wanting to enter the Chinese market

Chinese students prefer English speaking countries in order to improve their English as it is a must-have skill in the work environment with 60% of Chinese students currently going abroad to the US, Australia and the UK. As a result, this increasing need for English helps leverage English speaking countries for exchanges as a whole – not just the top destinations sought by students. This is seen as Chinese students are now exploring new countries for overseas studies. There is, however, due to the Road and Belt Initiative, an opportunity for growth for many more educational organizations and countries to attract Chinese students using the initiative as leverage to strengthen the appeal for Chinese students. This is especially where educational organizations are not within the top 100 or are as well known to Chinese students. This awareness in China is particularly important as going abroad is meant to enhance employability and employment opportunities which cannot be achieved without businesses being aware of the educational organization. Further, an emphasis on the social and personal benefits students are looking for, along with strengthening programs in the more popular university courses, will help make organizations stand out to students. Most importantly, recognition by the Chinese Ministry of Education of the degree and the university itself is necessary for recognition and desirability among the Chinese.

Moreover, there are opportunities for educational organizations that are located in less expensive countries or areas should highlight their desirability and more expensive schools should offer scholarships in order to appeal to students who are self-financing their abroad study. However, it is also important to note that the urban middle classes are also estimated to increase; a McKinsey survey in 2015 found that there were 10 million affluent households with more than 300,000 RMB, and it is estimated to be 18 million by 2020. These households were mostly found in tier 1 to 3 cities but tier 4 to 5 cities were found to be steadily increasing their income. This growth in disposable income and wealth among cities is likely to have a positive effect is on expanding the number of students studying abroad and providing opportunities for more countries than in the past. Although there have been recent declines in Chinese students studying in the US as well as more returnees upon graduation, studying abroad is still a reflection of social mobility and status. The UK sits behind the US as a top destination, with pursuing a master’s degree as an attractive choice with its one-year program considering costs and study requirements. In the coming years, we may see a larger shift in the preference of university destinations among Chinese students in light of the recent events.

See how COVID-19 has impacted Chinese students’ aspirations to study and work abroad.

Author: Jessica Farrell 

Daxue Consulting has conducted a series of surveys on Competitive Benchmarking in China and developed a specific framework to analyze the key insights related to your competition in China.

Competitive analysis is defined as identifying your competitors and evaluating their strategies to determine their strengths and weaknesses about those of your product or service. Daxue provides you with the tools needed to win in a market full of players.

This article Education elsewhere: China seeks out exchanges in other countries is the first one to appear on Daxue Consulting - Market Research China.

Different types of preschools in China

There are two kinds of preschools in China, each with their different purposes. The combination of preschool and kindergarten contributes to children’s preparation for elementary schools.

Public kindergartens & preschools

Public kindergartens in China have two forms that are distinguished by organizers and funders. The first type is the government-built public preschools that gain funds from the government and are supervised by local governments. The other type is self-funded preschools that raise funds as enterprises and are managed by the local education department. These two kinds of kindergartens both play roles in benefiting people by charging low expenses, decreasing financial strain on families. These schools aim to help children prepare for elementary school, so teachers teach basic manners and knowledge. However, such preschools recruit limited students each year.

Private kindergartens & preschools

Unlike public preschools, private kindergartens created by privates aim to make a profit. Such preschools can be regarded as supplements to public preschools, allowing more students to attend preschools. Private kindergartens also have two types: ordinary and high-key. Ordinary private preschools aim to solve the difficulty of enrollment that many children face when trying to enroll in public preschools. The other kind is high-key preschools. High-key kindergartens usually hire foreigner teachers to teach students, allowing students to enjoy a bilingual environment from early childhood. Meanwhile, high-key preschools pay attention to children’s overall development. However, the expenses of private preschools are usually much higher than in public preschools.

Top 10 kindergartens in China

[Source: eol “Top 10 kindergartens in China”]

Trends of the preschool market in China

As China’s economy expands, parents have more and more economic power to give their children a better education. Thus, many types of preschools have emerged.

International kindergartens are popular

Currently, parents are willing to send their children to international kindergartens. Such preschools hire foreign teachers to teach students. They not only teach from the textbook but also organize extracurricular activities like baking and scientific experiments. Although such schools cost upwards of 200,000 RMB per year, numerous parents still hope their children can enjoy high-quality educational resources. In Zhihu, a writer shared her daughter’s experience at an international kindergarten in Beijing. The international kindergarten helped children learn self-care. Children learn to make requests, ask for help, and express their own opinions.

Preschools plus the internet are in trend

As institutions benefit from increased digitalization, preschools utilize the internet to help manage and improve interactions among children, parents, and teachers. Children can use online platforms to obtain up-to-date information while interactive games help children learn in a fun way. Come Chinese parents are used not to being involved in their children’s kindergarten lives. However, those apps can allow them to know what their children learn in class as well as monitor their performance. Also, such platforms benefit kindergarten teachers. They can use online platforms to arrange courses and deal with educational administration.

Many parents take their children to extracurricular preschools to avoid losing at the starting line

In addition to regular preschool classes, parents also send their children to various extracurricular preschools. Those parents believe that learning more after class can make their children more excellent. Children can consolidate the knowledge they gain at school. Additionally, they can learn many new skills outside regular classes. Codemao Kids, a programming learning website for children, enlightens kids through games, exercising their critical and creative abilities.

Issues of the preschool market in China

Although the preschool market in China has enjoyed success, it still faces some issues. Limited seats induce a competitive enrollment process, and bare teacher welfare makes the industry lack talented professionals. Also, occasional scandals trigger societal anger and disappointment in preschool education. These problems disturb the development of the preschool market in China.

Competitive enrollment

A limited numbers of kindergartens causes difficulty in enrollment. During the enrollment period every year, a competitive process unfolds at kindergartens. Parents stay up waiting in line to sign their children up. Limited quotas in those public schools and expensive tuition create a difficult situation for parents.

Lack of talented professionals

An increasing amount of children necessitates higher requirement of professional teachers. The Center For Education Policy of Southwest University estimated that China needed near 4 million professional kindergarten teachers in 2021, while the gap was 2 million. Kindergarten teachers can only earn a low income. Also, kindergarten teachers’ social status is low, so few people with higher degrees are willing to work as kindergarten teachers. Thus, it is hard to make up this gap in a short time.

Scandals spark the societal outrage

Abuse and bulling occasionally happens at kindergartens and causes tremendous harm to children’s physical and mental health. It also triggers society’s anger toward the management of kindergartens. In 2017, a case at RYB kindergarten child abuse shocked Chinese citizens. The kindergarten teacher, by the name of Liu, harmed four children, inducing mental harm on those children. Influenced by this case, the stock price of RYB slumped 38.41%. This event exposed the incomplete management of the kindergartens. It led to an appeal to strengthen management and train more highly qualified teachers.

[Source: Weibo People’s Daily “People express anger to child abuse”]

Uncertainty during the coronavirus outbreak

As older students in secondary schools can autonomously conduct e-learning during the quarantine period, it can be difficult for parents to navigate education for their little ones, in preschool especially. The main issues surrounding online teaching apps is that there is a lack of supervision, an improper learning atmosphere, and that teachers are unfamiliar with online learning. As it takes time for educational implementation and adaptation, preschools in China need to address potential concerns from parents, such as their decreased confidence in the schools’ handling of the initial outbreak and the transition to in-person classes as the situation eases.

The preschool market in China is bright

After evolving over the years, the preschool market in China has made significant progress in improving children’s education and enriching the content of kindergartens. Children are the future of a country, so preschool education is essential. Although the preschool market in China contains many difficulties, the market scale is continuously enlarging. With the development of more sound policies, the future of the preschool market in China is still promising.

After evolving over the years, the preschool market in China has made significant progress in improving children’s education and enriching the content of kindergartens. Children are the future of a country, so preschool education is essential. Although the preschool market in China contains many difficulties, the market scale is continuously enlarging. With the development of more sound policies, the future of the preschool market in China is still promising.

Listen to 100 China entrepreneur stories on China Paradigms, the China business podcast

Listen to China Paradigm on Apple Podcast

This article The Kindergarten and Preschool Market in China: How much Chinese parents pay for early education 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

Also read, what Chinese say about the black lives matter movement

Listen to 100 China entrepreneur stories on China Paradigms, the China business podcast

Listen to China Paradigm on Apple Podcast

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