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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Allison Malmsten: Yeah thank you for having me.

Find the full Stay-at-home Economy Report 

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

Matthieu David: Hello everyone, today we are going to look into the beauty sector in China, and the report we published a few days ago, maybe two weeks ago about how Covid-19 impacted the beauty sector in China. How it impacted during the epidemic and after the epidemic. I’m here to talk about the report with Allison Malmsten who has worked on the report and we will like to share today with the audience a few conclusions we had on the report, especially Alison you mentioned, an overview of the beauty sector before Covid-19 and some of the trends which came out of this and which were a change in the sector. What kind of changes and differences did you see before Covid-19 and just after Covid-19 in China.

Allison Malmsten: Right, hi – so I am Allison, one of the marketing managers at Daxue Consulting. So, first, China’s beauty market is by no means small, it’s the second-largest in the world at over 300 billion renminbi in annual revenue. Skincare taken 54% of the beauty sector in China and some trends that we saw before Covid-19 were – 1] the high-end segment was growing proportionately faster, so high-end brand segment was growing at 18% year on year while the mass brands were only growing at 5% year on year. 2] Second is that social commerce is blossoming, this is Xiaohongshu and also WeChat has its own platform called 有赞 (youzan) and what we saw is on these platforms, especially for the beauty sector in China the conversion rate is pretty high, and so this is kind of a new way of shopping and the year on year growth for Xiaohongshu was double in 2019. Lastly, there’s a rising preference for a domestic brand. Looking at the top 20 beauty brands in China, in 2012 only 7.6% of them were Chinese while in 2018 14% of the top 20 beauty brands in China were domestic Chinese brands, so this growth is pretty significant.

Matthieu David: Very interesting, it seems that the Covid-19 accelerated some trends which were already happening before such as social commerce, Xiaohongshu being one example, that’s what existed before, and the epidemic was let’s say a time where people had more time to spend online and to do social commerce. Do you have the same analysis at the trend that is not necessarily new, whether they have been accelerated with Covid-19?

Allison Malmsten: Right so out of the three trends I mentioned, yes, the social commerce is definitely even more significant now because obviously during the pandemic people were less willing to go to offline stores and they were doing more live stream shopping and more shopping on Xiaohongshu and KOL marketing is definitely very important during this time. There is one trend that might take a turn and that is the high-end segment was growing very fast before and we might see the slowdown as people will be preferred – they’ll be looking more at ingredients and less at brand names, so this could give a chance to any brands that focus on natural ingredients and focus on skin health and skin repair.

Matthieu David: Very interesting to see indeed, in the report we mentioned that Chinese consumers online were looking at the ingredients and at the quality of the beauty product they were buying, more than before and I think within the report we found out that not all the categories went up and for instance make up went down if my memory is correct and specifically some beauty products and financing on natural ingredients grew faster.

Allison Malmsten: Yeah so, cosmetics were hit the hardest. A McKinsey survey showed that 44% of respondents purchased less make up, while 31% purchased less skincare but then also 25% of people purchased more skin care so it’s kind of balanced out but yeah and then within makeup, obviously lipstick pretty much because everybody is wearing a mask, so there’s a beauty style now called the ko [inaudible 05:00] its makeup for wearing masks, so the focus is really on the eyes and also the skin and so the skin care sector, it did take a bit of a hit but it’s also doing pretty okay and a lot of the focus when people are at home – our social listening showed that a lot of people are talking about its time to be at home and they’re wearing less makeup so they see that their skin is getting healthier so they’re very excited about those results and it inspires them to purchase more skincare products, while at the same time wearing a mask for a long time can be very damaging to the skin, so a lot of people are searching for products that have skincare repair functions and also skin sensitivity is a big keyword now. A lot of people are finding that they have sensitive skin and they’re looking for skincare products that can help repair their skin damage from wearing a mask including anything like natural ingredients are really popular right now.

Matthieu David: And some of the comments we found online through social listening were saying that people were switching from makeup to skincare instead of putting makeup to take more care about their skin with specific products, I would say more natural products. I’d like to go back on the Chinese brands – you mentioned that Chinese brands took off during the Covid-19 lockdown and after the Covid-19. Do you see here long-term trend or it’s just short term and was during the epidemic, or do you see a substantial change which is going to stay?

Allison Malmsten: I think that this is going to – the preference for domestic brands, I think this is going to be a long-term trend. I think this is a trend that was accelerated from Covid-19 and the reasons are 1] because patriotism is a very high right now in general, 2] because also domestic brands really understand Chinese consumers and they understand how to reach them. They’re usually very proactive about social commerce and also, they are familiar with like some Chinese herbal ingredients that are very in right now and so they include those in their ingredient list and yeah, I think that a lot of Chinese brands are gaining momentum right now.

Matthieu David: And we looked into a very specific brand called Perfect Diary in the past and it’s a very, very Chinese company which is doing very well. In a topic, we’d actually like to talk about which is product traffic and Perfect Diary has been an example of being very good at product traffic. Product traffic being something very specific to china where e-commerce started with marketplaces like Taobao and then Tmall and then JingDong and many other marketplaces where having your own website and selling through your own website was not mainstream and now its becoming more the case – not selling through your own website, but your website, your WeChat groups, your WeChat channels and your live streaming. So, using a marketing platform to convert on your own asset, your own digital asset, and not through a marketplace. What did you see in terms of digital changes during the pandemic and after?

Allison Malmsten: So, I saw some digital changes, one like you mentioned private traffic and then two is also live streaming. Live stream obviously ballooned under lockdown, while everybody was at home they spent more time on their phone and inevitably they spent a lot of time shopping on their phone or looking at products and so some statistic for that was that as of February 18th, the monthly number of live streaming events on Taobao ballooned by a 110% year on year. Also, Douyin, also experienced around 70 to 100% growth during the lockdown period, so a lot of brands are using live streaming now. And then also one case, in particular, is [inaudible 09:10] which is an Australian beauty brand, during the coronavirus they directed its offline stores to all sell on WeChat, so that is over a 1000 stores that would normally have offline sales, offline staff, they all went online during that period and they actually had sales of 6.3 million renminbi during a live stream event that happened during the coronavirus lockdown in china.

Matthieu David: I believe that the next step is to see those trends now continuing or if it was just a short-term trend during and after the pandemic.

Allison Malmsten: Right, yes that will be very interesting to see because once stores open up, I’m sure people are very eager to go out shopping again but at the same time they might be a little bit more cautious to hit the stores.

Matthieu David: Thank you, everyone, for listening and we will continue with new reports, we will go through together online.

Find the full beauty sector in China Report 

This article Market Tidbits transcript #1: Major changes in the beauty sector in China after COVID-19 is the first one to appear on Daxue Consulting - Market Research China.

Data source: askCI.com- Market size of telemedicine in China from 2015-2019

Telemedicine consumer penetration

Given the COVID-19 situation in the beginning of 2020, it is no surprise that the penetration rate jumped up by 2% YOY. By April 2019, the number of users of online telemedicine services in China had reached 45 million, with industry penetration reaching 6.6%. The penetration rate continued to rise from 2018 to 2019 and will likely maintain its growth momentum in the future. It is expected to exceed 8% in 2020 and the scale of users will continue to expand.

Telemedicine apps and websites are no longer just patients from 1^st-tier cities, but people in 2^nd and 3^rd-tier cities are beginning to use telemedicine platforms. People under 35 years old are the main users, however, the middle-aged & elderly groups’ needs have not yet been explored. Telemedicine companies should pay more attention to the convenience and operability of online consultation to seize this part of consumers.

The characteristics of telemedicine industry in China

5G technology

Source: Sohu.com – Construction of 5G base stations is accelerating and 5G networks are expected to cover prefecture-level cities nationwide by the end of the year

In 2020, 5G technology helped telemedicine enter a new stage of development and explore new scenarios for application. Telemedicine in China started relatively late. In 1988, the PLA General Hospital conducted a remote case discussion of neurosurgery with a German hospital via satellite, which was the first telemedicine activity in the modern sense in China. China’s telemedicine industry has developed rapidly later on, owing to the development of computer technology, communication technology, digital medical equipment technology, hospital information management technology and a series of core technologies in telemedicine.

In early 2020, during the COVID-19 outbreak, China’s telemedicine was more widely applied and developed with the support of 5G technology. Zte and Sichuan Telecom assisted West China Hospital of Sichuan University and Chengdu Public Health Clinical Medical Center to realize 5G remote consultation of two COVID-19 cases for the first time.

5G telemedicine trolley has been launched in Wuhan Huoshenshan Hospital. In some places, China Mobile has launched the application of “5G infrared thermal imaging temperature measurement” to realize the simultaneous scanning and temperature measurement of many people.

Driven by 5G technology, the application scenarios of telemedicine have been expanded, such as remote ultrasound, remote surgery, mobile ward rounds, remote monitoring, remote consultation and remote first aid.

The uneven distribution of medical resources

In China, the distribution of superior medical resources is extremely uneven. More than 70% of the third-level grade-A hospitals are located in the eastern region, making the potential demand for telemedicine in the central and western regions huge.

Data source: chyxx.com – The proportion of third-level grade-A hospitals in the three regions in 2018

Telemedicine in China’s ageing society

China’s huge population base has already put medical resources to a severe test. On top of this, China has encountered the problems of relatively unbalanced economic development and unevenly medical resources distribution. At the same time, China’s population is aging, and immense pressure is put on the younger generations to care for the elderly.

The United Nations issued a standard: as 65 years old people account for more than 7% of the total population, the country is considered an aging society. According to data released by Chinese National Bureau of Statistics (NBS), the proportion of the population over 65 years old has reached 11.9% in 2018.

Data source: chyxx.com – The proportion of people aged 65 and over in China from 2000 to 2018

As the elderly have entered a period of decline, they are much more likely to be infected with various diseases than their younger counterparts, which greatly increases the market demand for medical resources. Telemedicine can solve the imbalance of medical services in different regions to a large extent as well as integrate and utilize medical resources through the Internet, which will be conducive to the stability of our society and the protection of people’s healthcare.

Telemedicine platforms in China under the influence of COVID-19

Accelerate the construction of telemedicine platforms in China from hospitals

Due to the COVID-19 outbreak, the urgent need for epidemic prevention and control has promoted the construction of telemedicine platforms in China from hospitals, which reached a new peak in February 2020, with 65 telemedicine platforms from hospitals built in a single month. During the epidemic, in addition to online outpatient services and pneumonia consultation services provided by existing telemedicine platforms, traditional public hospitals and other medical institutions also launched online telemedicine platforms on an emergency basis.

Previously, most of the public hospital informatization construction remained in the “digital hospital” level, such as “intelligent outpatient service”. The degree of informatization is mainly reflected in basic services such as hospital registration, consultation, settlement and medical record management. The epidemic has accelerated the construction of remote online consultation in hospitals and the real patient-oriented Internet diagnosis as well as treatment services which have begun to develop.

Data source: Xinhua.com – Number of Chinese hospitals with own telemedicine platforms from 2019-2020

Take one of the leading platforms – PingAn Good Doctor as an example

PingAn Good Doctor is the wholly-owned subsidiary of PingAn Group and leader in telemedicine services in China.

It covers four major business segments: online medical consultation, consumption medical care, health malls, health management and interaction. The number of users reached 5.67 million on February 5th, with an increase of 8.4% before the 2020 Lunar new year.

In terms of city distribution, the proportion of customers from new first-tier cities is the largest while the proportion of customers from first-tier cities is the smallest.

In terms of age distribution, consumers aged 24 to 30 account for the largest proportion.

Data source: qianfan.analysys.cn, Ping’an Good Doctor users are disproportionately in first tier-cities.

Data source: qianfan.analysys.cn, Ping’An Good Doctor users are usually young, although elderly are more likely to experience health problems

Monthly active users of PingAn Good Doctor app increased rapidly since January, 2020 (COVID-19 outbreak).

Data Source: qianfan.analysys.cn, monthly active users of Ping’an Good Doctor

Limitations and Opportunities

With the deepening of “Internet Plus”, Internet economy has become an important factor in China’s economic development. “Internet + medical treatment” has been constantly applied and developed.

The coverage rate of 4G network has reached more than 95% and 5G network has been officially commercialized. Software services, cloud computing, big data and other industries are developing rapidly, laying a good technical foundation for telemedicine. With the use of automated and intelligent technologies, telemedicine is gaining more and more recognition from patients. Therefore, it can drive the increase of huge demands and the potential space of telemedicine market will be huge.

Since 2009, a series of established policies have demonstrated the government’s strong determination to develop telemedicine. With the intensive introduction of policies, the policy environment of the telemedicine industry in China is clear and the industry will usher in rapid development.

However, the telemedicine industry in China has not yet developed a mature business mode, remaining some problems like vague pricing policies, uneven payment systems and wide variations in health care from place to place. Additionally, an obvious concern with telemedicine is that it is easy to ignore symptoms that can only be diagnosed in a “face-to-face” setting, leaving health-care providers vulnerable to negligence claims and insurance coverage. At the same time, patients are also prone to misdiagnosis or missed diagnosis.

Social habits and careful regulation hinder the application of telemedicine. For many people around the world including Chinese, the COVID-19 outbreak is already forcing a change in social habits that is likely to have a permanent positive impact on telemedicine.

Author: Qing Zheng

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This article Telemedicine in China: Healthcare reaches a new status quo during the COVID-19 pandemic 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

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Educational technology is an often overlooked global phenomenon. In 2015, global EdTech companies took in more than $2.98 billion across 442 deals, and global EdTech funding jumped a whopping 58% in 2015 from the previous year. The global market is projected to grow at 17.0% per annum, to $252 billion by the year 2020. Asia is seeing the fastest growth in investment into the sector; China, in particular, is the largest EdTech market.

According to the Statistical Report on Internet Development in China, the number of online educational users in China reached 423 million as of March 2020, an increase of 110.2% from the end of 2018. The EdTech sector in China is estimated to reach RMB 453.8 billion in 2020, a 12.3% increase from the previous year, according to a report by iiMedia Research. As a response to the coronavirus outbreak, many EdTech start-ups have captured the opportunity to increase its presence in China and competed to gain popularity among students with attractive course offerings and discounts.

With over 400 million students, China is the world’s largest market for educational technology. While the education market in China still has much room to improve, especially in terms of formal integration of technology into classroom settings, many companies have successfully taken advantage of opportunities for digitizing education in China. EdTech landscape in China focuses on virtual tutoring, but there are a number of other EdTech start-ups that have successfully penetrated the EdTech landscape in China.

These are a few of the most innovative start-ups of the Chinese EdTech landscape –  from robotics to tutoring, to innovative educational technologies. We also explore which of these start-ups have gained a competitive edge during the coronavirus outbreak.

EdTech platforms in the Chinese education market

Yuanfudao (Yuantiku)

The platform focuses on K-12 learning and its products include AI-enabled virtual classes, live tutoring, and apps for homework support. A start-up founded in 2012, Yuanfudao has raised US$1 billion in a new round of funding in April as a response to the coronavirus outbreak led by Hillhouse Capital and its previous investor Tencent Holdings. This puts its valuation at around US$7.5 billion, making it one of the most valuable ed-tech start-ups in China.

In 2015, it launched Yuantiku, an online question bank. This app strategically takes advantage of the test-taking focus of the education system in China. Yuantiku is an online education product that provides material of previous years examinations for students and an exercise database that also provides tailored exercises to improve testing efficiency.  Some tests available include: National College Entrance Exam, post-grad entrance exams, tests for civil servants, first-level constructor exams, law counselor of enterprise exams, securities qualification exams, and more. More than 13 million Chinese junior high and high school students utilize the app, where hundreds and thousands of apps are aggregated to prepare students for the college entrance exam.

With such a huge database like this, its no surprise that two-thirds of Yuantiku’s staff is dedicated to research and development. Leading engineers and researchers are also hired for the application’s “little ape” search and “ape teaching” assistance to further develop its artificial intelligence methods in more effective learning methods. However, since its release, there have been public debates regarding its promotion of the heavy test-centric culture that has already been criticized in China. Questions of whether this kind of application is positive for the social health for Chinese educational society is still something to keep in mind with Yuantiku.

17zuoye

17zuoye, translating to “yi-qi-zuo-ye” or “homework together” widely recognized as the largest online educational platform in China. It is a three-party intelligent education platform for students, parents, and teachers. As of February 2018, 17zuoye has served over 60 million users and 120,000 schools by offering homework solutions to instructors, students, and parents. The platform aims to improve learning efficiency and efficacy and transform student homework from offline to online.  In the same year, the company also raised over $250 million, and intends to expand into the middle school and high school sectors, and continue to lead the the educational technology market in China.

Their mission, state on their website, is to “make education a more beautiful experience” by “utilizing advanced education technology, quality educational content, and continuous educational enthusiasm” in order to “provide more efficient and beautiful products and experiences for K12 stage schools, families and social education scenes, opening a new era of intelligent education.”

VIPKid

Valued at $3 Billion in 2018, VIPKid is one of the hottest applications for online English tutoring in China. The company pairs English tutors from the United States or Canada with Chinese students for one-on-one English tutoring geared for children 4 to 15. Through a live video tutoring platform, parents can book a session for their children with tutors, who can upload videos of their lessons. The English teachers are considered hourly-paid independent contractors.  Currently, VIPKid claims to have over 700,000 paying students and more than 80,000 registered teachers based in North America on the platform.  The company also raised $500 in 2018, suggesting a wave of growth in the Chinese EdTech industry, and across Asia more broadly. 

The app released followed their launch of the desktop version, and the app is a handy tool that lets students see previous feedback from teachers, upcoming schedules, and personal profile. Teachers can review their student sessions, a number of classes taught, and how minutes teaching completed. It also comes with a messaging area and notifications that can alert teachers and students of their upcoming tutoring sessions.

The platform rapidly took actions to support education in response to China’s school closures in late January due to the coronavirus outbreak. VIPKid’s first step was a launching 1.5 million free online math and English classes for children aged 4 to 12, and they prioritized students in Wuhan, the epicenter of the outbreak. They also launched free live-stream and recorded classes on eight major streaming platforms in China.

DaDaABC

DaDaABC has become one of the most successful intelligent English learning platforms for children in China. Founded in 2013, the company had earned over 15 awards and recognition in 2016. They’ve also collaborated with a number of top media companies in China, including Baidu, People’s Daily, and Tencent.

DaDaABC developed an English training system focused on one-and-one online tutoring while encouraging kids to have with their instructors during their practice. As an English tutoring platform, DaDaABC is often compared to VIPKid, but the company does not require their native English teachers to have a North American accent like VIPKid.  As a partner of the American TESOL Institute (ATI), they also offer online training courses for aspiring English instructors worldwide.

Makeblock

Makeblock is one of the most creative companies on our list. Founded just 6 years ago in 2013, the start-up uses Robotics as its primary educational tool, teaching kids coding, engineering, and other basic AI technologies. The package includes do-it-yourself robotic kits that will be manually assembled by students, who then also write simple lines of code to control their robots.

Makeblock is a global leader in STEAM education solutions (Science, Technology, Education, Arts, and Mathematics). The company provides hardware, software, content solutions, and even top-notch robotics competitions. Their products have over 8 million users worldwide, in over 140 countries, by over 1,600 channel providers. Makeblock has been the recipient of seven international awards, including the International Design and Excellence Award, the Reddot Design award, and the CES Innovation Awards in 2018.

As part of its global STEAM on Board Initiative for K-12 educators, Makeblock launched their “at-home resources” in March to adapt to online education with the pandemic. Initially designed to support local professional learning needs of STEAM and computer science teachers, the program now allows all educators and parents around the globe to teach and learn STEAM concepts with their free software, mBlock.  

CCtalk

CCtalk is the multifaceted online learning platform for Hujiang EdTech, another leading company in the Chinese education market. Hujiang was founded in 2001, as a BBS (bulletin board service) community offering online courses, but has since then expanded to offering a wide range of online educational programs, including international and domestic exam prep, foreign language instruction, professional skills training, and even more. CCtalk is a real-time interactive education platform that provides independent knowledge educators and sharers with comprehensive online education tools and platform capabilities, providing informative content and a community environment for learning.

Contrary to popular thought, not every EdTech platform in China is solely based on English tutoring. CCtalk provides a variety of educational tools and abilities both in live, recorded, and group formats. The platform allows teachers to utilize and create educational widgets, including a two-way digital whiteboard, digital hand raising, a multiplayer video that guaranteed teacher-student synchronization, desktop sharing, live PPT-like courseware, and playback functions. CCtalk university provides training for their iteachers, and the CC talk platform itself serves as a great platform in helping teachers attract more new users, and increase revenue from their courses.  The platform has been widely highlighted as a leader in educational innovation, allowing teachers to develop and utilize their own widgets and share them with others on the platform.

Changing Edu

Changing Edu is an O2O (online to offline) educational service app-maker connecting students, parents, and teachers to facilitate after-school learning services. Parents can post inquiries regarding tutoring services, and the mobile service app helps connect tutors to students. The Chinese EdTech company uses an online platform to make offline matches for one-on-one, at-home tutoring services. The company also plans to launch virtual, remote educational services, and other live streaming and expert Q&A services this year on their platform. The platform currently operates in 11 cities, including the larger cities of Shanghai, Beijing, Shenzhen, and Wuhan.

To accommodate for at-home learning during the coronavirus, Changing Edu launched a “Six-week learning contract” initiative for personalized one-on-one teaching. After the six-week learning period, students can apply for a full refund if they are dissatisfied. They also provided a free online teaching platform for self-employed teachers and smaller educational institutions in the industry. Among Chinese society, it seems that this platform has gained popularity among users after the outbreak.

Huikedu Group

Founded in 2010, the Huikedu Group includes the “Huike Education Group” and the “Huike Science Research Institute.” They are the largest partner with higher institutions in China, offering cutting-edge educational technology and products to higher education and vocational education services. The group also cooperates with national goals to develop mobile internet, cloud computing, big data, internet marketing, and other innovative information technology into educational services.

Huideku has reached a unicorn valuation of $1billion. Its focuses are in partnering with enterprises to provide customized educational products. It has developed online courses and R&D labs on tops such as AI and robotics. Additionally, the group also partners with overseas schools to provide overseas educational programs such as exchange programs, language training, and career development.

Supporting at-home learning during the coronavirus pandemic, but what happens next?

The coronavirus outbreak has hampered the supply chain of many industries such as tourism, retail and much more. It could be said that the EdTech sector has been one of the “winners,” seeking opportunities to gain popularity in China in support of local education. Yuanfudao, VIPKid, Makebloc, and Changing Edu have made noticeable initiatives in response to enhance students’ at-home learning. Yuanfudao is one of the top online education apps with a weekly active user YOY growth of 21 times from February 2019 to February 2020. The education app leading the industry is Xuuersi, with a 50 times YOY growth. Its daily active users exceeded 10 million, with many new users from second, third, and fourth tier cities.

With the future uncertain, the most popular educational functions are short commitments, such as one-month subscriptions for a couple lessons or short interactive videos. However, doubt remains as to whether surge demand for EdTech fueled by quarantine measures will last. Schools will eventually reopen, and users are not guaranteed to stay permanently. Indeed, how people value and view the online education market has been revolutionized, yet the question of the longevity of these platforms remains.

Educational technology in China: Takeaways

Educational technology in China has not only seen tremendous growth in recent years but also shows no sign of slowing down in the booming education market in China. With these 8 being amongst the hundreds of EdTech start-ups across China, global markets should realize the innovative ways in which China utilizes digital tools to enhance students’ education in China. This phenomenon also stems from cultural factors, as Chinese society has always vigorously upheld education as one of its core cultural and social values. It is important to make a note of how China has integrated this value with the realm of technology and innovation, While tutoring applications remain the bulk of EdTech companies in China, our list has noted a number of creative EdTech start-ups that utilize a variety of online tools and out-of-the-box educational services. Western markets should be highly alert to the EdTech landscape in China, especially due to the large demand for foreign language tutors. This market is sure to see extended global communication, as language teaching and cross-border education become increasingly in demand with the enhancement of EdTech.

Author: Julia Qi

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Two drivers of China’s counterfeit production

The counterfeits industry in China: a consequence of economic growth

The counterfeit industry in China is seen as a problem but it should also be studied as a symptom of economic growth. In 1978, Deng Xiaoping started reforming China’s economy. For the first time, foreign investments where encouraged. Many companies wanted to relocate there because of low wages and domestic potential. The industrial power grew and the country became the factory of the world as the the international production process. Global brands like Nike or Adidas have a part of a part of their production there. In many sectors, the country started to adopt new technologies.

While China’s living standards improved greatly, the new industrial power lead to counterfeits, as factories could cheaply re-create brand products. The counterfeit industry in China seems like a minor symptom of industrialization. Hence, even if it is necessary to tackle counterfeits, it was just the result of a growing Chinese industry.

China counterfeiting is linked with brand culture

Since the early 1990’s, the counterfeit phenomenon increased quickly in China. During this decade brand culture emerged as the opening of western luxury stores in country. Fashion brands became hyped, and counterfeits were a mean to obtain luxury goods without spending years’ worth wages. Since, fakes continue to progress fulfilling the domestic market of China.

In 2015, China and Hong-Kong represented 86% of the global counterfeit industry, which is around 400 billion USD every year, according to Europol. Thanks to years of relocating for foreign companies, Chinese factories now have the skills needed to copy almost everything. In Chinese stores, 60% of luxury goods are imitations and you can also find some complete fake stores who just looks like a real one. For instance, A fake supreme store opened in Shanghai. The counterfeit phenomenon highly increased following the luxury market starting in China.

Size of the market for counterfeit products in China

The global counterfeit trade for all items, from purses to electronics to software, is worth USD 461 billion, about 2.5% of all trade worldwide. That is more than the global drug trade. Despite attempts regulation, international trade in counterfeit goods has almost doubled since 2008.

According to the 2018 Global Brand Counterfeiting Report, worldwide losses suffered due to counterfeiting amounted to USD 323 billion in 2017, with handbag companies alone accounting for $20 billion of that.

80% of the world’s counterfeit goods come from China, and many of the market’s consumers are in China as well.

The market for fake goods in China

There are several distinct market segments of consumers who purchase fake goodsin China. The primary segment is buyers unaware that they are purchasing fake products. This deceptive counterfeiting is rampant, but the market for fake goods in China is largely driven by consumers who actively search for and purchase counterfeit products. 

Middle-class shoppers who value brand prestige make up a large segment of the non-deceptive counterfeit market. They can afford the occasional $500-$1000 bag, but not the luxurious $15,000 Louis Vuitton or Birkin. These aspirational Chinese shoppers purchase fake goods for the same reason the wealthy buy real products: to emulate their high-class idols, impress peers, and enhance social status. Fake goods allow shoppers to “consume” prestigious brands without actually buying the high-quality goods.

Some consumers knowingly buy counterfeit goods even though they could afford a genuine product. They have ample funds but believe that the high prices of authentic products are unwarranted, especially when they can get a similar version at a much cheaper price.

Chinese Fashionistas chasing the trends

Some wealthy buyers of counterfeit goods in China are known as “fashionistas.” These fashionistas want to buy the hottest new products, but know that another trend will replace it next season and are thus unwilling to invest the money to stay on trend season after season. Furthermore, they see counterfeit purchases as low risk, because limited-edition or recently released products are less familiar to the general public, making it more difficult to call out a fake.  

Buyers of counterfeit goods impose a hidden cost on the brand and people who buy the real thing: they make the brand less exclusive. All non-deceptive counterfeit market shoppers share one attribute: they are willing to pay for visual attributes and functions, but not willing to shop the genuine products. 

Government regulation of the fake market in China

Affected parties have previously complained that punishments for selling counterfeit goods in China are too light to deter offenders. In February 2017 Alibaba reported that of the 1,910 cases of suspected counterfeiting they passed on to authorities, only 129 people were found guilty.

In August 2018 the State Administration for Market Regulation stepped-up efforts to crack-down on the illegal production and sale of counterfeit goods in China.

The regulator announced strict punishments for online trading platforms that fail to protect the rights of consumers and trademark owners, or that do not actively cooperate with market regulatory authorities.

They demanded that other regulators such as the Shanghai Administration for Industry and Commerce launch targeted investigations into sales of counterfeit goods in China, and specifically called out offending platforms such as Pinduoduo.

The new China’s e-commerce law, which took effect on January 1^st, aims to discourage counterfeiting in China through heavier fines and places more responsibility on digital platforms to remove sellers of fake goods. The law also addressed false-advertising, consumer protection, data protection, and cybersecurity.

The new law targets three groups: e-commerce platform operators like Taobao, merchants who sell goods on sites like Taobao, and vendors with their own websites or who sell on social media. Merchants who sell exclusively on social media platforms had been previously unregulated, but now these sellers will need to register their businesses and pay relevant taxes.

In an effort to spur major e-commerce platforms to crack down on counterfeits being sold on their sites, the law makes platform operators jointly liable with the merchants selling fake goods. Previously, only the individual merchants were liable. Platform operators can now be fined up to 2 million RMB (USD 290,000) for the property infringement that comes with selling counterfeit goods in China.

E-commerce platforms crackdown on the sale of the counterfeit good industry in China

Taobao and fake goods

In 2015, Alibaba was the subject of intense state scrutiny as the State Administration of Industry and Commerce unveiled that only 37% of the luxury goods authorities examined on its Taobao platform were genuine. In a strongly worded white paper, state authorities criticized Taobao for lax internal controls, declaring that many of the products sold on the site were substandard, violated trademarks, or were just plain illegal. Chinese consumers agreed and called on the government to tighten supervision over Taobao. Alibaba declared a zero-tolerance policy towards counterfeits, and created a new 300-person team to ramp up the fight against fake good in the Chinese market.

Luxury brands were unimpressed, and in May 2015 Gucci, Balenciaga, YSL and other brands filed a lawsuit alleging that Alibaba’s negligence encouraged the sale of fake goods on its sites. A US federal court dismissed the suit, but Alibaba’s reputation as a haven for counterfeiters persisted.

In 2017, Alibaba was again under consumer and government pressure when Taobao was found to have over 240,000 vendors selling fake goods, up from 180,000 vendors the previous year. To assay consumer anger and protect investor relations, Taobao in mid-2017 launched an initiative to crack down on the fake goods being funneled through their site. That initiative has led to 95% of takedown requests and red-flagged listings being processed within 24 hours, a significant improvement in processing times. 97% of listings for counterfeit items are now deleted before transactions even take place.

How does Pinduoduo handle counterfeit items?

Pinduoduo, the third-largest e-commerce platform in China, is another site criticized for selling low-priced knockoffs. In August 2018 the State Administration for Market Regulation investigated Pinduoduo and announced that Pinduoduo should strengthen platform management and better regulate activities of third-party vendors. Pinduoduo soon removed more than 10 million fake items from its site and blocked more than 40 million product links suspected of copyright violations. It is working with over 400 luxury brands to fight counterfeiters and has created a hefty 150 million RMB account to refund consumers who were unwittingly sold fake products.  

How counterfeiters in China get around AI controls online

There are many intricate ways in which sellers of fake goods in China have evaded regulation online. One common trick is for sellers to redirects clients to separate websites, where they can browse options and place an order. Another method is to label items as “haute couture,” which consumers are aware implies ‘high-quality copy.’ Aside from this label, Taobao sellers can change the name of the brand they are copying, or display just part of it. One seller of copycat Zara clothes lists his items as ZA or Z*ra, which allows him to sneak past the filters set by Taobao.

Taobao’s AI tools are constantly upgrading to become more difficult to trick, especially with the introduction of filters against luxury products priced below a certain point. Accordingly, some sellers of fake goods will display a price for their product that is consistent with the price for the real thing, or display a price that is outrageously high. Interested customers will talk to the shop in Taobao’s private chat function, and sellers will reveal the real, much lower price.

In-person sales of counterfeit goods in Shanghai and Beijing

Counterfeit goods sold online in China work hard to avoid detection, but physical brick-and-mortar ‘fake markets’ in cities like Shanghai and Beijing are out in the open, easy to find and even reviewable on sites like Trip Advisor. Officials routinely inspect physical stores, but they may not take the job too seriously because they know local vendors rely on the income. Regulators let the stalls peddling cheap and fake goods slide, instead choosing to target merchants who lead interested buyers to unmarked apartments, back rooms, or closets full of high-quality fake Gucci, Prada, Michael Kors, and Louis Vuitton handbags.

Aside from avoiding government regulation, counterfeiters in China work hard to stay under the real company’s radar. One fake good peddler in Beijing explains: “We careful. Louis Vuitton. They send spies and they sue. So we hide.”

The emerging authentication industry in China

The prevalence of fake goods in China and consumers’ subsequent fears of being scammed into accidentally purchasing knockoffs has created a new sector: product authentication.

There are dozens of apps on the Chinese Apple iOS app store that offer to verify luxury goods. Authentication company Zhiduoshao has hundreds of thousands of users who pay 49 RMB for a product to be checked virtually by an expert. Founder and CEO of Zhiduoshao maintains that 95% of authentication requests can be answered online via photos. Authenticators tell users what kind of photos to upload, and then carefully inspect the monogram, fabric, and technique. Often, the process only takes a few minutes.

Similar app Isheyipai boasts an “expert jury” of 12 authenticators. Users upload photographs of the item in question and choose who they want to check their product. Prices range from 49 RMB for a junior authenticator to 99 RMB for senior staff. Appraisers each have areas of expertise, such as bags, jewelry, or shoes.

Private companies offer training courses that teach appraisers-in-training how to inspect a wide range of luxury brands and products, with advice about texture, logos, stitching and everything else that a counterfeiter might get wrong. A 10-day program can cost up to 40,000 RMB.

Authentication companies in China have an uneasy relationship with the brands whose integrity they claim to protect. Cartier maintains that their products should be bought only from “authorized sellers,” while Audemars Piguet states that it does not endorse any authentication app and De Beers says it is unaware of them.

Brand wariness of authentication services is rational because Chinese counterfeiters are now imitating these authenticators too. Seemingly authentic sites copy the names, website layouts, and imagery of established authentication platforms like Zhiduoshao in order to scam consumers seeking product verification out of their money. In one case, consumers discovered that an authentication app was faking reviews and authentications to sell knockoff goods.

How brands can fight back against Chinese counterfeiting

Anti-counterfeiting strategies must be brand specific to take into account the company’s target market, the types of counterfeits produced, and how the counterfeits are being manufactured, distributed, and sold. An effective strategy combines IP protection, export and customs controls, and retail market controls.

But no matter how sophisticated the anti-counterfeit strategy is, where there is a demand there will be a supply. The only surefire way to shrink the market for counterfeit products in China is to deter consumers from purchasing fake goods in the first place. However, typical deterrence strategies that luxury brands have used in the West will not work in the Chinese market.

Many consumers are aware that their purchases are counterfeit

Most consumers who purchase counterfeit products in China are well aware that the quality is not on par with the real product. When consumers buy fake goods, they do so despite the possibility that the product will fail them. Additionally, the prevalence of sophisticated fakes means that consumers can easily buy counterfeit products with nearly genuine quality. Thus, highlighting the poor performance quality of counterfeit goods is not an effective deterrence strategy for brands to adopt in China.

Where in other countries purchase of knockoff goods is a punishable crime, in China consumers are not liable for their counterfeit purchases. Deterrence of counterfeit purchases in China cannot then be fear-based.

There are two main deterrence strategies that luxury brands can adopt to dampen Chinese consumer demand for fake goods: the ethics emphasis, and the psychosocial emphasis.

Anti-counterfeiting in China: The ethical approach

Counterfeiting is not a victimless crime, and luxury brands should tell consumers who gets hurt when they buy fake products in China.

Most counterfeit goods in China are made in sweatshops by children and slave laborers who are often the victims of human trafficking. These sweatshops are overwhelmingly in low-tier Chinese cities, and these child workers are often Chinese, making the issue hit particularly close to home for Chinese consumers of knock-offs.

The Chinese counterfeit industry’s use of child labor is much more damaging than the use of child labor by companies like Walmart and Target. Corporations can beare held accountable for exploiting cheap labor: when labor abuses are exposed, companies face plummeting share prices, lawsuits, and customer boycotts. Counterfeiters face no such risk, because consumers of knock-off goods do not know who manufacturers their handbags or sneakers.

Brands can educate against counterfeiting practices in China

Additionally, brands can educate Chinese consumers about the criminals who benefit when a shopper buys a counterfeit good. Production and distribution of counterfeit goods are heavily controlled by ultraviolent Chinese triads, who traffic in narcotics and sex slavery alongside fake products.

Consumer awareness of the hidden costs associated with their counterfeit purchase can create shame and guilt that might deter some Chinese consumers from buying knock-off goods.

Anti-counterfeiting in China: The psychosocial approach

In the West, there is a shame that comes when one admits to buying counterfeit products, and luxury brands should work hard to foster that stigma in China. For some people, the regular purchase of fake goods is a normal part of life: many Chinese consumers who own fake goods assume that the luxury brands sported by their peers are fake as well.

In 2018 the Japan Patent Office launched an anti-counterfeiting campaign that revolved around embarrassing consumers who buy knock-off products.

It is too early to see the results of Japan’s shame-based anti-counterfeit strategy, but the premise is solid. Luxury brands effected by Chinese counterfeiting could emulate the approach, and work to create a social stigma against knock-offs.

Across the board, the most effective strategies to deter Chinese consumers from buying counterfeit products are shame-based.

Who is benefiting from the counterfeits industry in China?

China is responsible for more than 70% of counterfeiting according to the World Customs Organization. Where all the money from this industry is going? Alain Rodier, in his book: The Triads: the hidden threat, indicates that the counterfeiting is linked with Chinese triads. They are using the money received from counterfeiting to invest in other illegal activities. However, the money can also be legally re-injected into the country. Alain Rodier argues that criminal money is largely reinvested in the country’s legal economy: “As far as the Chinese triads are concerned, they would have a worldwide turnover of 200 billion dollars. Much of this money is reinvested in the legal economy”. For instance, the Sun Yee On triad would have largely participated in the development of Shenzen. Even though triads and other organizations directly benefit of counterfeiting, it can be noted that this money is sometimes reinvested in the legal economy.

Rethinking the fashion industry

One way of tackle the fake industry is to completely change the opinion of people concerning clothing. Trends should focus more on quality than brands. Fast fashion might also be a big issue in consumption because of its impact on the environment. If the fashion industry evolves to its simplest form, people would not be sensitive to brand image. Without the importance of brand image, there is no demand for counterfeit luxury goods anymore. Naomie Klein with its book “no logo” lead this movement in the end of the 1990s. One way to wipe out counterfeits is to educate people to consume goods differently, without being obsessed with brands.

To conclude, the counterfeit industry is a direct consequence of the industrial growth in the country combined with the value placed on brand image. It is difficult to tackle this gigantic phenomenon generating billions each year. You have both to address the production and the consumption of counterfeit goods. The counterfeit goods industry is injuring companies because it negatively impacts their brand image, consumers who are genuinely interested in the luxury products may lose faith that what they are buying is authentic.

What brands can do to avoid intermixing with counterfeits in China

For luxury brands to avoid being sold alongside counterfeits, brands can try a brand independence, or direct to consumers strategy in China. Counterfeits are sold easily on e-commerce platforms, but selling from a brand’s own website, or brand.com, is a surefire way to avoid competing with counterfeits and keep a pure brand image.

Authors: Alison Bogy & Enzio Cacciotto

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Consumer profile of the Stay-at-home Economy in China

The expression of Zhai people (宅人群) refers to men and women who depend on the internet to meet their daily needs without leaving their homes. They are usually keen on online videos, games and social media. Apart from recreation, Internet also enables them to buy food and clothes, learn remotely, and read. During COVID- 19, most Chinese people adopted the Zhai lifestyle. Thus, the Stay-at-home economy in China has expanded.

“Zhai people” aka “宅男 and 宅女” (Zhai men and zhai women) is originally a Japanese word “Otaku” meaning “geeks”, now it is widely used to describe people who don’t like outdoor activities. They normally spend less than 3 hours outside and around 8 hours on the internet every day.

Among the Zhai people, 55.5% are men and the rest 44.5% are women. 76.8% of Zhai people are younger than 35 years old, but COVID-19 pushed the Zhai lifestyle to older generations too. Regarding geographical distribution, Zhai lifestyle are not unique to tier-1 cities. In fact, 60% of Zhai people under 30 years old live in tier-1.5 and tier-2 cities.

Internet accessibility and Mobile payment are the foundation of the Stay-at-home Economy in China

China’s fast-growing internet enables people to enjoy many services without leaving their homes. According to the most recent report from China Internet Network Information Center, 65% of Chinese population are mobile internet users. According to Mckinsey, total time spent online per user per day amounts to 358 minutes, with social apps (44%), content apps (20%) and other apps (36%).

Another important driver of the Stay-at-home Economy in China is the wide use of mobile payment. 92% of people in China’s largest cities use WeChat Pay or Alipay as their main means of payment.

COVID-19 mandated Stay-at-home, which pushed Chinese activities further online

Time spent online has steadily increased for several years in China, COVID-19 enhanced this trend. During the epidemic, Chinese reliance on the internet increased and they were exposed to more diverse platforms.

1. Mobile gaming: Multiplayer online battle arena sector is the most popular with the game Honor of Kings reached more than 100 million daily active users.
2. Social media platforms: On Weibo, some topics about COVID-19 reached over 1 million reads per minute.
3. Online Shopping: In February 2020, Taobao app had 720 million users in China, increased by 33 million users compared with December 2019.
4. Online fitness classes: KEEP fitness app registered a 185% increase in followers on the live-streaming platform Douyin.
5. Remote work and study platforms: The Tencent Meeting app was downloaded 430,000 times a day, up from 370 before the outbreak.

Social media and news apps are more embedded into Stay-at-home Economy in China

On average, every Chinese social media user has 9.3 social media accounts. 98% of Chinese netizens visited social media platforms in January 2020. All of the active social media users have access via mobile. They averagely spend more than 2 hours per day on social media and 45% of them used social media platforms for work.

COVID-19 drive the demand for news apps as well as social media

Both the time spent and the number of active users of daily news apps increased since December 2019. Along with the development of COVID-19, users’ demand for news apps peaked in February when China entered the height of the epidemic. Then, it had another growth in April when China’s market started to recover from the epidemic. Qianfan Analysis reported a 12.4% increase in the monthly average time spent on news apps per use, from 17 to 19 hours.

[Data source: Qianfan Analysys ( 易观千帆), Questmobile, monthly active users of China’s top news apps during COVID-19]

Outside of news apps, WeChat, Weibo, and short video apps became the main channels for Chinese to obtain relevant information about COVID-19. Information channels on social media are more likely to gain traffic in the future. 48% said they will continue to spend more time in information acquisition after the outbreak. A popular science KOL PaperClip went viral explaining the COVID-19, attracting over 2 million views on Weibo alone.

The 4 types of entertainment rising in the Stay-at-home Economy in China

The mobile games market still has growing potential

The revenue of mobile games had already been steadily increasing, and COVID-19 lead to an influx of new gamers. Additionally, many long-time players spent more time gaming during the epidemic. According to Quest Mobile, the Chinese New Year (CNY) holiday had a 41% year-on-year increase in terms of average time spent on gaming. In the same comparison period, the revenue of mobile games in China increased 30% from $530 million to $668 million.

Most of the top games have some social or multiplayer aspect. Mini games are also popular since they are less time consuming and suitable for stress release. The 5 top mobile games people played during the epidemic include:

1. Honor of King: the number of daily active users exceeded 50 million during the 2020 Chinese New Year. On the first day of the new year, the number reached the peak of 54 million.
2. Online chess and card games: People in northern China prefer card games and southerners like chess.
3. Werewolf: Werewolf (狼人杀) is a popular board game in China. Its active users increased by 20% every day during the 2020 CNY.
4. Sandbox games: The number of daily active users of sandbox grew by 6 million since the 2019 CNY, to reach 76 million during the 2020 CNY.
5. Mini games: OPPO mini games became the third most popular game series according to active users during the 2020 CNY.

Short videos enjoyed explosive growth and commit to user stickiness after COVID-19

Short videos have been one of the most important forms of entertainment in China during the past a few years. Now, short video apps provide quick news and info about COVID-19. The number of monthly active users of online video platforms had a large increase during COVID-19. According to iResearch, short videos claimed 68.4% of the spare time of Chinese people, only second to TV series (69.8%). Some movies released on online video platforms rather than in cinema and they had a large number of views. Cinema is no longer the only option for releasing films, online video platforms are challenging its leading position.

[Data source: quest mobile, the monthly active users of China’s online video platforms]

The industry concentration of short videos in China is high. The top short video platforms reached many new users over 40 years old because they could quickly get updates about COVID-19. Douyin (13%), Kuaishou (17%) and Xigua (19%) all witnessed double-digit growth from December 2019 to March 2020.

The number of paid users of online video platforms increased significantly during COVID-19. And those platforms are determined to keep the trend going. COVID-19 halted the shooting of many TV series, movies and shows, which decreased high-quality content. People will have higher demand for higher quality and diverse media. Video platforms are working hard to buy more high-quality video content to increase user stickiness.

Music and concert industry responded to COVID-19 in ways that ensured its growth

During the epidemic, music platforms offered songs and whole albums related to fighting against COVID-19, resulting in increased online traffic. It’s possible those new users will be paid users in the near future. According to Tencent music group, Kuwo 酷我音乐, a big online music platform in China achieved 3.5 billion total exposure during the epidemic. 462 musicians and singers also published epidemic-related songs in Q1 2020.

Offline concerts were all canceled or postponed during COVID-19, while online concerts offered extraordinary audio-visual experience to fans and received large traffic. Online concerts effectively help online music platforms reach more new users, it can be expected that online concerts will be one of the main ways for music platforms to gain traffic. For example, Tencent music group held on 11^th April 2020 an online concert “I am A-Lin”, and attracted 20 million views of its Weibo topic. 4 days later, it held another online concert “To see you whenever I want” became the No.1 Weibo hot topic.

COVID-19 promoted online reading in a somewhat permanent way

More than 50% Chinese readers chose to read novels almost every day. The average daily online reading time increased by 20% during the epidemic compared to last year. Most new readers are those who did not have much free time to read before. Now they have formed the habit of reading online and boosted the growth of the market.

86.2% of people say they will continue to read after the epidemic, hence the online reading market will likely grow in the near future.

E-commerce and delivery further developed the Stay-at-home Economy in China

E-commerce is further enhanced by KOL live-streaming

The matured e-commerce system provides more convenient conditions for Chinese consumers. But its growth rate has declined, as the scale of users has gradually reached the ceiling of netizens and the cost of acquiring traffic is getting higher and higher. However, Chinese people’s purchasing decisions are heavily affected by KOLs and live-stream and some top short video platforms (Kuaishou and Douyin) already entered the e-commerce market by live-stream + KOLs. They achieved very high sales. Hence, “live-stream e-commerce” will become the next outlet in China’s e-commerce industry.

During the epidemic, live-stream and KOLs played even more important roles in online marketing. The top short video platforms made full use of their huge traffic to work with top KOLs in live-stream marketing, they have achieved extraordinary results. Live-stream marketing is becoming the most efficient online marketing tool in China. For example, Kuaishou live-stream achieved over 620 million RMB turnover on 18^th of April alone.

Grocery delivery stands out with the help of contactless delivery service

Although January is a traditional low season for e-commerce platforms, the COVID-19 impact on Chinese consumption is evident in the grocery e-commerce market. In the long run, the main problems for fresh food e-commerce are high transportation and storage costs. Fresh food is not easy to preserve and it’s price is usually high. Therefore, it’s essential for fresh food e-commerce companies to optimize storage to lower costs.

Diverse and safe express delivery methods can increase consumers’ desire to shop online and hedge part of the consumption crisis brought by the epidemic. JD.COM has used an unmanned delivery robot for contactless delivery in Wuhan, which promoted the application of AI tech in daily life. Similarly, China’s largest delivery service provider CaiNiao (菜鸟available everywhere in China) started to use the “contactless pickup” service to reduce personnel contact since 28th January. Thus, consumers’ demand for contactless delivery cabinets is expected to continue even after COVID-19.

Online food delivery is essential in the Stay-at-home Economy in China

In the first two months of 2020, the catering industry’s revenue decreased by 43.1% year-on-year. More than 90% of the Chinese restaurants had to close. Luckily, contactless delivery, which was already quite developed in China over the years reduced infection. Two online food ordering platforms Meituan and Ele.me adapted their delivery services to reduce infection risks. This includes taking the temperature of all the people involved in the delivery process.

Seeing the success of contactless delivery, the catering industry all turned to O2O food delivery. According to the survey of iiMedia, 78% of the restaurants mainly sold online to ensure the continuity of their operations during COVID-19. Among them, 70% said they will remain online.

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The O2O food delivery market in China is estimated to be worth over 37 billion USD, and it is growing rapidly. Among the products sold online, food is one of the most promising categories: online food sales rose by 36.8% year-over-year in the first two months of 2018. Food delivery apps have an estimated 355 million users, meaning that a quarter of all Chinese people are ordering food from their phones. There are more than 1.8 million food delivery orders placed every day in Beijing alone.

Transformation of eating habits in China

Getting takeout food is a relatively recent phenomenon in the country. The trend started with foreign fast food franchises such as McDonald’s in the 1990s. Homegrown local restaurants, such as noodle houses and those offering regional specialties, followed suit. But it was not until the rise of online food delivery platforms that the O2O delivery market in China took off.

Since 2009, when the first food delivery app Ele.me appeared, the number of customers using these platforms has gone up from zero to 406 million at the end of 2018. Nearly half of China’s internet user base has ordered takeout food through apps at some point in their life.

The development of online delivery has improved the food processing and supply capabilities of offline restaurants. At the same time, it has also stimulated new demands due to convenient and fast services. As of 2020, the growth rate of O2O food delivery market in China is more than 10%. It exceeds the growth rate of the traditional catering industry. Due to the development of diversified consumption habits of Chinese people, the food delivery market in China will exceed 300 billion yuan in 2020.

Fast food category dominates in terms of O2O food consumption

In the first half of 2019, fast food accounted for 69% of O2O food consumption. Western food and local dishes had second and third place. Such categories as seafood barbecue, milk tea, desserts also were popular among Chinese consumers when ordering food.

The number of seafood O2O orders increased in 2019

The proportion of seafood in China‘s O2O delivery market increased. It is an important category for night delivery consumption. In the first half of 2019, users consumed more than 150 million seafood barbecues on the Meituan takeaway platform. It had a year-on-year increase of 55.3%. In the first half of 2019, the order volume of crayfish has exceeded 20 million orders. It is about 300 million crayfish.

Semi-prepared food and vegetables as a new trend in the O2O food delivery market in China

Online shopping for semi-prepared dishes has become a new choice for young consumers. This new trend has led to a rapid increase in sales of semi-prepared food. In 2019, 800,000 semi-finished dishes have been sold. At the same time many elderly people have changed their habit of hoarding vegetables for Spring Festival. They started to order home delivered fresh vegetables. Sales on the platform Taoxianda increased 172 percent compared to 2018. “The semi-prepared dishes satisfy young people’s enjoyment of cooking at home,” said Yongcheng, a sales clerk at Tmall.

Penetration rate of the O2O food delivery market in China continues to increase

As the market scale continues to grow rapidly, the penetration rate of the food delivery industry continues to increase. In 2018, the penetration rate was 10.8%.  By the third quarter of 2019, this figure had increased to 15.9%.

Breakdown of the O2O food delivery market in China

The food delivery services in China work through apps, which show lists of food providers nearby or allow the user to search for specific restaurants. Clicking on the restaurant brings up the menu and the ordering system, which uses online payments or bank cards. The apps also allow users to rate the food and service, as well as show the location of the delivery driver so an order can be tracked. The apps take about 20% of the order revenues.

The Chinese food delivery industry is high growth and highly profitable, but it is hard for outsiders to enter the space because two platforms control 90% of the food delivery app marketplace.

Who are China’s food delivery industry’s consumers?

The food delivery industry in China is so large and profitable because of how often consumers make purchases. 256 million people in China used online food ordering services in 2016, and in 2017 that number rose to 346 million. Now it is 355 million.  35% of food-delivery app users order food one to three times a week, and a separate 35% of users order food four to six times a week, according to a report by iiMedia Research.

Online food delivery service users are primarily white collar workers. In 2015, about 63% of online food delivery app users were white-collar workers and 30.5% were students. Now, 83% are white-collar workers, and only 10% are students.

Consumers are clustered in top tier cities, with Shanghai boasting the highest number of users per capita.

Consumer demographics are split nearly evenly by gender, with women making up 51% of food delivery app users. Users are overwhelmingly young, with 75% between ages 18 and 39.

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Food delivery in China is popular among all income demographics. Consumers are split nearly evenly by income level, with high-income consumers boasting only a small edge.

Why is food delivery so popular in China?

Because of the intense competition between delivery apps in Great China, consumers often receive steep discounts and coupons when they place an order. This can often make ordering food cheaper than eating it in a house. The intensive couponing practice is a result of price wars between the industry’s two major players, Ele.me and Meituan. The rivalry has hit both companies hard, with Meituan’s operating losses crippling year-over-year to USD 510 million in the third quarter of 2018. Ele.me will also face pressure soon as their parent company Alibaba copes with slowing revenue growth. Coupons are no longer as high as they once were, but consumers still receive them often.

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Meal delivery in the Chinese market is significantly more popular in China than in the West, owing in some part to the fact that food delivery costs in China are about 10% to 20% of what they are in the US.

Which apps dominate the food-delivery industry in China?

The food delivery market is a duopoly dominated by Chinese tech giants Alibaba and Tencent, who own Ele.me and Meituan respectively. Combined, these two delivery apps control a 90% share of China’s food delivery market.

Longtime rivals Alibaba and Tencent have been competing across industries for years, and China’s meal delivery is just yet another sector for them to battle in. The two giants are not just competing for the O2O food delivery market in China, but they are racing to gain new users who can be guided to other Alibaba or Tencent services. Owning Ele.me gives Alibaba a treasure trove of consumer data, and the same goes for Tencent’s ownership of Meituan. Data derived from Chinese meal delivery apps provides insights about consumer spending power, eating preferences, and payment profiles.

Chinese meal delivery app: Ele.me

Ele.me is China’s largest food delivery giant with 53.4% market share. They have 260 million users, 3 million couriers, and are estimated to have delivered nearly 300 million orders. Alibaba in 2018 valued Ele.me at USD 9.5 billion.

Chinese meal delivery app: Meituan Waimai

Meituan Waimai, commonly known as Meituan, controls 40% of China’s food delivery market. Similar to Ele.me, Meituan is an online-to-offline (O2O) food delivery app that provides users with online ordering, food delivery, and some other related services in China. Significantly, Meituan offers more non-food delivery services than Ele.me, such as flowers, office supplies, and more.

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What are the benefits/drawbacks for restaurants of being on food delivery apps in China?

Listings on food delivery apps give restaurants in the Chinese market new profit sources, widened service awareness, and new consumers. App operations can be so profitable that some “virtual restaurants” operate out of the kitchen only. However, profit margins for restaurants are declining swiftly. To gain Chinese market share, Ele.me and Didi provided restaurants with subsidies to entice them into selling food on their apps. But as the apps struggle to become profitable, they are raising commission rates on the food providers. Commission rates vary by restaurant location, size, and type, but most restaurants give the apps 20% of order revenues. For restaurants operating on low margins, this can hit hard. To keep profits stable, restaurants must shift the burden to consumers and raise menu prices. Otherwise, they are forced to absorb the new costs – keeping consumers happy but hitting their profit margin hard.

The Chinese food-delivery industry: Looking ahead

Ride-hailing app Didi recently threw its hat into the food-delivery ring, starting in March 2018. Didi provided subsidies and incentives to restaurants and consumers, forcing Meituan to follow suit before local authorities stepped in to demand an end to the “extreme” marketing practices. As Didi expands to other cities, the subsidy battles will likely continue.

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[Data Source: Statista, size of the facemask market in China]

2021 estimations after COVID-19 show a slowdown of the trend, but the memory of the pandemic will still account for a significant part of the demand.

Before the outbreak, the face mask market in China was much more driven by pollution concerns than disease. Pollution alerts often led to a surge in demand on the Chinese e-commerce marketplaces. Resulting from COVID-19, an unprecedented surge in national demand for face masks pushed thousands of new manufacturers to start producing face masks, with the support of local authorities. However, the rush for N95 masks with higher filtering capabilities has largely benefited the American brand 3M, which dominates the N95 face mask market in China.

China met global face mask demand with a production boom

Since the re-qualification of the outbreak as a global pandemic, China experienced a mask-making boom. In 2020, More than 38,000 new companies registered to make or trade face masks. China was already the main market for protective masks production in the world, making half of the global output in 2019. In February 2019, the country had already risen its capacity from 20 million to 110 million. Concerns about overcapacity in the offer on the Chinese market have quickly disappeared, with China’s face masks being in urgent demand from other countries.

In April 2020, foreign governments’ ‘wild feeding frenzy’ for Chinese protective face masks brought chaos to the landscape of manufacturers. A medical supplier during the pandemic told the South China Morning Post: “mask machines are like cash printers.” To meet global demand, many factories that were making completely different products like car parts, electronic parts, or plastic toys, therefore turned to mask production. With governments fighting for ramping up their stocks, quality controls at purchase were often completely avoided in favor of shipping speed.

New regulations to prevent face mask scams

The influx of new actors to the market has led to a dilution of the quality and a surge in scams, forcing the Chinese government to change the rules. Mid-April’s new regulations from China’s customs agency require companies manufacturing PPE (Protective Personal Equipment) for export to go through a government-led process. Mask exporters also need to prove that their products meet the relevant regulatory standards of the destination country.

This move comes after a global backlash in which foreign countries were supplied shoddy products, undermining China’s position as ‘the global savior.’

As long as the pandemic doesn’t end, the Chinese face mask market will stay warmly flooded with transactions. However, foreign countries are now ramping up their own productions to be less dependent on Chinese exportations.

Thus, if the pandemic is an instant boon for the Chinese face mask market, the gold rush will soon end, and many actors may be left aside.

National issues supporting the Face Mask Market in China

The face mask market in China is largely driven by external events like epidemics and pollution. Most recently, the Coronavirus outbreak has caused face masks to sell out all over China. Originating in Wuhan late December, the 2019 new Corona Virus (2019-nCoV), has infected over 28,000 people and killed about 570  in Chinese mainland as of February 7^th 2020. – The rapid spiral in the number of identified n-CoV cases forced the Chinese government to seal cities and public transport. The Spring Festival holidays had been extended by a week, hoping to curb the spread of the epidemic. Two months before the destructive outbreak, China’s National Health Commission had already called to effectively enhance prevention measures in anticipation of the upcoming flu season, looking for a more standardized process for diagnosis and treatment.

But the 2019-nCoV is by far neither the first nor the last to appear on Chinese soil. China has always been considered by the World Health Organization (WHO) a hot spot for new influenza viruses; there is indeed no other country on earth where so many people have close contact with wild animals. Thus, the n-CoV reminds of the lethal 2002-3 severe acute respiratory syndrome (SARS), but also less widely known avian influenza A(H7N9) virus, which killed 212 people in China according to a 2015 WHO report.

In the meantime, according to the Global Health Observatory, total health expenditure per capita in 2014 in the country reached 731 USD, which is much lower than the 2014 world average of 1041 USD. This report from the OECD shows that China counted 1.8 physicians per 1000 people in 2015, which is slightly more than the World average of 1.5, but almost twice less than the OECD countries.

Pollution drives the functional mask market in China

Flu prevention is not the only health problem that China is facing. Air pollution is another one, which has become one of the most intensely discussed livelihood issues that the Chinese government focused on the 12th National People’s Congress (NPC), held in Beijing on March 5, 2016. Chinese Premier Li Keqiang declared a “war on pollution” at the Communist-controlled NPC parliament in 2014.  Three years later, average particulate levels in Chinese cities still do not meet the World Health Organisation (WHO)’s standards, which considers anything over 10 PM2.5 as health hazard (maximum annual average PM 2.5 exposure). According to this infographic, in 2016, Beijing had  a yearly average of 7.3 times above the WHO’s recommended safe levels.

N95 masks in China: A shield in a war against the Coronavirus

In January 2020, Chinese President Xi Jinping declared “a people’s war against the [n-CoV] epidemic” over a governmental meeting, stressing that prevention and public awareness remain the most effective measures to fight a pandemic. Since the 2002-3 SARS, people rely on wearing surgical masks. Especially high-filtering specialized N95 masks, during illness as one of the main preventive barriers against propagation. Claimed as an effective way to protect oneself from the virus, face masks have been urgently brought to the fore as a daily necessity and a fast-moving consumer good in China, resulting in a massive gap between market demand and supply.  On January 3, 2020, just over a week after the new coronavirus outbreak, China “urgently needs” protective medical equipment while medical masks shortages were reported across the country.

 Face masks, also called ‘kouzhao’ (In Chinese口罩) usually cover the nose and mouth and include cotton masks with cute designs, surgical masks, and imported high-end filters. In 2014, officials in Shanghai considered distributing free protective masks to residents after the financial hub of China “suffered one of the worst spells of air pollution on record,” reported The Telegraph. At this time, PM2.5, fine ambient particles less than 2.5 micrometers in diameter causing cardiovascular diseases and lung cancers, rocketed to levels that were more than 20 times those deemed safe by the WHO.

Red alert in Northern China

In December 2016, northern China (including Beijing, Tianjin, and around 70 other northern Chinese cities) had been covered for weeks in thick toxic smog, composed of high concentrations of PM2.5. It is one of the worst episodes of air pollution the country has seen, affecting 460 million people.

The “red alert” was declared in 24 cities, prompting the closing of schools and airports, restricting traffic and asking citizens to stay indoors. In response, online shoppers splurged on filtration masks, and anti-pollution equipment , with e-commerce firms and brands reporting record demand, as explained by Reuters. In December 2016, Internet retailer JD.com Inc sold to domestic consumers about 15 million US-branded filtration masks through its online marketplaces. 

Face mask price inflation

The 2016 measures to counter air pollution strangely resemble the drastic measures of early 2020 to stem the spread of the new coronavirus, forcing dozens of Chinese cities to quarantine. As a result, 80 million masks were sold on Taobao over the two days of January 20 and 21. The BBC also reports that the price of a 20-mask box jumped to 1,100 yuan ($158) on Jan. 21, up from 178 yuan in November. Between December 30 and January 24, 3M, the most popular face mask brand in China, added $1.4 billion in market value. Honeywell, the American conglomerate that also sells face masks in China, added $500 million in market value, in the same frame time.

Overall, due to significant health crises, the protective face mask market in China, still dominated by Western brands that control more than half of the Chinese market, is heating up. Many budget manufacturers and low-cost producers from Japan and China are now trying to get a slice of it.

Rising demand for face masks in China

The demand volume of protective masks in China has grown continuously since 2012. State media estimate the protective face mask market in China was worth nearly 4 billion yuan ($600 million) in 2015. Along with the improvement of the living standard of people in urban areas and the rise of the middle-class, people’s awareness of pollution, germs and contaminants protection is increasing all the time, especially for young children, and will maintain rapid growth.

Protective face mask production in China

China’s protective face mask market enterprises are mainly distributed in the eastern region, and Bohai Rim, Yangtze River Delta Region, and Pearl River Delta Region are the major production areas. Shandong province serves as the center of the masks industry in China with another production hub, Dadian, dubbed the “mask village” for producing the cheapest pieces.

There are more than 300 mask processing and supporting enterprises in Dadian village, Jiaozhou City of Shandong with an annual production capacity of nearly 1 billion pieces. Realizing about CNY 1.1 billion ($160 million) of output value, it accounts for more than 80% of market shares nationwide (data based in 2017).

Currently, common protective masks widely available in every convenient store are priced at CNY less than 1 or 2 ($0.15 to 0.40) to CNY 30 or 40 ($4.5 to 5.8), and they are made from cotton yarn, activated carbon, and other materials. Along with the continuous increase of Chinese residents’ incomes and the improvement of people’s living standard, people have a stronger awareness about the environment and health. As a result, consumers are willing to pay more to protect themselves from health crises’ effects. They look for more comfortable and effective masks, such as Vogmask or Cambridge masks, which generally range in price from CNY 120 to 245 CNY ($19 to 37, based on 2019 Tmall/Taobao prices and currency exchange rates).  To meet growing demand in China, new market entrants like Airinum focus on the high-end market, with stylish design and high-quality replaceable filters.

Collectivism and Chinese consumer psychology 

“In China, people just pretend or assume that it is useful. It’s a mass behavior,” indicates Wong Chit Ming, a researcher at Hong Kong University’s school of public health. “You may feel a little better…but there’s no real evidence this might help.” This is collective consumer psychology among the Chinese who are entirely concerned about the threat of air pollution and germs during flu season. For him, Chinese people have the impression that this could resolve the problem of air quality and they should, therefore, do something to protect themselves from the harmful air, which will comfort them emotionally regardless the practical effect.

Different style and functions for the Face Mask Market in China

China Textile Commercial Association officially released ‘the community standards of PM2.5 protective masks’. The standards were implemented on March 1, 2016. Before this date, China had no quality standards for face masks for personal use, and the majority masks available claiming to reduce particulate matter by 99% on the market were not protecting against PM2.5.

According to the FDA, “Face masks and N95 respirators protect the wearer from liquid and airborne particles contaminating the face. They are one part of an infection-control strategy.” While face masks like medical and surgical masks are meant to block large-particle droplets, splashes, sprays or splatter that may contain germs from reaching your mouth, they are more loose fitting than N95 masks which are meant to achieve very close facial fit. The ‘N95’ designation means that the mask blocks at least 95 percent of very small (0.3 micron) test particles. Properly fitted, N95 respirators’ filtering capabilities exceed those of face masks, making N95 masks the most popular choice in times of pollution and influenza season. Currently, the N95 mask market in China is dominated by the giant 3M, as it is the only brand to be N95 approved by the Center for Disease Control and Prevention (CDC).

[Source: South China Morning Post ‘3M N95 Masks in China’]

Choosing the most effective mask

At present, the variety of types of anti-dust and anti-contamination masks sold in online shops and outlets have contributed to the disorder of this market. Those most popular kinds of masks are always those masks which have a relatively simple wearing process. Still, the vast majority of Chinese residents use cheap cotton masks that offer little protection. Also, expensive specialized N95 masks aren’t made to fit Chinese faces well, according to a study from Wuhan researchers. Even those benefiting from China’s Kou Zhao boom admit that their masks can only do that much.

Except for the most common cotton masks, active carbon mask which can be recycled and praised for  its adsorption force becomes another hot choice in China market. As some researchers analyze, China’s functional mask market has not been arousing general consumption groups’ attention due to its late start. But now it has garnered significant attention.

Division of the Chinese Mask market

Simple market research shows that on Taobao/Tmall, the top-selling mask brands are replicas of each other. Top brands sold in Dec 2018 to Jan 2019 are listed in the graphic below:

Lack of diverse options in China’s mask market

These brands and their products are the same in almost all aspects including materials, designs, promotional strategies, pictures used online and textual description. It is very likely that these masks are produced by the same producer. However, there is no trace showing the actual manufacturer of the products, and thus unable to identify whether the domestic mask product is highly concentrated or not.

Based on Xinhua.net, the overall face mask market in China is mostly controlled by the international giants 3M, which occupies almost 90% of all the market share, followed by Honeywell and Ludun 绿盾 with less than 5% respectively. Other brands such as Uvex and Hakugen have a non-significant market segment of less than 1% respectively.

To be noted that, among all these brands, only Ludun 绿盾 is produced by Chinese domestic company Sinotextiles Corporation Limited, other brands are all international based.

Another market analysis renders different views on the masks industry in China. According to a market report, four major domestic mask producers own 7 major brands. The largest domestic mask manufacturer is Shanghai Dragon Corporation 上海龙头股份 (market share 6.52% with 2 brands) followed by Shanghai MNP Inc 上海美科 (market share 7.14% with 3 brands), Teda Tianjin 天津泰达 (market share 5.90% with 1 brand) and Dongguan Rongxin 东莞容鑫防静电技术 (market share 1.00% with 1 brand) in a descending order.

The future of the Face Mask Market in China

There is an increasing demand for both functional and comfortable masks, so much improvement has been achieved in protective measures, what’s more, these functional masks are equipped with high technological contents. Thus, the additional value increases correspondingly. For example, masks for controlling bacteria and protecting virus should carefully suit with people’s facial form. Obviously, such a malignant environment we are living in is difficult to be improved thoroughly in a short time. Therefore, self-protection measure appears to surge high unprecedentedly, bringing vigor to the protective face mask industry in China.

New market studies in late 2018 found that ‘smart’ masks are now more welcomed than traditional protective face masks. Now major mask buyers in China not only consider the function of filtering but want to buy smarter equipped masks. With some AI microchips implanted into masks, those new products can both monitor the filtering function and other rates affecting human body performances including heart rates, air pressure, humidity and other air-related live data. Some other products even developed a replaceable filter with AI function, and these products are more like sports equipment than simply anti-pollution masks. Their filters can be replaced to imitate different air pressure levels and add on training difficulties when people try to exercise under a thin-air condition and to improve cardio abilities. Most buyers of this new type of AI-based masks are female, and 53% of the buyers are less than 30.

Many investors have seen this opportunity; it is estimated that the production value of China’s functional mask market will grow up to CNY 10 billion in the next five years.

Author: Maxime Bennehard

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According to statistics released in early 2020 by the People’s Bank of China (PBOC) the number of electronic payments processed by country’s banks increased by 6.3% compared to the same period in 2018. 62.1 billion electronic payments have been registered, including 30.7 billion of mobile transactions, representing a year-on-year increase of 73.6%. In March 2020, 776.08 million persons were using mobile payment in China.

COVID-19 boosted online and mobile payments in China

After the COVID-19 epidemic in China, the Payment & Clearing Association of China (PCAC) launched an action on February 28, 2020 to encourage people to use mobile payment, online payment and QR payment to avoid the risk of infection.

Just after the Labor Day holiday in May, payment giants released their payment data. According to Zhuanlan, compared with Qingming Festival in April, the average daily transaction amount of UnionPay increased by 7.7%. Perhaps COVID-19 is the driving force on online transactions in China. The online platform handles 1.354 billion capital online payment businesses on a daily basis, an increase of 54.59% year-on-year. At the same time, the number of offline barcode payment (mobile payment) transactions on a daily basis increased by 48.5% year-on-year. In terms of Alipay, the payment frequency of sightseeing spots has increased by 120%; the amount of payment Wechat paid for restaurants under the line has increased by 447% compared with that in March.

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In 2018, around 83% of all payments were made via mobile payment modes

China has developed differently in terms of payment methods: while all countries have switched from cash to credit cards and are now switching to mobile phones, China has skipped a step. The use of the credit card in China is sporadic, if not non-existent.

And even though mobile payment is overgrowing across the continent, Chinese people are using phone payments more often than their neighbors in Asia.

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Why and how do mobile payments in China work?

This increase in the use of smartphone payments in China is linked to the growth of e-commerce and m-commerce. Indeed, if the share of online sales may still seem relatively low, it is increasing very quickly.

Experts even estimate that mobile commerce in China will reach about $1.5 trillion in sales in 2019, representing a quarter of the country’s overall retail market.

Also, mobile payments have been so successful in China because they are fast and straightforward. And this speed is possible thanks to the QR codes. In China QR Codes are everywhere; even street musicians have a QR Code to collect money.

• There are two ways to pay via QR Codes in China: The customer scans the seller’s QR code, which is very often printed and visible at the checkout, on restaurant tables and even on products in some stores. The customer then chooses the amount and can send the money directly to the seller.
• The customer shows the QR code displayed on his smartphone, and the seller scans it. This method is even simpler and faster because the customer has nothing to do; it is up to the seller to select the amount that will then be deducted from his mobile wallet.

China has therefore quickly adopted mobile payment, and this is mainly because it is very easy for sellers. Unlike Apple Pay, where sellers have to buy technology to receive a payment, in China, a simple piece of paper printed with the QR code is enough.

Mobile payment methods in China in 2019

Tenpay (including WeChat Pay and QQ Wallet)

Tenpay has the biggest market share by penetration rate in China, with 84,3% in 2018. Enveloped by Tencent Company, which owns the most popular social media in China, Wechat (Weixin), Tenpay has developed the most used mobile payment solution in China: WeChat Pay.

WeChat, the Chinese giant, sees 1.08 billion monthly active users in 2018 and more than 900 million users on a monthly basis. We could barely compare this to Apple Pay which has only reached 127 million monthly active users in the world.

Today Wechat pay strategy in China is to extend its services to various financial products – from investment funds to insurance, allowing users to pay for it directly within the app.

Wechat pay transaction fees of 0.1% start at withdrawals over 10,000 RMB as well as overseas transactions such as in case of cross border commerce. The app currently supports 9 currencies, against 18 for AliPay. Cross-border transactions can still be complicated, but WeChat has recently partnered with Adyen, an international payment technology company to facilitate access to China for foreign companies.

Alipay

Alipay is the only online payment system used on Taobao, which is the leading shopping website in China, owned by Alibaba.

Alipay has the second biggest market share in China with over 900 million users worldwide at the end of 2018 and 700 million active users. Many major websites use Alipay as an e-commerce payment method, such as Taobao, Amazon, JD.com and AirAsia, and other 40 million small shops and sellers in China.

Considering low trust in China’s online payment system, they introduced escrow (the payment is made by the buyer before the product is shipped and the payment is released when the product is received) and immediate payment (used to pay for hotel room bookings, flight bookings or other items that do not need to be shipped) to solve the trust issue and to expand the market.

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As a foreign company to set up on this platform, you need to pay USD 1,000. Transaction fees are 2.5 – 3.0% depending on your annual transaction volume.

For Chinese companies there is no setup fee, they need only pay 0.7-1.2% as transaction fees. You can communicate with Nanjing Marketing Group for the information on setting up your account. Alipay has arrangements with over 60 Chinese banks, Visa and Mastercard.

China Union Pay

Union Pay is the world’s largest payment card issuer with approximately 30% of cards worldwide being a China UnionPay card (CUP). China Union Pay is the only domestic bank card organization in China, linking the ATMs of 14 major banks and many smaller banks throughout mainland China. It is also an Electronic Funds Transfer at Point of Sale (EFTPOS).

With China Payment Services, international merchants do not need a physical presence in China, nor do they need a Chinese bank account.

The “push payment” principle is a different process that Westerners may not be accustomed to, whereby users are directed to their personal bank account to authorize the payment.

Many sizeable international eCommerce merchants in China are choosing to offer liberal return policies for card payments, rather than provide a Cash on Delivery option, making UnionPay card payments an excellent China online payment method for any international merchant. In 2019, Union Pay is planning to enter the European market in a move that could cause serious competition for Visa and Mastercard.

Paypal

Paypal entered into China in 2005 with services specifically designed for the Chinese population, including Chinese entrepreneurs.

But the Chinese market of mobile payment methods is very difficult to conquer for Paypal, especially against the competition.  In 2017, an agreement was reached with Baidu Wallet that allows Chinese companies to have better access to the international market and vice versa. PayPal and China UnionPay have also agreed to work together.

How do consumers pay in China?

Cash on Delivery (COD)

Cash on delivery makes up the largest percentage of online payment methods in China. Famous websites such as Dangdang, Amazon, JD.com are conducting methods like this as one option. COD is a payment method in which it is the carrier who ensures the collection of the payment in return for part of the goods and who takes care of the return of the amount to the seller.

There are many reasons for the preference for this payment method in China. Firstly, goods can be quality assured by the receiver before payment. Secondly, if people don’t have an account for online payment (for example a senior or someone from a rural area who is not good at using a computer), they tend to choose this method. COD payment can be made by cash (uncommon) certified check or money order.

Credit Cards in China (China UnionPay cards)

Online credit card usage in China is less than 5%, not as popular as in Western countries. International cards such as Visa and MasterCard are not common online payment methods due to the low-trust associated with them in China.

Debit Cards (China UnionPay cards)

Debit cards are widely used by Chinese consumers for Internet purchases. The funds paid using a debit card are transferred immediately from the bearer’s account through use of a “push payment“ principle. During the online payment process, users are directed to their personal bank account where they physically log in and authorize the transaction.

Although COD makes up the most significant percentage of China online payment methods, the trend towards using debit/credit cards (China UnionPay cards) is continually increasing as more domestic and international online merchants integrate the option of online card payments on their website.

Shipping methods in China

Major shipping companies in China

1. SF Express (Shunfeng Express) 深圳顺丰速运

It has built an extensive business unit covering research and development, logistics, pickup & delivery network, etc. which spans the nation (including Hong Kong, Macau, and Taiwan). At the same time, its international network has been actively expanding to South Korea, Singapore, Malaysia, Japan, the United States, and Europe.

2. STO Express 上海申通快递

Covering Mainland China and Hong Kong, Macau and Taiwan,  this shipping company is in service 365 days all year round.

3. Shanghai YTO Express 上海圆通速递

Yto express is a large famous private shipping company in China. They have set up 4800 branches and have covered more than 1380 cities and 76 airports all over China.

4. TTK Express 上海天天快递

They have weixin service as a method to track the package. Their business is mainly in Mainland China and Taiwan.

5. Yundaex 上海韵达快运

Their business is mainly in Mainland China and Taiwan. For international packages, they work with DHL, UPS, TNT, EMS.

6. EMS (Worldwide express mail service) 邮政特快

EMS is one of the major shipping companies in China which owns China Postal Airlines and China Post Logistics. The company has nearly 100,000 employees and 45,000 sales outlets in more than 200 countries and regions. The company possesses the world-acclaimed brand “EMS” and the leading domestic logistics brand “CNPL.”

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How can foreign businesses use new mobile payment methods to boost their business in China?

Create official accounts to provide special offers

The Alipay and WeChat Pay mobile payment methods offer the possibility to set up individual marketing campaigns. They are not only payment tools, it goes further. For example, you can attract your customers’ attention by directly offering coupons and promotions that can be used via Wechat Pay or Alipay. These coupons can be placed in applications during critical events such as the Golden Week, Singles Day, the Chinese New Year, etc.  For Wechat, it is called the WeChat Voucher solution.

You can also offer your customers a Wechat membership card which is a virtual discount card with the cumulative discount at several levels. Then, you will need to measure these actions, the ROI, to determine the impact on your business but it can attract new consumers and simplify your customer journey.

Allow mobile payments for your Chinese clients, out of China

According to a 2018 survey by Nielsen and Alipay, 91% of Chinese tourists would shop more if overseas merchants had mobile payment options. So if you want to increase your customer base of Chinese tourists, you can develop your payment options.

Allowing mobile payments for Chinese customers is what many countries are doing. According to Alipay’s statistics, in 2018, the number of mobile payment transactions has increased 75 times in Russia, 12 times in Canada and eight times in Malaysia. The same phenomenon has been observed in New Zealand, Australia, and Finland.

Recently, the Galeries Lafayette group in France, whose Chinese customers represent approximately 25% of its €2 billion turnovers, also chose to that implement this strategy.

After opening a store dedicated to Asian customers, the Galeries Lafayette group now accepts payments with Wechat. For the company, this is a logical step in its strategy to conquer the Chinese tourism market.

Want to know more about how you could leverage online payment platforms in China? Daxue Consulting’s Online market research service provides you with in-house service for every step of your research project and can help you to draw a comprehensive digital mapping of your sales funnels in China.

Do not hesitate to reach out our project managers at dx@daxue-consulting.com to get all answers to your questions.

This article Payment methods in China: How China became a mobile-first nation | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.