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

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

Listen to China Paradigm on Apple Podcast

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.

Different types of preschools in China

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

Public kindergartens & preschools

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

Private kindergartens & preschools

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

Top 10 kindergartens in China

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

Trends of the preschool market in China

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

International kindergartens are popular

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

Preschools plus the internet are in trend

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

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

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

Issues of the preschool market in China

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

Competitive enrollment

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

Lack of talented professionals

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

Scandals spark the societal outrage

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

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

Uncertainty during the coronavirus outbreak

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

The preschool market in China is bright

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

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

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

Listen to China Paradigm on Apple Podcast

This article The Kindergarten and Preschool Market in China: How much Chinese parents pay for early education is the first one to appear on Daxue Consulting - Market Research China.

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

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

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

Obtaining certification is the key driver for music education

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

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

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

Source: National Statistics Bureau

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

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

Source: McKinsey Quarterly

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

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

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

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

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

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

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

Source: taosj.com

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

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

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

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

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

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

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

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

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

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

Famous guzheng artists in China

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

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

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

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

Famous guitarists in China

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

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

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

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

Source: Daxue Consulting

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

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

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

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

Famous ukulele players in China

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

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

A new opportunity in the music education market: intelligent instruments

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

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

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

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

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

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

Daxue Consulting has done thorough research on instrument markets in China

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

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

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

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

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

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

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

Daxue Consulting helps you get the best of the Chinese market. Do not hesitate to reach out to our project managers at dx@daxueconsulting.com to get all answers to your questions.

Luxury brands in China do not have to compete with counterfeits

Download our brand independence in China report to learn more about direct-to-consumer marketing in China

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

Listen to China Paradigm on Apple Podcast

This article Behind the counterfeit product industry in China is the first one to appear on Daxue Consulting - Market Research China.

We also find that the smart and second-hand jewelry market has soared recently. China’s jewelry market can afford to approach a wider target market, men and children represent a flourishing consumer base. However, their demand have not been satisfied yet. In this fast-changing market, having insights on the latest trends would level up performance.

Jewelry sales are tied to GDP, so here is an overview of China’s GDP

The Chinese GDP has seen an upwards trend from 2010 to 2019, maintaining a stable growth rate at around 10% from 2017 to 2019. The number of the wealthy class and the upper middle class in China are expected to rise, which is a sign to promote the consumption of jewelry. From 2015 to 2020, the number of the wealthiest class (more than 24,000 RMB monthly disposable income) has the highest growth rate, with a CAGR of 16.9%.

Correspondingly, from 2009 to 2015, China’s jewelry market saw an upward trend. However, in 2015, the industry revenue dropped by 9.12%, ending the six-year continuous growth. The downward trend in 2016 has eased in 2017, following a stable growing trend onward.

China’s fundamentals, including the growth of the middle and upper classes, and urbanization, remain strong and the government’s new fiscal policies, such as 13th Five-Year Plan, are expected to improve jewelry market conditions in the next few years.

These 8 trends shape China’s jewelry market

1. The luxury jewelry market is dominated by foreign brands

Players in China’s jewelry market could be divided into mainland companies, Hongkong-invested companies and foreign companies. Generally, products of foreign brands, such as Cartier, Van Cleef & Arpels, and Swarovski are priced higher than domestic brands. These luxury brands often have a longer history, and customers are willing to know the story behind the brand and each product series.

Chinese domestic jewelry companies are younger. Most of them have no more than a hundred-year history, and the price is more affordable. In recent years, with the Chinese economy’s recovery from the global recession, more young players, such as KEER, I DO, and Zbird have joined the market and expanded quickly.

Big companies such as Chow Tai Fook Group implement a multi-brands strategy, building high-end jewelry brand image. Jewelria, for example, is a brand of Chow Tai Fook group, targets high-income people, and only has stores in a few tier I cities, products of which are not accessible on the online shops.

2. The geographic center of jewelry consumption is shifting downward

With demand in Tier 1 and Tier II cities reaching maturity, Tier III cities become a more important driver of growth and contributes the most value to China’s jewelry market.

The purchasing power of Tier II and III cities is increasing rapidly. Accordingly, the demand for jewelry is increasing, stimulating store expansion in lower-tier cities, especially for companies that implement both store franchising and self-operating models.

Source: China Industry Information

Lukfook and Chow Tai Fook are the two companies with the most stores in mainland China. In recent years, they focused more on expansion in Tier II, III and lower-tier cities in order to achieve a broader coverage, and accelerate authorizing franchise stores in these cities. These cities which experience higher economic growth are in general more resilient to global economic fluctuations and have seen rapid expansion in their jewelry markets. Cartier is also trying to expand carefully in Tier II cities, such as Chengdu and Nanjing.

However, the market in tier I cities is not shrinking, of course, so companies continued to upgrade the positioning and branding of Tier I and cities to cater to the sophisticated customers in these cities. Pandora, for example, retained all the operation of distributors in China to improve the purchase experience.

Demographically, population growth rate in tier III cities is higher than that in tier I and II and has doubled in recent 10 years. Population in tier III cities is 5 times more than that in Tier I. Because internet penetration rate of tier III and lower-tier cities is higher than before, people are more easily to be affected by KOLs when making a purchasing decision.

Source: Lukfook annual report, Chow Tai Fook annual report

3. Gold jewelry is the most popular, but tier I cities are reshaping the trend

China’s jewelry market can be segmented into three: gemstone jewelry, metal jewelry and other jewelry. Other jewelry could be made by Ceram, ivory, wood, etc. Although many jewelry companies have expanded their watch sectors, and watches are usually set diamond or other precious stones, watches are not considered a subcategory of jewelry.

In the whole jewelry industry, gold products are the most popular category and accounts for more than a half of industry revenue, followed by diamond, jade, and other precious metal such as platinum and silver.

Source: Gems & Jewelry Trade Association of China

The revenue contribution proportion is the same in some companies. Chow Tai Fook, for example, gold products contribute the highest revenue of 57.4%.

Chow Tai Fook divided bridal jewelry into Chinese bridal and western bridal. Chinese bridal jewelry is usually made of 24-K gold. In northern China, there is a tradition that the bridegroom has to buy “three gold (三金)” for the bride, which contains a gold ring, gold necklace, and gold earrings.
Image: Daxue Consulting

The Chinese market is dominated by plain, 24-carat products, which represent about 85% of the market by volume. This ‘pure gold’ jewelry (known as 足金 in Mandarin) is almost entirely sold by weight. Ships weigh the items chosen by their customers, multiply the fine weight in grams by the daily SGE spot price and then add a markup that incorporates the labor charge and a retail margin. The balance of the market is made up of 18 carat ( known as K金 in Mandarin) and gem-set products. A large share of the 18-carat market is for weddings bands, where ‘white gold’ provides strong competition for platinum.

Source: Precious Metals Insights

In recent years, gold jewelry has faced stiff competition from gem-set or other jewelry products in tier I cities. Only 18% of women in tier I cities would choose to buy gold jewelry when given 5,000 RMB, compared with 14% and 15% who would buy diamond or platinum jewelry respectively. However, this competition is not as fierce in lower-tier cities. Consumers in tier III and IV flock to buy high carat, heavy gold jewelry for wealth preservation purpose. Also, in tier I cities, there is a healthy market for 18-carat fashion jewelry, much of the upper end of which is imported Italian product.

Source: World Gold Council

Tier I cities are changing the shape of consumerism in China. Trends that start amongst these groups eventually filter through the consumer landscape.

4. Self-purchasing of non-bridal diamond jewelry pieces is growing

Bridal diamond jewelry may not be the foundation of the diamond jewelry industry

Wedding jewelry is traditionally the biggest part of jewelry consumption occasions, which contributes 32.1% and 39.2% total revenue of Chow Tai Fook in 2014 and 2015. Brands such as I DO and Darry Ring have always targeted in the bridal market.

However, in 2016, only 11.43 million Chinese couples registered for marriage, making it the third consecutive year the number has declined. Much of the marriage decline results from China’s one-child policy. Ended formally in January after 35 years, the policy accelerated a decline in the country’s birthrate. As a consequence, people between 20 and 29 – prime marrying age- make up a declining share of the population compared with two decades ago. Because families often preferred male babies, China has a surplus of men, further complicating marriage prospects.

Source: Ministry of Civil Affairs of PRC

With the decrease in demand for wedding jewelry, brands need to adjust the product line. Danish fashion jewelry manufacturer Pandora seems to quit this market. It has kept away from ‘love’ based promotion in China. Its advertisement has never shown the image of couples, which is thought to be old-fashioned and would discourage it from potential customers such as single women.

The Tmall store of Pandora presented many pictures with young ladies wearing its products. This differentiates this young jewelry brand from other traditional brands.
Image: Pandora Tmall flagship store

Products popular with Millennials and for female self-purchase are helping to spur growth.

While women’s desire to be given diamonds is still strong, women in China are more likely to buy diamonds for themselves. This is due to the growing number of working women. 25% of women in China are already earning more than their spouses, which is higher than that in the US.

They often choose gifted jewelry themselves or have input into its selection. 26% of women receive diamonds for birthdays, with the exception of 18^th and 20^th birthdays when an even higher percentage of women receive diamonds. 27% of women buy diamond jewelry for no specific reason. Emotional drivers are particularly powerful in China, with the celebration of relationship and personal milestones topping the list, while this number in the US is among the last.

Source: De Beers Diamond Insight Report 2017

Millennials increasingly value everyday wear jewelry. Unlike wedding jewelry, jewelry for every day is a repeat purchasing opportunity. They also value experience over things, that’s why Pandora is so popular in China. Its Moment series bracelets provide over 600 different options in China for Chinese customers, launching new products in various celebrating days. Pandora remains a two-digit percent of annual revenue growth in mainland China since it entered China market officially in 2015.

Conventional domestic jewelry companies are also seeking to attract millennials. After-acquired Boston jewelry brand Hearts on Fire, Chow Tai Fook provides more products for young customers. Luk Fook provides gold jewelry in low purity, making the price more affordable.

People are trying jewelries on in Monologue shop, and most of them are young ladies. Monologue is another young brand of Chow Tai Fook, targeting millennials in a simple design and low price.
Image: Daxue Consulting

5. The digital market can’t be isolated from offline stores

Online shopping has effectively become a national pastime in China with approximately 77% of respondents picking it as their favorite leisure activity.

80% of consumers aged between 20 and 40 learned about gold and jewelry products through the internet and 60% of them had spent money on the internet. The proportion of spending on gold jewelry under RMB1,600 was 64%, while that on gold jewelry over 3,000RMB was 15% only. Currently, the products priced at around 1,000RMB are prevalent in the internet spending on gold jewelry, while the products priced under RMB2,000 are the major market for the internet spending on gem-set jewelry. Chow Tai Fook sets price range in their physical stores is 3,000-6,000RMB, whereas online it is 1,000-1,500RMB.

Almost all the main players in China have its own Tmall and JD stores. Besides, Wechat shop and Vip shop are the 2 platforms where people could reach jewelry products.

E-commerce player keeps rolling out offline stores

In the online market, jewelry companies’ biggest challenge is to inspire confidence in customers. Because of Chinese people purchasing preference, the business model of Blue Nile that provides diamond selections for customer online has no physical inventory and only procured from the supplier once a customer has made an online purchase will not succeed. Almost all the online shops of jewelry companies could locate the nearest offline shop for online visitors, inviting them to walk in and touch and feel jewelry. Even early e-commerce success players are rolling out offline shops these years.

One difference between e-commerce player and conventional players is the function of offline stores. For the former one, it has fewer offline stores: Kela (柯兰钻石) has 210 stores, and Zbird(钻石小鸟) has only 41 stores. These stores only have sample products and a few inventories. People can either place a digital order through in-store tablets or their own mobile device, or through the store directly, and they have to wait for products producing and shipping from Shenzhen, China’s biggest jewelry manufacturing and trading hub, where most jewelry manufactories are located in, including Kela and Zbird, for 5 to 20 days.

Zbird(钻石小鸟) successfully implements a B2C model into jewelry industry. Zbird is founded in 2002, before Alibaba had even launched Taobao, selling diamond rings and pendant on Eachnet, the first e-commerce platform in China, and only opened its first offline store in 2014.

Customers could select key components of diamond (i.e. Price, Cut, Color, Clarity, Carats)
Image: Zbird official website

However, for Zbird and Kela, most of their revenues come from offline stores: 80% for Zbird and 70% for Kela. Customers looking for engagement and wedding rings are more likely to actually buy the ring in the offline Store. Online customers tend to buy more personalized diamond jewelry like pendants, earrings, and other pieces that are less likely to require opinions from family members.

E-commerce and O2O interactions will continue to reshape the retail industry

Unlike e-commerce companies, conventional jewelry companies are trying to access customers as broad as possible. They focus on in-store experience and have more than one store in a city. Chow Tai Fook’s revenue from e-commerce platform accounts for 9.3% of the total. 11% for Lukfook, increased 97.4% from 2016, 77.7% of which comes from gold and platinum products

Chow Tai Fook levered on its extensive retail network paired with inventory unification system to collaborate with online platform partners and launched the online order distribution program in 2017, enabling its customers to enjoy jewelry deliveries directly from nearby POS in shorter delivery time.

WeChat is an efficient channel to communicate with customers

WeChat’s monthly active users sit at 1 billion as of Feb. 2018. Cartier was the first luxury jewelry brand to use WeChat moments ads. Relying on Tencent’s enormous database, the accurate delivery of the ads helped Cartier’s WeChat account gain a huge following.

From February sixth until Valentine’s Day of 2017, 150 limited editions “rose gold love bracelets” were available exclusively on Cartier’s WeChat online store. Each bracelet cost over RMB 30,000 and was on the more affordable end of its jewelry collection. The total 150 bracelets were sold out within a week on WeChat.

The purpose of this campaign was not to focus on the selling figures, but rather on showcasing Cartier’s premium-purchase experiences. Essentially, using hunger marketing resulted in raised brand awareness and increased desire from consumers.

Besides WeChat, Weibo and Douyin are also witness a joining of jewelry brands. Domestic jewelry brand I DO has 38 thousand fans on Douyin and is one of the most popular jewelry brands on it, compared with Chow Tai Fook’s mere 12 fans and KEER’s14 fans. The most popular videos of I DO are the promotional cuts off a group of celebrities, Nine Percent, that has presented its crossover perfume. The group member of this nine-member Chinses boy group formed by the survival show Idol Producer has at least 4 million fans on Weibo, 73 percent of which are young people aged under 23. Finally, this perfume contributes 4-million revenue to I DO. Recently, Chanel cooperated with Douyin, posting videos about its watch, gaining up to 73 thousand views.

Posters of I DO perfume presented by celebrities NINE PERCENT have covered the whole exit of Shanghai Xujiahui subway station.
Image: I DO Weibo account

Brands need an innovated form of advertising. The parent company of I DO, Hiersun Industrial Co., Ltd., founded its own film company, and plan to shoot a movie based on the idea of its I Do bridal jewelry. The same as Kela, whose parent company Gangtai Holding (Group) Co., Ltd has acquired an advertising company in 2015.

Without long history, domestic jewelry brands emphasize design and quality of raw material

Some high-end jewelry brands attract customers by telling brand stories, such as Cartier and Van Cleef & Arpels, and some young brand without such a long history could choose to endorse itself by strengthen its design, persist in social responsibility and others. Pandora strengthened its concern to Thailand workers, Shinning house (钻石世家) emphasizes donating to schools in rural areas.

Since Shanghai Diamond Exchange is the only transaction platform for import and export of diamonds in mainland China, most jewelry companies in China purchase processed diamond from it. However, some companies, such as Zbird, choose to sign purchase agreements with Antwerp Diamond Exchange and purchase processed diamonds from there.

Rather than purchasing processed and polished diamond, a few big players have ability to process diamond by themselves, vertically integrating their business model. Chow Tai Fook now purchases rough diamond from Alsora and Rio Tinto, and has 5 Jewelry Manufacturing Companies in mainland China, covering upstream raw material procurement, and rough diamond cutting and polishing, and midstream product development, manufacturing and quality assurance.

Cutting and polishing rough diamond allows Chow Tai Fook to secure the quality of diamond to be sold.
Image: GIA, Visit to Chow Tai Fook Diamond Cutting Factory in Foshan, China

6. There is still much room for jewelry for men and children

Limited male jewelry despite the strong demand, especially in tier I cities

China’s jewelry market consumption is dominated by females. 63% of jewelry products are purchased by females, and this number would go up with an increase in unit price.

While the traditional women’s market is fiercely competitive, the male jewelry market is still in the early stage of its development. As well as traditional jewelry items, such as rings, the men’s market also includes such solely masculine items as tie clips, cufflinks, and belt buckles. The interest of mainland male consumers in jewelry products stems mainly from their taste for diamonds. Among Chinese males in the 30-44 age group, 67% wish to own diamonds. Compared with the relentless growth in overall demand, though, the development of the mainland male jewelry market is relatively slow.

Although jewelry brands more or less have some male jewelry products, the design is lack of innovation, and most of them are gold rings or bracelets. Diamond jewelry brands have only a couple of diamond rings for men.

Source: Data from brands’ Tmall flagship stores

Most male consumers bought jade and K-gold products, but the diversity of jewelry purchased would increase with the income of male. For high-income male consumers, they prefer amber, diamond, color stone and crystal, and are less interest in conventional jewelry such as jade and K-gold. Males in tier I and II cities contribute most of the revenues of jewelry for men.

Jewelry for children

In accordance with Chinese traditions, people give longevity locks, bracelets, and necklaces to children as goodwill tokes and as a way of wishing them a healthy and happy life. In particular, the kinds of gold jewelry items can be worn, but which also has an inflation-proof value, are the top choices among those parents who are skilled at managing finances.

In December 2015, the two-child policy allowing Chinese couples to have two children was passed, and effective from January 2016.

Source: National Health and Family Planning Commission of the People’s Republic of China

In response to the implementation of this policy, many companies have introduced a variety of kids’ products. Lukfook, for example, launched an array of jewelry accessories featuring the Rilakkuma, a popular fictional character produced by a Japanese company, and the baby gift sets that came with the accessories invoking blessings for peace, safety and health as well as the exquisitely designed gift boxes. Chow Tai Fook also cooperated with Disney, Line, and Marvel, attracting parents to buy for their children.

Chow Tai Fook launched Minions series products, most of which are priced relatively low, compared with others, from 756 RMB to 948 RMB
Image: Chow Tai Fook e-shop

Besides images of cartoons, the twelve Chinese zodiac animals is also a theme of children jewelry. Parents believe that give children a gold or silver bracelet of their zodiac animal would keep bad luck away from their children.

7. Smart jewelry may be an opportunity

Totwoo, the first domestic smart jewelry company, has got 20-million series A round investment in 2016, used for developing new products and launching offline stores. It launched smart jewelry “We Bloom”, “We Bold”, and “Time Memory” in 2015. It has necklaces and bracelets, priced from 1,098 to 2,389RMB, and made of crystal set on silver or gold. The featured function is that two connected users can share their “virtual emotions” in real-time through the Totwoo APP to vibrate and light up, according to the reporter-turned Internet entrepreneur. Users can store their secret memories and receive alerts: “Take a break,” “Fitness Tracker” and “Incoming call.”

Conventional jewelry company Chow Tai Fook also invested in smart jewelry “Linklove”. It has vibrating, selfie shooting, and step tracking recording functions.

8. The second-hand jewelry market is at a beginning stage

Although the second-hand market is growing fast in China, especially for second-hand car, having over 10 e-platforms exclusively for the second-hand car business, second-hand jewelry seems to just at a beginning stage. Second-hand jewelry products could be traded in second-hand platforms that allows users sell things in various categories, such Xianyu, developed by Alibaba group, and Zhuanzhuan; or in platforms exclusively for luxury products, such as Zhier (只二) and Secoo (寺库).

Daxue Consulting can strategize your entry into China’s jewelry market

As a business intelligence authority in China, Daxue Consulting has a thorough understanding of China’s jewelry market and millennial spending habits and can help your company strategize a China market entry.

If you want to know more about China market strategy, do not hesitate to contact us at dx@daxueconsulting.com

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

Listen to China Paradigm on Apple Podcast

This article How millenials and low-tier cities are shaping China’s jewelry market is the first one to appear on Daxue Consulting - Market Research China.

This article will take a look at some of the main trends in the healthcare market in China, especially in tangent with COVID-19.

COVID-19 impact on healthcare in China

The COVID-19 has disturbed mankind’s way of life. Corresponding to the change in life, the consumer demand varies. To dip into the COVID-19 impact, here is a peek at the impact on healthcare in China.

Key sentiment: treat yourself

Since the epidemic, 75% of consumers are giving greater importance to their wellbeing, the demand of products for precaution such as dietary supplements, traditional Chinese medicine, vaccines and health insurance are expected to grow.

Mental treatment

Chinese mental health was also impacted by COVID-19. During the epidemic, many individuals have reported that themselves and their families have suffered from insomnia. Because of the quarantine, young Chinese people often stay up late watching series and playing games, damaging regular sleeping patterns. Some of them stated that they need help from melatonin and sleeping pills. The situation got even worst for medical workers. Due to high pressure and daily limited scope of activities, mental health significantly weakens and even aroused mental health disorders. When it comes to COVID-19 impact on healthcare in China, mental healthcare should also be taken into consideration.

The adoption of technology in healthcare offerings would be accelerated

A notable feature of China’s response to the COVID-19 has been the widespread use of mobile apps for medical information and services. Healthcare apps like Ping An Good Doctor, Ding Xiang Yuan, and Chunyu Doctor saw their user bases grow dramatically in response to the COVID-19. Ping An Good Doctor, for instance, reported a 900 percent increase in new users from December 2019 to January 2020.

During the epidemic, some Chinese hospitals are utilized robots to assist medical workers. Wuhan’s Hongshan Sports Centeri used robots and IoT-enabled technology to monitor patients’ temperatures, vital signs, heart rates, and other indicators to reduce personal interaction.

Focus on pharmaceuticals and vaccines

After the official confirmation that COVID-19 was human-to-human transmissible, Chinese citizens were keen on exploiting methods to combat the virus. Xinhua advised concerned people to try Shuang Huang Lian, an oral remedy, to combat virus, backing up the claim with a study by the Shanghai Institute of Meteria Medica and the Wuhan Institute of Virology. After the news report, Shuang Huang Lian sold out across the country and reached its peak on Baidu search even though the claim was denied by the popular medical information site Dxy.

[Source: Baidu Index, Shuang Huang Lian and COVID-19 searches on Baidu]

However, the Chinese pharmaceutical industry did stand in the spotlight during COVID-19 epidemic by proving its efficacy by practice. Of the confirmed cases of COVID-19 in China, 74,187 people used traditional Chinese medicine, accounting for 91.5%. Observation of clinical efficacy shows that the total effective rate of Chinese pharmaceutical to combat the virus has reached more than 90%. With the effective result shown, the global demand for Chinese pharmaceuticals are expected to soar.

Since the outbreak of COVID-19, people paid continuous attention to vaccines, which is seen as the core method to change the status quo and bring to normal life back.

[Source: Baidu Index, Chinese netizen searches for vaccines during COVID-19]

Segments of the healthcare market in China

People’s growing awareness of healthcare and the acceleration of population aging have brought prosperity to healthcare market in China.

Healthcare services and facilities in China

Healthcare in China is mainly supported by facilities such as hospitals and nursing homes.

Hospitals in China

The total number of hospitals in China has increased significantly over the last decade from roughly 197 thousand in 2008 to about 33 thousand hospitals in 2018. The region with the highest number of hospitals in China had been Shandong province with 2,451 hospitals, followed by Sichuan province with 2,219 hospitals. The booming trend of Chinese hospitals can be interpreted by the improve of China’s medical security system. 1,344.52 million people, over 95% of the country’s total population had been covered by the basic medical insurance system.

Chinese hospitals are divided into public hospitals and private hospitals by economic type. There had been 21,165 private hospitals in China, including 2,185 new ones compared with the same period of 2018 and accounting for 63.9% of the total number of hospitals. Social capital largely flows to specialized hospitals which need low investment but produce high return on investment and are in demand. In China, over 65% of private hospitals are specialized hospitals.

Nursing homes in China

With the increase of income and the improve in the pension system in China, pension consciousness is gaining popularity among the elder, the demand for nursing homes in China is stimulated. From 2013 to 2017, the number of patients in nursing homes in China showed an overall upward trend, which reached more than 2 million in 2018. However, the supply gap was growing from 2016 to 2018, reaching 9.14 million in 2018. The composition of nursing homes is unified since most of them are government facilities; there are relatively few privately owned ones.

Regarding the required services for nursing homes, 18.9% of China’s elderly population requires professional treatment, however, 15.9% of practitioners lack senior-focused professional training and 76.9% only receive fundamental training.  Related searches to “nursing homes” are “price,” “is it profitable to run a private nursing home,” and “how much is the nursing home per month.”

The medical device market in China

AI in China’s healthcare

AI is greatly applied in the healthcare market in China. The market size of the AI-related healthcare industry already reached 9.6 billion RMB. In 2019, AI expenditure in Chinese hospitals was RMB1.7 billion, with an increase of 88% over the previous year. A survey conducted by AI Blue Book – Chinese AI development in healthcare 2019 shows that a majority of Chinese respondents (78.4%) hold supportive attitudes towards the development of AI in healthcare.

AI has become a national strategy in China. The state has put forward higher requirements for the development of medical artificial intelligence. In July 2017, the State Council issued the “Circular if the State Council on Printing and Distributing Plan for Artificial Intelligence Development in a New Era”.

AI’s unprecedented tech advancements stood out during COVID-19. Regarding healthcare, the most visible use of AI is in mass surveillance and diagnosis which greatly help on combating the virus.

The biotech market in China

The industry scale of the biotech market in China boomed from 2010 to 2017, with a growth from RMB315.6 billion to RMB919.4 billion. The average CAGR is 17.7%. In China, the biotech industry are divided into seven categories: biomedical industry, biomedical engineering, bioagriculture, biomanufacturing industry, bioenergy industry, bioenvironmental protection industry, and bioservice industry.

[Data source: chyxx.com –The Market Size of biotech in China, 2010-2017]

Biotech greatly contributed to speed up the confirmation of COVID-19. The core of COVID-19 testing diagnostic kits are Biochip, which enables virus testing within 15 minutes.

The diabetes treatment market in China

China is currently the country with the largest number of diabetes patients, which is around 116.4 million adults. The prevalence of diabetes in China increased by 2.7% from 2008 to 2013. The 20 to 39-year age group drives the increase of over-weight and obesity. IDF estimates that the annual health expenditure on diabetes in China is 294.6 billion dollars, ranking the first in the world.

In the early stage of diabetes, the increase in blood sugar of diabetic patients will not cause obvious symptoms of discomfort. It can only be discovered and diagnosed by blood collection, which makes it difficult for early detection and screening of diabetic patients. The penetration rate of diabetes diagnosis and treatment in China is only 30%, and over 60 million patients have not received treatment. With the development of economic, the national healthcare in China raises. Local governments have proposed a policy of free medical examination for the elderly once a year. In the early future, the demand of diabetes treatment will continue to expand with increasing penetration rate of diagnosis.

Dominated by foreign brands

Foreign brands still dominate the diabetes treatment market in China. They remain as the major contributors of new diabetic drug innovations. Compared with the global market, China’s diabetes drug structure is backwards, with traditional hypoglycemic drugs as the mainstay. But the new hypoglycemic is developing. In the adjustment of the national medical insurance catalog in 2017, five domestic DPP-4 inhibitors were included in the national catalog, and then liraglutide also entered the national medical insurance catalog through national negotiations. The launch of the new mechanism of hypoglycemic medicine in China and the introduction of them into the national medical insurance will bring about a structural upgrade of the domestic diabetes drug market. However, due to the high price of the new mechanism of hypoglycemic drugs, they are only used as second-line drugs.

Medicine market in China

Pharmaceutical market in China

China’s pharmaceutical market has been constantly growing in recent years. It is estimated to reach $161.8 billion by 2023 and take a 30% share of the global market. As part of the “Made in China 2025” industrial plan, China hopes to reinvent its pharmaceutical industry. The pharmaceutical industry is a high-technology field that requires massive amounts of research and development.

The vaccine market in China

As an important precaution method, vaccine is spurring in the healthcare market in China. Driven by the ‘Two Child Policy’ and the booming demand for novel vaccines such as HPV vaccine, the market size of Chinese vaccine is estimated to grow to 40 billion yuan in 2025.

[Data source: Statista, size of Chinese Vaccine Market, 2019-2025]

There are two categories of Chinese vaccine one stands for public sector (Category I) which are compulsory and free of charge, while the other one is part of the private sector (Category II). Category II vaccines in China will be included in the free-of-charge category I vaccines in China, leaving less market share for foreign companies and making it more difficult for foreign-made vaccines to stay in the Chinese vaccine market.

The traditional Chinese medicine (TCM) market in China

The market size of TCM is expected to reach to RMB537.6 billion in 2020, which account for 32.4% of the medicine market in China. TCM treatment shared the same popularity as western medicine when it comes to healthcare in China. A survey shown that 49% of respondents prefer TCM treatment, which is basically the same as that of Western medicine.

[Data source: Qianzhan, The Market Size of TCM in China, 2011-2020]

Indeed, we can find the first traces of traditional Chinese medicine 5,000 years ago. The treatment also adapted to the modern life and modern practices of the Chinese medicine. Traditional Chinese medicine has spread to 183 countries and regions in the world, currently 103 Member States have approved the use of acupuncture, 29 of which have established laws and regulations on traditional medicine, and 18 have included acupuncture in the medical insurance system. With the international recognition of traditional Chinese medicine and the “Belt and Road Development Plan for Traditional Chinese Medicine (2016-2020)” and other policies to encourage Chinese medicine culture to “go global”, the import and export trade see a good opportunity for development.

Author: Dongni He

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

Listen to China Paradigm on Apple Podcast

This article The healthcare market in China is the first one to appear on Daxue Consulting - Market Research China.

Just like the content on these platforms, the figures of the short video market in China are making heads dizzy. The Coronavirus crisis has shed more light on an already booming industry. A large number of mobile users and the addiction for short video content among Chinese Millennials were already the drivers of the consumption of short video content. This viral trend is reshaping the content market, with short video marketing strategies in China becoming increasingly crucial for marketers.

The short video market in China soars on traffic growth and AI development

According to a QuestMobile report released in June 2019, the total users of these short video products has reached 820 million, meaning that 7 out of 10 mobile internet users in China are using these platforms to record, share or enjoy videos. The leading players in Mainland China are Bytedance’s Douyin and Kuaishou. Baidu and Tencent are trying to catch up with their own platforms, respectively Haokan and Weishi.

[Data Source: Questmobile –  short video apps in China, MAU June 2019]

Each short video platform has its distinction

TikTok / Douyin’s ByteDance, the global player

Douyin was created in 2016 by the Chinese tech giant ByteDance. It is by far the most widely known short video app thanks to TikTok, its global franchise. The app is available in 75 languages across the world. User base is mainly young women, displaying music-inspired content videos. No matter the size of an influencer, Douyin’s recommendation algorithm is based on users’ virality engagement with a piece of content. As long as people engage with a video, it will continue to spread further. Influencers can also use the live-streaming function to interact with their fans.

[Source: Douyin, the #1 short video platform in China]

Kwai / Kuaishou targets rural audiences in China

In 2012, Kuaishou went from a GIF-making app “GIF kuaishou,” to a short video platform. In 2019 Q2, the app became the second-highest-grossing video app globally, behind YouTube and ahead of Douyin.

Tencent and Alibaba-backed Kuaishou, known as Kwai on the international market, is the biggest competitor of Douyin, with a higher percentage of male users. Targeting China’s grassroots society, 64% of the platform’s users live in lower-tier cities. These users are heavily engaging with content and are willing to comment and to share. However, compared to Douyin, Kuaishou’s content might be of lower quality, and its ability to monetize content is far weaker. With less revenue coming from large brands advertisers, Kuaishou draws revenues from its live broadcasting function in which viewers have to pay to interact with the broadcaster.

[Source: Kuaishou, the #2 short video platform in China]

Xigua, known for its high-quality content

Xigua was created in 2016 by Bytedance to target a different audience from Douyin’s, with males accounting for a greater proportion of users. The platform attaches great importance to high-quality content, with both algorithms and user sharing helping drive traffic to high-quality videos longer than one minute. Besides, people can quickly find videos which interest them thanks to a more precise classification menu. However, the platform lacks active Chinese Key Opinion Leaders (KOLs) who can set the standard.

[Source: Xigua, a lesser known short video platform in China]

Bilibili, from mangas to makeup

Bilibili was born in 2010 from the willingness of its creator to share videos about anime fandoms, manga, and video games. Since then, the platform has diversified, attracting a lot of traffic thanks to content around lifestyle, entertainment, beauty, or technology. The app also offers a live streaming service that allows fans to interact with their streamers.

Bilibili’s audience is far younger than other short video platforms, with 80% of the viewers falling into the 16-25 age bracket. Moreover, the average time spent daily on Bilibili exceeds 85 minutes, and the engagement is relatively high. As of now, brands in the tech and entertainment industry have attracted high retention and engagement on this online video platform. We can also expect fashion to be a big draw in the future.

[Source: Bilibili, originally a manga platform, now is popular a video platform in China]

AI enables the development of short video platforms in China

The monetization of traffic on these applications is crucial, and Artificial Intelligence could help. AI is already the main engine for improving users’ journey on the short video apps, with the ability to enhance the visual quality, select content recommendations, and generate ideas of new content. A better user experience brings more traffic, which in return enables mass advertisement, user subscription, and many monetization opportunities. 

Chinese traditional tech companies such as Tencent, Baidu, Alibaba all invested, developed, or acquired short video apps, feeding them with technology to enable commercialization of content. AI algorithms have transformed the content industry from ‘people looking for content’ to ‘content reaching out to people.’ Thus, a study conducted by Netflix shows that 80% of hours streamed on Netflix are based on personalized recommendations. Wholly enabled by AI, instead of relying on word-targeted searches or interest-channel browsing, these short video apps in China directly feed under-60-second, user-targeted short videos to users.

By collecting likes, comments, and other data metrics such as response time, machine learning tracks user behavior and tailors content, deciding what video to show next. Thus, in China, the average daily use time on short video apps is 45 minutes. The growing user’s attention generates a large amount of advertising revenue, with the value transferred from the brands to the online video market in China. Therefore, following the traffic growth, the short video market in China is skyrocketing on the back of a better monetization of its content. In 2018, China’s short video market revenues grew by 744% year-on-year, an impressive leap forward which is expected to last.

Driving forces of the short video market in China embody modern Chinese lifestyle

In addition to their ability to optimize the viewer’s experience and monetize content, short video apps represent a new type of format that perfectly suits Chinese consumers of the 21st century. The digital transformation of China changed lifestyles, pushing daily-life activities from offline to online. In 2017, improved connectivity and video maturity enabled live-streaming and short video apps to penetrate the Chinese mobile internet ecosystem.

Post 70s lifestyle

Chinese people are getting more time-poor, meaning that the short video format adapts perfectly to this new fast lifestyle. Short content can be viewed on public transport when leaving work, or at home before going to bed. The peak of usage of these apps lies, therefore, between 6 pm and 11 pm.

Outside of the short format, the success of such platforms could also be explained by the lifestyle of the new generation of mobile users. Gen Z (defined as the “post-95” generation, aged 15 to 24) are more inclined to express their views openly. Even if they want to be perceived as independent and brave, they are by no means immune to the influence and group behavior. Consequently, they love to interact with people they identify with, feeling that they participate to the conversation. For example, this group of consumer fuels choreography challenges on Douyin, supports their favorite artist via the live-streaming function of Kuaishou, or follows the latest fashion style of biggest KOLs on Bilibili.

Users under 50 represent close to 90% of the total users on the short video platforms in China. Nearly 50% of whom are under 35. Another characteristic of Chinese consumers under 50 years old is their proclivity to spend money freely. Even if a big part of Chinese gen Z is still unemployed, 70% of them receive more than 3,000 yuan in pocket money per month, with 20% of them receiving more than 10,000 yuan. Beyond this generation, Chinese people enjoy a modern and quick lifestyle with less time to spend than money.

Covid-19 drives traffic on short video apps in China

During the Coronavirus, the shift towards online services quickly accelerated. No matter the age group of the consumer, it needed to rely on online services to keep its habits. With people streaming from all over China, Chinese people have flocked to these platforms to collect real-time information on the epidemic situation. During this period, short video apps represented more than 30% of the time of news acquisition among Chinese netizens, and 17.3% of the total use of the mobile internet. Compared with the 2019 Spring Festival, short video consumption time exceeds that of mobile games.

[Data Source: QuestMobile, How Chinese netizens spent their time online during Spring Festival of 2020]

Moreover, the economic impact of the Coronavirus in China pushed offline industries to go online. Examples of such industries making smart use of the live-streaming functions are the night clubs and the gyms. Thus, a five-hour live-streaming set at OneThird, a nightclub of Beijing, brought back $285,000 in tips donated by the viewers on Douyin. Banking on the trend, Douyin’s rival Kuaishou made deals with clubs across China to stream their shows.

[Source: Douyin – Keep’s Short video marketing strategy in China during the Coronavirus]

Could short videos be the future of marketing in China?

With an incredible engagement from its users, short videos are a boon to promote, market, and sell products. Marketers can use it as a tool for communication, sharing reviews from Chinese key opinion leaders, and for targeting narrow audiences. Another option is to invite followers to share and like a post to win a prize in return. In addition, live-streaming allows for audience interactions and feedbacks, which could provide useful data for marketers.

Proof that marketers would invest the stage, the advertising revenue from the short video market in China is expected to reach close to 100 billion RMB (14.1 billion USD) by 2021.

[Data Source: Statista, 2018, China’s short video advertising market revenue]

Short video KOL marketing

However, as the possibility are numerous, short video marketing strategy in China can quickly become complex. One of the most effective uses of Chinese short video apps is to promote a brand is through influence marketing in China or KOL marketing. Chinese KOLs exhibit the ability to widen a brand’s audience, drawing customers from online channels to physical stores to make purchases. Resulting from their ability to attract traffic, Chinese KOLs can attract brands and advertising, helping short video platforms in China to achieve a better monetization. Consequently, the short video market in China is competing to close exclusivity deals with the biggest Chinese KOLs.

[Source: Douyin – influencer marketing in China to promote the short video app]

The 15 to 60-second format is challenging for creators and brands, which are not able to enter in-depth in the storytelling that makes video content valuable. As of February 2020, short video platforms like Douyin are adopting longer video formats to attract higher quality content. If brevity is making it hard for marketers to inform and persuade, the conversational content of these platforms could represent the future of marketing in China. Live-streaming functions and chasing engagement from the audience to enriches the experience are seen indeed as the next marketing trends in China.

Short video marketing strategy in China: How Daxue can help you

As a competitive market research agency in China, Daxue Consulting can help you creating your short video marketing strategy in China. Our team is dedicated to giving you the best understanding of Chinese consumers and to assist you in each step of your social media strategy process.

Understand the target audience

First, Daxue Consulting can perform customized social media listening plans to analyze comments on Chinese short video platform Douyin, as well as shopping platforms in China – which are directly accessible via the short video app, like Taobao, Tmall, JD.com. This social listening phase will help you identify the best channels according to your targeted audience.

Choose the right KOL for your audience

This first set of raw data is useful to identify Chinese live-streaming KOLs that would fit for your brand, product, or service. Some KOLs could be exclusive to only one or two platforms in the Chinese market. This makes it essential to know the right social-media channel and define a short video marketing strategy in China to reach the desired target audience (e.g., Douyin vs. Kuaishou vs. Bilibili).

According to our case study, Austin, a former makeup artist for L’Oréal, would be the perfect candidate to market a cosmetic brand among young consumers in low-tier cities market in China.

If you want to know more about influence marketing in China to kickstart your short video marketing strategy in China, make sure to check out Daxue Consulting’s KOL market report!

Chinese leading players to go global

While the short video craze is reaching new heights in mainland China, Chinese actors are gaining traction from foreign markets. Embodying the fast pace of the modern Chinese lifestyle, but also the western one, ByteDance’s Tiktok (known in China as Douyin) is booming. In 2019, TikTok managed to achieve more downloads than Netflix, Facebook, or Gmail on the Appstore.  Kwai, which is owned by Kuaishou, repeatedly tops the Brazilian app store’s most downloaded chart.

Chinese players are looking for fresh opportunities abroad, while the short video market in China became increasingly saturated. By appealing to certain demographics and cultures, plenty of short videos platforms thrive in China’s domestic market. Replicating these same strategies on a global scale for Chinese companies could be riskier. Indeed, if there is still room outside of China for TikTok or Kuaishou, it is not guaranteed for the others.

In China, the huge engagement of the users attracts influencers and advertisers who helps achieving the monetization of the content. For Chinese short video startups going global, achieving monetization is a real challenge, knowing that the engagement rate of foreign users is far weaker.

Author: Maxime Bennehard

Check out our report on the KOL market in China

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article The short video market in China: Embodying the fast pace of modern lifestyle is the first one to appear on Daxue Consulting - Market Research China.

Our research on crisis management in China has already suggested the most important strategies to ensure business continuity include; embracing social responsibility, adopting technology, caring for employees, and adapting your purpose to new market demands. However to take our research one step further, we asked some outstanding China entrepreneurs from our China business podcast, China Paradigms about their experience of management during the Coronavirus in China. This is what they have to share with the rest of the world.

Think before you leap: Make a hypothesis before taking action

Hypothesis before action

Geoffrey Handley, co-founder and general partner of Haitao Capital recommends bracing your business with a worst case scenario hypothesis. This way, entrepreneurs can make principle-based business decisions rather than blindly rushing into changing X or stopping Y. Chinese founders started with a big scary base hypothesis and set of assumptions. One possible hypothesis would be, “we will have a 100% hit to our revenue for at least 3 months, then 80% for 2nd quarter. Will take us 3 quarters to get back to where we are now”. Once this hypothesis has been taken into account, then businesses can take steps on management during the Coronavirus.

No sacred cows, nothing is off limits.

When working through hypothesis scenario planning, it was evident that nothing was off limits. The guiding principle I could see in action from our portfolio co-founders was “for the benefit of the company, we, not I or me”. 

Focus on what is in demand

No doubt the Coronavirus changed Chinese consumer demands. While some products and services saw no demand, others were incredibly undersupplied. Stephane Choury, Co-founder of HI-COM ASIA capitalized on what he knew would be necessary during the outbreak. “I have realized that many people were in need of urgent legal document translation and medical related translation. We had shortlisted a few services that could be useful to people at this time and concentrated on those.”

Nicolai Peiterson, Excecutive Chairman and Co-founder of Wikifactory, a collaborative platform for the production industry, says they have focused on medical innovation. “We are rallying the global open-source hardware community, as well as established product companies, to build and submit projects for medical supplies, devices, components and equipment on Wikifactory’s open source social and collaborative platform.”

Peiterson continued, “We have over 1000 projects on our platform across 187 countries and we now encourage product companies working on Covid-19 to pool their knowledge and publish their designs on our open-source platform to accelerate the success of their work.”

Mind-boggling speed of action

Handlley witnessed how mind-blowingly fast decisions were made and implemented during the Coronavirus outbreak in China. “Just look at the factories that shifted in less than 10 days to produce PPE and face masks from something completely unrelated.”

Show employees and clients you care about their safety

Safe office, safe business

According to founder Bruno Lhopiteau, as many other companies did, Siveco initiated an action plan ‘Safe Office, Safe Business’ on January 26, aiming to take proactive measures. Support services continued throughout the holidays and full operation resumed at the beginning of February, with most staff working remotely.

Over-communicate with employees

An important tip of management during the Coronavirus is communication with the team. “In a time of crisis, proactively over communicating to provide guidance and security for employees is more important than ever. With the plethora of media reports coming out with differing views and advice, it’s hard not to be confused and feeling in-secured, the over-communication can certainly help to provide clarity and consistent information and overall direction,” said Lhopiteau.

Safety and hygiene means consumer loyalty

Mike Hofmann, Managing Director of Melchers China, emphasizes the newfound relation between consumer loyalty and hygiene. Together with their brand partner, a luxury watch brand, they provided over 20,000 masks to retail employees and store visitors. “When re-opening our retail stores, it was important to ensure our staff’s and customer’s health and regain their trust that you as brand don’t solely focus on profitability. We implemented hygienic measures at all stores, handed free masks to visitors and keep in touch with our luxury VIP customers through digital tools to foster the relationship in these unprecedented times. Product orders were reserved for pickup after the situation relaxed.” Hofmann states that they went beyond government requirements in order to show their dedication to customers.

Use the extra time for training

Choury stated, “Some of our clients used the manufacturing slowdown to prepare for the upcoming seasons by taking care of their documentation, marketing materials and website translations. So, we have actively contacted those, which also brought us business.”

As an HR Tech company in China, the CEO and Founder of ATIOM, Matthew Spriegel, says,  “During the past couple of months, we have seen a lot of companies move their day-to-day work activities online. As a company in the HR tech space, we have always had some of our key team members working remotely. Having daily and weekly huddles online have always been essential for aligning our team objectives, but also an effective way to maintain team morale, even during the tough times in launching a start-up.” Spriegel continues, “For our clients, we have seen a huge spike in their activity in using our learning and engagement mobile app, ATIOM. They have fully utilized ATIOM to ensure everyone is up-to-date on COVID-19 prevention and health procedures in the workplace. I believe that once the dust settles, we will see many companies using a more blended approach, combining online and offline activities, to their teams’ up-skilling, skills-gap analysis and most importantly, risk mitigation.”

Lhophiteau also says some of his clients used this time to prepare ahead. A large multi-site environmental utility has accelerated their usage of the bluehoney online training course, as many of their maintenance staff now have free time to study maintenance and asset management theory and best practices.

Hofmann also used the time for internal reflection. “We used the slowdown of economic activities to enhance the skillset of our workforce through remote and digital training engagements. In addition, we leveraged the downtime to reassess our business strategy and engaged in a systematic thorough industry and customer research.”

Now is the time to get digital

The most adaptable business will survive

Claudia Masueger, the Founder and CEO of CHEERS Wines, a wine chain franchise, says managing during the Coronavirus reminds her of a Charles Darwin quote: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” Masueger quickly adjusted her management during the Coronavirus. As soon as the crisis started, she restructured her teams and workflows, and put more attention into online and social marketing.

During the COVID-19 outbreak in China, Aurelien Rigart, Co-founder of IT Consultis, helped clients by better planning their investments in digital transformation on the long run. Rigart says, “Many companies did realize throughout this moment that they were not digitally ready and relying too much on their retails, or third party apps. Most of them now are insisting on the importance of their digital transformation and Direct to Consumer strategy.”

Everything is now digital in China

Laurent Cibot, the CEO of the Imported Health Supplements Division at OMEY Group says, “With the COVID-19, it’s like China did an other big jump into the future; the online retail is now stronger than ever. Here, all the companies are going Digital. It has been a Digital Tsunami, even in our personal lives. My son has been following online school these past couple of months. And my wife is now buying EVERYTHING on e-commerce platforms”  

O2O is the future, even more than before

Miro Li, Co-founder of Double V. Consulting says she’s seen retail businesses face serious challenges. She has been there to help them transfer to a digital model, “As an agency, we are helping offline businesses set up online shops and start training offline sales representatives to use online tools, such as live streaming and online distribution, allowing our sales people to manage their private traffic and get products sold while staying at home.”

Spriegel believes we will see many companies using a more online-offline blended approach to team training and risk mitigation. Li agrees that O2O will be even more important in the future, saying an omni-channel sales strategy is a must.

China will continue to be worth investing in

While this black swan event becomes global, China may be one of the economies that keep its head above water. Although it has not escaped the Coronavirus economic impact, there are already signs of post-COVID-19 economic recovery.

“China Economy didn’t seem to be affected by the virus; a recent study showed that 66% of Chinese companies are optimistic about the business in 2020; and I have to say that we didn’t felt any slowdown in OMEY. It would be the perfect time for foreign brands in healthcare and beauty to enter China market, as healthy living environment is now considered by Chinese more important than economic growth” says Cibot.

These tips of management during the Coronavirus are transferable across national borders. To learn more advice from China entrepreneurs, check out our podcast China Paradigms.

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

Learn more about the Coronavirus Economic impact in China

<iframe src="//www.slideshare.net/slideshow/embed_code/key/d6udOh4zDAt9eD" width="595" height="485" frameborder="0" marginwidth="0" marginheight="0" scrolling="no" style="border:1px solid #CCC; border-width:1px; margin-bottom:5px; max-width: 100%;" allowfullscreen> </iframe> <div style="margin-bottom:5px"> <strong> <a href="//www.slideshare.net/DaxueConsulting/crisis-management-in-chinainspiring-business-cases-during-the-covid19-and-sars-crises" title="Crisis Management in China-Inspiring business cases during the COVID-19 and SARS crises" target="_blank">Crisis Management in China-Inspiring business cases during the COVID-19 and SARS crises</a> </strong> from <strong><a href="https://www.slideshare.net/DaxueConsulting" target="_blank">Daxue Consulting</a></strong> </div>

This article Tips on business management during the Coronavirus from entrepreneurs in China is the first one to appear on Daxue Consulting - Market Research China.

A large number of traditional flowers from a variety of regions in China have developed a rich culture of flowers. These include the peony in Luoyang, the plum blossom in the Yangtze River basin, the camellia in Jiangsu and Zhejiang as well as many others. During the Ming and Qing Dynasties, Hua Xiang, a region adjacent to Beijing, became the base for flower production made exclusively for the court. Farmers in Canton, at that time, began to produce ‘Nian Hua’, a flower sold on the streets. These two developments began the commercialization of local flower traditions in the country. After China reformed its import policies, foreign flowers have rushed into the Chinese flower market. This influx of foreign business helped shape the formal flower industry by infusing foreign business concepts and cultivation techniques into the industry.

The Current State of The Flower Market in China

A study conducted by the Chinese Ministry of Agriculture in 2016 shows that there were 79,512 flower companies in China, including 14,108 large and medium-sized companies with a planting area of at least 3 hectares or with an annual turnover of 5 million yuan. The study also reveals that there were 1,639,133 florists, 5,053,523 employees, and 247,616 technical experts in the Chinese flower industry. Although florists do not have the industrial and commercial registration that large companies possess, their production sales and output are not any lower.

Characterized by large-scale flower plantations, industrialized operations, and exports of numerous flower brands, Yunnan Province has transformed from a flower production base to a market-oriented base in China.

By the end of 2017, more than 12,000 households of over 400 florist cooperatives have registered with KIFA (the Kunming International Flora Auction Trading Center), with total flower farmland exceeding 2,600 hectares and an output value of about 450,000 yuan per hectare.

Trade volume of KIFA has maintained double-digit growth, selling 6.53 billion cut flowers worth 5.4 billion yuan in 2017.The Trend of Online Flower Business in China

The flower market in China has developed rapidly since the Chinese consumption upgrade. Multi-channel retailing has emerged in the Chinese flower market, driving the rapid growth of online flower sales. According to incomplete statistics from the China Flower Association, there were 2,980 flower vendors in China in 2017. The sales of fresh flowers reached 10 billion RMB, of which online sales exceeded 50%.

The scale of the online flower business in China

The market size of the Chinese online flower business in 2017 was about 23.5 billion RMB. In 2018, it reached 36.6 billion RMB, of which Taobao’s sales were nearly 15 billion RMB. The number of online merchants and products was about 400,000 and 25 million respectively.

[Data source: iiMedia, “Market size of Chinese flower business”]

With the expansion of consumption scenarios, the demand for flowers will further increase with more categories and service optimization.

Industrial structure of Chinese online flower business

Chinese online flower suppliers have formed into three main echelons according to different target groups according to customer transaction and other variables. High-end brands include roseonly and Beast野兽派, whose per customer transaction is over 500 RMB. Mass brands include Teddy flowers, FlowerPlus, CWZ Flowers(春舞枝花卉), huaji(花集), whose per customer transaction is between 100 to 200 RMB. As for e-commerce platforms including Taobao, Tmall, and JD, their per customer transaction can be even lower.

[Source: daxue consulting, “Industrial structure of online flower business in China”]

Customer willingness to adapt to the online flower business in China　

Based on data from iiMedia, 63% of Chinese netizens have heard of the online flower business and 36.1% of them once purchased flowers through these platforms. The majority of them know about the Chinese online flower business through online and offline promotions, which include experiential and emotional marketing.

[Data source: iiMedia, “Distribution of netizens’ usage and knowing channels of online flower ]

In terms of customers’ preference, B2C platforms such as FlowerPlus, Reflower(花点时间) and AmorFlora(爱尚鲜花) are used more frequently by netizens; while the customers of   Flowerexpresses (鲜花说) has expanded since launching B2C business in 2016. Although the usage of high-end Chinese online flower business platforms such as Roseonly and Beast are relatively lower, their customers are all high net worth users with strong purchasing power.

[Data source: iiMedia, “Customers’ preference of online flower business in China”]

Case Study: How Chinese Flower Brand Beast Succeeded on the Chinese Online Flower Market

Beast is a homegrown brand, which is regarded as the pioneer of the Chinese O2O high-end brand by British Wallpaper Magazine. It has run an online flower business in China since 2011. Currently, it also provides high-frequency products including clothes, cosmetics, furniture, etc. The beast targets high- and mid-end consumers and aims to represent floral and artistic life. Though the Beast is a young brand, it has a good performance and strong competitiveness in the Chinese flower market. Let’s see how it explored an effective online flower business system in China.

How Beast Established its online flower business

Beast started its online flower business in China from the Weibo store, which is an experimental studio and only serves consumers who live in Shanghai. This allowed Beast to successfully create an exclusive brand image by providing unique and customized service to a limited number of customers.

[Source: daxue consulting, “How Beast runs business on Weibo”]

Beast expanded its online flower business by establishing a brand-owned official website in 2012. Three years later, Beast cooperated with the online marketing strategies of Tmall in various ways to stimulate sales. After Beast entering Tmall in 2015, the sales of the brand had seen a ten-fold increase in the period of three years. Tmall also supported the brand to further extend product segments and seek new opportunities.

[Source: daxue consulting, “Beast cooperated with marketplaces to expand business”]

Beast’s successful branding strategy helped the brand to realize dramatic growth in the marketplace and avoid brand dilution at the same time. And then, it continuously established self-owned channels, which include the brand app in 2016 and the WeChat store in 2017.

[Source: daxue consulting, “Sales channels of The Beast”]

The Beast began the business using brand-owned channels and entered the marketplace relatively late, which enabled it to leverage e-commerce platforms to drive public traffic into its private traffic pool to improve customers’ retention and repurchase rate. Based on accumulated users’ data and feedback, it can optimize services and products before establishing new sales channels.

Beast’s online marketing strategy in China

Leveraging the power of famous IP, successful brands and popular celebrities

[Source: daxue consulting, “Beast’s online marketing strategy in China”]

Beast leverages the power of famous IP, successful brands and popular celebrities to create a series of hot topics which can improve brand awareness in its extension segments like FMCG.

Beast announced its cooperation with Li Xian李现 (popular Chinese actor) in September 2019. The topics reached 190 million views and 127 thousand discussions, successfully raised the public’s attention and improved brand awareness.

Creating emotion connection with consumers through story marketing

[Source: daxue consulting, “Beast builds emotional connection with customers”]

Story marketing is another of Beast’s online marketing strategies in China. The brand shares buyers’ stories anonymously with flower’s photo on Weibo, which brings romance to their products. By telling the story, Beast identifies the voice and tone of the brand. Each story behind the order helps the brand build strong emotional connections with viewers, who would share their thoughts and personal experiences in the comments section. The emotional tie greatly improves brand acceptance and allows premium prices.

Realizing further growth by brand expansion

[Source: daxue consulting, “Beast’s current products category”]

Beast introduced more high-frequency products to improve brand awareness as well as brand loyalty. Thanks to Beast’s strong emotional connection with consumers and its powerful brand image, those related products and new categories can have high acceptance levels in the market.

Through product segments extension, Beast successfully transformed itself from a flower brand to a lifestyle brand.

Three obstacles in Chinese flower industry

However, the flower market in China is less competitive than other international markets such as that of Holland which is famous for flower production. This is due to three main reasons.

Lack of innovation in the development of new species

For flower production companies in most countries, it is important to cultivate new strands of species to differentiate their flowers and increase their sales. China has both the resources and ability to do this, but the lag of protection for new varieties has prevented companies from doing so.

Lack of large-scale production companies

 The majority of the farmers in China only hold small production areas and usually the employees consist of family members. Most families of Chinese flower farmers consist of 2-3 people making an annual revenue only in the tens of thousands of RMB. The number of the farmers is only 20 times that of the number of firms. Furthermore, only 14,108 large and medium-sized companies exist among 79,512 firms, making up only 17.7% of the total. Unlike most large countries, no firm dominates the flower market in China; the production areas are small, and the revenues are even smaller.

Lack of emotional connection with customers

Information transmission channels have changed during the Internet era. The young generations have become the main purchasing power of flower market in China. In this context, utilizing social media to quickly disseminate products’ information and catering to the preferences of young consumers are important for establishing a brand that can meet the emotional needs of consumers.

Brand independence is how Beast captured the hearts of Chinese consumers

Beast is a good example of running an online flower business in China. It started with Brand independence and leverages e-commerce platforms to boost sales and reach new customers. It successfully builds an emotional connection with customers and drives them into its private traffic to improve customers’ retention and repurchase rate. Private traffic is also a strategy of Brand Independence, which is worth learning more about to imitate the Beast’s success. If you want to learn more about how your online business can work with private traffic, you can read our article, email our project team at dx@daxueconsulting.com to start your China market strategy project.

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article The flower Market in China: How one brand captured the online market is the first one to appear on Daxue Consulting - Market Research China.

The Coronavirus China Economic Impact report covers the spread of the outbreak in China, what industries are growing and which industries are severely impacted. We also zoom in on the economies of Wuhan and Hubei, as well as Coronavirus impacts on the global supply chain. Lastly we share how the Chinese government is reducing the burden on enterprises. Our Coronavirus China Economic Impact report is available for free to anyone seeking to understand the COVID-19 outbreak’s effect on businesses in China.

This report is routinely updated and contains everything businesses need to know about the economic impact of the Coronavirus in China. It is a collection of research from many respected firms and organizations combined with our own careful analysis.

Overview of COVID-19 spread in China

Coronaviruses are common causes of respiratory infections. They have previously been implicated in viral outbreaks, including SARS-CoV and MERS-CoV, but are also responsible for some common colds. From the perspective of virus evolution, COVID-2019 is more advanced type than its two predecessors. It has never been found in humans before.

How COVID-19 starting during the Lunar new year affected spread

The 2020 Spring Festival migration started on January 10 and ended on February 18. The estimated number of people who have had contact with confirmed cases gradually increased at beginning of the Lunar new year and stabilized until the end of it. That’s because flow of people participating in the Spring Festival Transport is very large, which makes the chance of cross infection increase and directly lead to the peak of the epidemic. Government restrictions on the flow of people helped to reduce the spread of the virus by decreasing contact and increasing physical distance between those who have COVID-19 and those who do not. However, within China, the confirmed cases have flattened since February 13.

How long will the coronavirus last in China?

As of early March, the number of infections in China continues to decline, with the exception of Hubei, the infection in all regions seems to be controlled. As long as no new infections appear during the duration of a full incubation period, then the epidemic can be considered to be officially over. Currently, the rate of infection is minimized by the quarantine efforts and shutting down of workplaces and public places.

What is the Coronavirus economic impact in China

Do we need to worry about the impact of coronavirus on GDP?

According to chief economist from Zhongtai Securities and Donghyun Park from Asian Development Bank, the coronavirus economic impact in China is expected to be between 1.5% and 2% in terms of GDP growth, which will not change the long-term trend of China’s economy. The epidemic has a large impact on the economic growth rate in the first quarter, or negatively affects the GDP growth rate of about 2%-3%. However, as the virus continues to spread globally, there will be many more factors to include in the coronavirus economic impact on China including global demand of Chinese goods and commodities. The largest economic impact comes from the service sector, especially the catering, transportation, hotel, tourism, and accommodation industries.

Up close on the economies of Wuhan & Hubei

The huge outbreak in Hubei province contributed a lot to coronavirus economic impact in China, as it is the most developed province in the central region of China with 3.9 trillion RMB GDP in 2018. Hubei has a large number of industrial clusters in R&D and manufacturing, such as automobile and electronics.

According to government work report of Wuhan in 2019, electronic information, bio-technology and new medical and medical appliance, and the automobile industry are the three pillars of the manufacturing industry. 

Hubei province is an important part of the global supply chain. It accounts for 9% of total Chinese auto production. German engineering firm Bosch, the world’s largest auto component manufacturer, has dozens of factories in China 2 of them are in Wuhan. Hubei also plays a significant role in the global supply chain of critical electronics components. The province is the production base of Taiwan’s PCB factories, including Taiwan Optoelectronics, Xinxing, Jianding, Nanzi Electric, and Dingying.  Industry insiders pointed out that PCB is the “mother of the electronics industry” and is an indispensable key component of all electronic products. If the PCB factory in Taiwan and the Hubei factory are obstructed, it will affect the global electronics industry.  

Hubei contributes much to the progress of the chemical industry. It is the largest province of chemical fertilizer in China, its output has reached to 596.56 tons in the first three quarters of 2019, which increased 19% compared to last year. Hubei has a high production capacity of sub industries including the phosphorus chemical industry, pesticide industry, and the vitamin industry.

COVID-19 affects industries in Hubei

Coronavirus impact on supply chain in China can be also seen in some industries in Hubei.

Electronics industry

After Wuhan postponed production of electronics, China’s supply chain of critical electronics components is facing a catastrophic disruption. About 70% of the world’s smartphones has been affected. According to Strategy Analytics, overall shipments of phones will reduce by 2% in 2020, some consultants believe that COVID-19 will cause demand side decrease. Besides, the first quarter is normally off-season of China‘s semiconductor industry, COVID-19 may further dampen the sales of semiconductors.

Automotive industry

China auto sales fell 2.8% in 2019 amidst global trade tensions, the first decline in nearly two decades, which also affect Hubei auto sales because Hubei province account for 9% of total Chinese auto production. Global automakers forecasted further sales decline in 2020, prior to knowledge of the coronavirus outbreak.

COVID-19 China economic impact: online industry growing

Due to the coronavirus epidemic, Chinese daily life goes online. For example, gaming industry experienced an unprecedented growth. While the Chinese mobile gaming industry is stimulated by the coronavirus, the development of 5G is expected to accentuate the trend and support the growth of the industry.

Coronavirus economic impact in China is also observed in short video platforms sphere. Between January 20 and February 2, 574 accounts on the short video platforms Douyin and Kuaishou each gained between 100k-500k new followers. The Coronavirus is accelerating the shift towards live-streaming, which already exploded in 2018, with a 745% growth year on year, thanks to improved connectivity and video maturity. The short video sector recorded 569 million daily active users in the post-holiday period, far exceeding 492 million on a regular daily basis.

E-commerce purchases during the Coronavirus outbreak in China

During the Chinese New Year in 2020, people were likely to purchase medical products, hygiene products and food online. To support the new growing online demand, more than 35,000 jobs were created across China from the following online retailers: Hema, Suning Xiaodian, Meicai, JD Logistics, JD daojia, and Dada.

Studying and working go online during coronavirus outbreak

Most companies have set-up remote work policies to avoid contamination at work. Hence, Enterprise Collaboration Apps facilitated remote working for 200 million Chinese workers after the Chinese New Year. To keep in touch, they use apps produced by two China’s online-giants: Alibaba and Tencent. During the outbreak, Alibaba’s Ding Talk skyrocketed to the very top of the App Store in a few days while Tencent Meeting and WeChat Work are in the second and fifth position, respectively.

The Coronavirus outbreak does not stop Chinese students from studying. Universities across the country organize online lectures to ensure the safety of their students. They rely on QQ, a Tencent streaming platform to carry out online teaching. The downloads of some education apps such as Tencent Classroom, and China University Mooc experience a significant increase. However, unlike fitness and co-working apps, the online education peak during the coronavirus may not last after the epidemic, with the return of students back to school.

Coronavirus impact on tourism in China

The damage to the Chinese tourism industry because of outbreak is equivalent to a loss of 1 trillion RMB GDP. Many travel enterprises estimated the ongoing shutdown costs the industry about ¥17.8 billion every day.

Only 2% Chinese tourism related companies felt that they had not been significantly affected after the COVID-19 outbreak. Coronavirus impact on tourism in China especially visible among travel agents, hotels, and retailers (related to tourism), as they badly need sales revenue during the epidemic. 

Chinese tourists contribute to the tourism industry in many countries. For instance, in 2018, Chinese tourists represent more than 70% total tourism in Hong Kong and Macao, similarly, more than 25% total tourism in Thailand, Japan, Vietnam and Korea. The impact on the economies of these countries will be catastrophic, if the coronavirus outbreak lasts for three to six months.

Coronavirus impact on tourism in China opened the opportunities for new online approach in this sphere. During the COVID-19 outbreak, many scenic areas and museums used live-stream to increase exposure and attract tourists, which attracted a lot of traffic. Even after the outbreak, the live-stream still can be watched by elderly and people with disabilities, it also can be used as a preview before travel.

Short-term and long-term coronavirus impact on tourism in China

Coronavirus impact on the food and beverages industry

Although many restaurants in China strengthened their delivery safety during the outbreak in China, food delivery alone is not enough to keep their profits in the positive. The Chinese New Year is usually a hot season for the F&B industry, the total revenue of Chinese restaurants in 2019 CNY has reached 724.1 billion RMB (occupied 15.5% of the whole revenue in 2019). Because of the Coronavirus outbreak, large catering brands have to reduce expense to balance their finance, such as permanently shut down some offline stores and redundancies. Many small restaurants are facing with the risk of bankrupt, since they have very fragile anti-risk capability. Many Chinese restaurants (around 62%) could not get rent reduction and they still need purchase epidemic prevention products, such as protective facemasks and thermometers.

Currently, many restaurants try to focus on delivery to get some profits, but actually revenue of online food delivery business is much less their normal business.

In order to manage the losses, some restaurants sell food materials to consumers and communities at low price and provide free food to medical staff and government units in epidemic areas. From 1^st February 2020, many restaurants temporarily lend employees to Hema (盒马鲜生) which relieved their labor costs. At the same time, KFC launched a contactless delivery service on food ordering platforms, such as Meituan (美团). Because of a lack of funds, some restaurants tried to seek investments and loans. For instance, Pudong bank offered 120 million RMB loans to Xibei (西贝) restaurant. The large food ordering platform Meituan (美团) worked with banks to finance some restaurants.

Coronavirus impact on supply chain in China: what businesses can expect

How Coronavirus will impact the Global Supply Chain by Mid-March

Most Chinese manufacturing slowly started resuming operations at the end of February, but the delays could have a devastating impact on the global supply chain.  For most companies, the inventory in stock will is enough to keep up with demand for two to five weeks. Shipping by sea to either the U.S. or Europe can take around 30 days. This implies that if Chinese plants stopped manufacturing prior to the beginning of the Chinese holiday on January 25, the last of their shipments arrived the last week of February. If lead time from China is shorter than 30 days, the disruption occurs earlier. This is already the case with Hyundai which announced on February 14^th the suspension of its production lines from its plants in Korea.

Assessing the coronavirus impact on supply chain in China, the electronics industry seems to be more affected. Intermediate products, which produced in China, are deeply integrated in the global technology supply chain.

Operations are concentrated near the affected areas (~290 of about 800 plants named in Apple’s global supplier list are located in regions that have delayed returning to work). Overall, 84% of manufacturers are concerned about delays related to the outbreak.  As the components are often heavily customized, it is challenging for factories to relocate outside of China in the short term.  

COVID-19 economic impact on Chinese manufacturing

As Chinese government shut down Wuhan and delayed the returning to work, many factories have to face the huge losses, limited supply chain and insufficient raw materials. Labor-intensive manufacturers (such as textile, clothing and plastic products) are significantly impacted, small and medium-size factories are worst-hit areas.

According to Morgan Stanley’s report in mid-February, Chinese production had only reached 30% to 50% percent of the usual levels. However, health and medicine related products have a huge demand during the COVID-19 outbreak.

Mask manufacturing demand

After the COVID-19 outbreak, the demand of masks has risen rapidly. Although many companies have started cross-border production, the shortage of raw materials could not be resolved in the short term. China contributes 50% of global mask production. Mask related manufacturers will benefit during the period, however most believe that it is a short-term demand. Expanding production would result in oversupply after the outbreak recession.

China is getting back to work

The week after 9^th February is the time for migrant workers to return to work, small and medium-sized enterprises need to resume production to boost cash flow.

Manufacturing learning points from COVID-19

Although epidemic outbreak is a black swan event in the manufacturing industry, it is likely that COVID-19 China economic impact will be positive. For example, it will promote manufacturing enterprises to strengthen the management of employees’ health and safety. The leaders of manufacturing companies will pay more attention to intelligent manufacturing. Due to online working, manufacturing enterprises will demand software such as task management, project management, and workflow management for remote collaboration. The Coronavirus economic impact in China will also be seen in science industry and smart technologies industry.

Coronavirus economic impact in China: what should exporters to China know

COVID-19 to impact China’s trading partners

After a slowdown in 2016, China’s imports and exports grew despite the trade war. Due to manufacturing and supply chain shortages during the epidemic, this growth rate is expected to slow down. A rebound in export activities may take place in April, while import activities would slow down until July. China’s top trading partners will suffer from the impact of the coronavirus on the main Chinese export products such as computers, broadcasting equipment, integrated circuits, and smartphones.

Coronavirus impact on supply chain in China is expressed in slowing shipments across the country, making transport routes congested. Currently, overall trucking supply resumed operation at around 60% and is a bit higher in the Southern areas of China. Overall intercontinental rail capacity has recovered to 60%.

How to improve supply chain during the epidemic

Government response to soften the Coronavirus economic impact in China

Policy support from the Chinese government

Production stop, isolation of staff and transportation restriction were a consequence of coronavirus China economic impact. Policy support and costs reduction are desperately needed. The Chinese local governments released some polices to relieve this situation, such as financial support of small businesses, flexible employment policies, social insurance, rent subsidy and tax concessions.

Long-term economic impact of the Coronavirus in China

The epidemic further boosted digitalization

During the epidemic, both the number of users and the time spent online had a dramatic increase. The total mobile Internet traffic increased by 36.4% compared with 2019 CNY. The number of daily active mobile shoppers grew by 14.6% during the 2020 CNY compared with 2019 CNY. In the meantime, some traditionally offline industries have turned to e-commerce to relieve losses.

Coronavirus China economic impact on the luxury market

COVID-19 is a downturn to the global luxury market. In Shanghai, Beijing, Shenzhen, Guangzhou and Wuhan, the passenger flow in large shopping malls and luxury brands stores declined more than 80% during the 2020 CNY. Also, due to the COVID-19, most Chinese consumers are more focus on healthy and rational consumption, many luxury products buyers plan to spend less on luxury goods, more on medical products and necessities. When COVID-19 is under control, this trend may still continue so long as the economy is impacted and until consumer confidence returns.

Coronavirus economic impact in China: big data innovation

During the epidemic, more than 20 provinces’ governments worked with technology companies to build “epidemic prevention system”.  The reports helped to see related data, epidemic feedback, quickly find and isolate suspected cases. The cooperation between government and big data platforms is promoting the practical application of big data in public crisis management and driving more technology innovation. Along with the development of the epidemic, more Chinese people are getting used to using big data tools in their daily lives, which speed up the process of digital life. 

Coronavirus economic impact in China: AI developments

The epidemic promoted the actual use of artificial intelligence products in medical and public safety areas. For example, in order to improve the efficiency of the diagnosis for COVID-19, Beijing Haidian hospital is using an AI assisted diagnosis system that can process 300 chest X-ray in 10 seconds. Many consumers fear the coronavirus cast a shadow over the food delivery industry. Therefore, JD launched autonomous delivery robots to reduce human-to-human contact during the Coronavirus outbreak. Besides, AI medical robots have started to work in Wuhan’s hospitals, they help doctors and nurses with disinfection, cleaning and delivering medicine.

Coronavirus China economic impact: financial assets may surpass fixed assets

Due to the COVID-19 outbreak, most Chinese people have to stay at home, real estate transactions are almost completely frozen. However, financial assets are not limited by places, the bond market has been very active since the Chinese New Year. The Chinese people have more time to invest bank financing products and bonds. Besides, growing savings may increase the demand for investments with stable income, such as bank financing and bond funds.

View our Coronavirus China economic impact report on slideshare:

This article Coronavirus China Economic Impact Report by daxue consulting is the first one to appear on Daxue Consulting - Market Research China.