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

Telemedicine consumer penetration

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

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

The characteristics of telemedicine industry in China

5G technology

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

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

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

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

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

The uneven distribution of medical resources

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

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

Telemedicine in China’s ageing society

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

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

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

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

Telemedicine platforms in China under the influence of COVID-19

Accelerate the construction of telemedicine platforms in China from hospitals

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

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

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

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

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

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

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

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

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

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

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

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

Limitations and Opportunities

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

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

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

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

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

Author: Qing Zheng

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This article Telemedicine in China: Healthcare reaches a new status quo during the COVID-19 pandemic is the first one to appear on Daxue Consulting - Market Research China.

Real Estate in China is in a Downward Spiral

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

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

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

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

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

COVID-19 Pushes Changes in Consumer Behavior

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

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

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

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

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

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

Companies Adopt Reactionary Tactics

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

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

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

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

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

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

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

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

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

Commercial Real Estate Industry Could Recover Despite COVID-19 Setbacks

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

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

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

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

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

Author: Emily Landkamer

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

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This article How COVID-19 will impact commercial real estate in China 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.

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

Transformation of eating habits in China

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

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

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

Fast food category dominates in terms of O2O food consumption

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

The number of seafood O2O orders increased in 2019

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

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

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

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

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

Breakdown of the O2O food delivery market in China

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

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

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

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

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

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

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

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

Why is food delivery so popular in China?

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

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

Which apps dominate the food-delivery industry in China?

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

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

Chinese meal delivery app: Ele.me

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

Chinese meal delivery app: Meituan Waimai

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

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

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

The Chinese food-delivery industry: Looking ahead

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

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China: an artistic civilization

Art culture in China is an ancient tradition

According to the French historian Jacques Gernet, The Song dynasty (960-1279) opened a tradition of high education upon Chinese elites which would continue during the future dynasties. This social trend led to increase the importance of art. For instance, it is the beginning of landscape painting, the “山水” (Shanshui) with famous artists like Fan Kuan or Ma Yuan. During this dynasty, the Chinese nobility even started to create private collections. Holding Chinese art became prestigious. The song dynasty opened a new era in the Chinese culture, an era of interest in art. It was one of the first appearances of private collectors in the country.

[Source: National museum of Taipei – A typical Shan Shui painting by Guo Xi during the Sond Dynasty]

Communist China questioned the place of art in Chinese society

The 1^st October 1949 opened a new chapter in the Chinese history. Mao became the communist leader of mainland China. Maoists fought against the dynastic China legacy during the Cultural Revolution (1966-1976). They tried to erase the ancient and elitist art culture. According to them, Chinese art should be linked with the values of the communist Party. The dynastic heritage must remain in the past. It was forbidden to collect cultural relics and many were destroyed during this decade.

When Deng Xiaoping became the leader of the country in 1978, the government opinion about ancient art changed. The Cultural Relics Protection Law became effective in 1982. The state started protecting cultural relics and accepted the legacy of tradition, which is no longer seen as an enemy.

The 1990’s: The rise of the Chinese art market

This decade changed a lot China for two main reasons. First, a new economic elite appeared. With them, there was an increase in demand for luxury goods, such as art. Second, China became, at this time, way more interesting for foreign countries, which started to really change their mind with the booming economic development. This was a significant period for the art market.

In 1991, Brian Wallace founded the first private contemporary gallery in China, the Red Gate Gallery. The same year the first private art museum was created called the Yan Huang Art Museum. It is dedicated to promotes traditional art. In 1992, First auction House “Duo Yunwan” in Shanghai. The next year the China guardian auction house was founded. All of these constructions highlight a turning point in the vision of Chinese art but also in their value. Still it remains the beginning of the new Chinese art market.

The Chinese art market today: a new shape

Reconnecting with the artistic tradition and embracing the future.

Elements underline how the Chinese art market became powerful since the 1990s. Since 90’s, more and more museums opened in China. In 2013, there were 3,589 museums in the country and 5,354 five years later in 2018. The Tank Shanghai and a branch of the Pompidou Center were established in 2019. Thus, China is reconnecting with ancient Chinese art and explores contemporary art. Chinese contemporary art is becoming prestigious.

In 2006, Sotheby’s New York held an auction entirely dedicated to Asian contemporary art. Some of the Chinese artists are becoming as world-famous as Yue Minjin. On the economic side, Chinese art market is also doing well. In 2017, there were 525 auction houses in the country. Buying art started becoming an investment. This is also the boom of the interior design market in China. Even if during the 1990’s some Chinese art auctions were for foreigners. Now, there is an important increasing of private Chinese collectors who purchase Western artworks.

Chinese art market and digitalization

Digital changed the way of consuming in China. It impacts the art market because of companies inside or outside of its market. First, Luxury brands increased their role on the Chinese art market with the use of KOLs (Key opinion leaders) targeting millenials. These Chinese influencers working for brands highlights the products of luxury brands and makes trends. Luxury brands present collection with Chinese artists. Thus, luxury brands help promote Chinese art.

For instance, the watch brand Hublot (here for an analysis of the Chinese luxury watch market) developed a watch with Yue Minjun. Thus, Chinese art are displayed by some luxury brands to improve their brand image upon Chinse luxury consumers. It is both profit for brands and the Chinese art market. Moreover, online auction websites try to implement on Chinese social medias to increase their presence on this market. Artnet, one of the biggest online auction website, now tries to be present on Wechat. The aim is clear, expand on this market. Digitalization transforms the Chinese art market. Its presence online had increased. It is closer to millennials, now called art-lennials, the new key-consumers in China.

Talking with an artist from Shanghai: @ChrisQ

Chris is an artist from Shanghai. He studied contemporary and ancient art in the University of Shanghai. Now, he works as an independent and sometimes for luxury companies. Recently, he was a part of Vogue Global Conversations trying to figure out what is the future of creativity. We discussed the art market in China with him to learn more.

[Source: ChrisQ, interview with a Chinese artist]

What are the specificities of the new wave of Chinese art?

The new artist wave was mainly born in the 1980’s. These artists have grown up in a communist culture, but they are really influenced by Western art. Lots of famous Chinese artists studied art abroad.

How Chinese artists interact with social media?

Social Media like Weibo or TikTok are important for Chinese artists nowadays. It is a way to connect with people and to present art. Many artists just want to focus on their creations without having to present it. It links people with artists even the ones who are shy.

Who are the main art buyers in China?

Regarding the profile of Chinese art buyers: It is mostly rich people, government officials, doctors, lawyers, businessmen. Some of them buy art to enhance their home’s interior or because they like art. Whereas, some just see it as an investment. This affect the contemporary artistic creation because if you want to make a living of art. You must create appealing things. The border between art and business is blurred.

Today, the Chinese art market is the final step of a long tradition of art in the country. Even if the Cultural Revolution forbidden the collection of ancient art and destroyed some cultural relics. The market started to grow in the 1990s with the creation of galleries and auction house in China. Today, China is the third art market in the world. Digitalization and millennials force to rethink the approach of art. It is becoming closer with luxury.

Author: Enzio Cacciotto

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Sustainable buildings in China are a part of a greater development strategy

Throughout the last three decades, China has experienced unprecedented and hasty urbanization. The country developed approximately 2 billion square meters of new buildings each year. Many of the buildings have been criticized for not being energy efficient due to little insulation and insufficient heating/cooling systems. As the largest contributor of CO2 emissions worldwide, the Chinese government is making large efforts to reduce pollution and become greener. The committee of construction energy saving declared the implementation of sustainable buildings in China in now treated as a country developing strategy.

Green building development in China can save resources, reduce pollution, and create a relatively healthy living environment. According to the Ministry of Housing and Urban-Rural Development, China’s green building evaluation standards divide green buildings into three levels: one star, two stars, and three stars. The evaluation of green buildings mainly focuses on the elements of “four sections and one environmental protection”, namely energy saving, land saving, water saving, material saving and environmental protection. 

The Ministry of Finance has issued relevant documents and other policies, urging both the government and other departments to strengthen coordination to accelerate the development of eco architecture in China. For example, national economic and social development planning outline for 2011–2015 formally proposed that the construction industry should promote green buildings and eco architecture. Local governments of first-tier cities also developed economic incentives to increase the growth rate of green buildings in China.

China’s national policy supports green buildings development

The government is planning that at least half of new buildings will follow the green standards by 2020. Following through on these commitments would grow the country’s green building sector from 5 to 28 percent by 2030, representing a $12.9 trillion investment opportunity. Besides, this will enable to enhance society production of 500 billion RMB and would create at the same time 5 million additional jobs. 13th Five Year Plan also specifies pilot programs for constructing and renovating energy efficient primary and secondary schools, community hospitals and public buildings. As the national Five Year Plan is cascaded to provincial and municipal jurisdictions, nearly 20 cities have set even more ambitious targets. For example, Changde, Zhenjiang, Zibo, Wuxi, and Suzhou, Shanghai, Beijing, Shenzhen, and Chongqing require all new commercial buildings to be green buildings. In the pursuit of more sustainable buildings, more than 90% of China’s commercial building owners plan to have at least one net or near-zero energy building in the next ten years.

By the end of 2016, more than 20,000 green buildings were built. According to data released by the China Real Estate Association, as of the end of December 2017, a total of 10.927 green building indication projects were evaluated nationwide, an increase of more than 3,000 over the previous year. 

[Data source: qianzhan, ‘Construction projects of green buildings in China 2015-2019’]

Loans for green buildings in China are rising steadily

Government and banks promote green financial mechanisms such as green bonds, green credit, and green funds to develop eco architecture in China. Around 118.34 billion yuan is required to complete the 2 billion square meters green buildings target. The energy-saving upgrading of existing residential buildings is estimated to cost 350 billion yuan and the reconstruction of public buildings requires 60 billion yuan. The total demand for financing of green building in China will exceed 600 billion yuan.

Report released in December 2017 by the former China Banking Regulatory Commission (CBRC) showed that 21 major Chinese banks had issued green credits totaling RMB 8.22 trillion among 12 green categories in the first half of 2017. For green buildings was issued a total of RMB 730 billion in green credits from 1H 2013 to 1H 2017.

In terms of green bonds, there are two types of them: labeled (issued by diversified companies) and unlabeled (pure-play issuers). The issuance of green construction bonds in China began in 2017, with a small total number of issuances. In that year, only five were issued with a total size of 4.51 billion yuan. In 2018, the number increased to 12 green construction bonds with a total amount of 8.72 billion; in the first half of 2019, bonds for green buildings development in China totaling 2.2 billion yuan. Over the past two years, China has issued 15.43 billion yuan of bonds invested in green construction.

[Data source: tanpaifang, ‘Bonds for green buildings in China 2017-2019’]

SOARING DEMAND FOR GREEN BUILDINGS IN CHINA

Due to fast economic development, the urbanization rate in China will increase from 50% in 2012 to 70% in 2030, indicating a significant demand for new buildings in urban areas. Every year the total area of new buildings is up to 2 billion square meters, consuming 40% of the world’s cement and steel. Besides, buildings in China have a relatively short life expectancy of about 30 years, while in European countries it is around 80 years, and 44 years in the USA. Consequently, it is critical to initiate green building efforts so as to alleviate the potential impacts from the building sector.

Sustainable buildings in China have different degrees of improvement in indoor air quality, thermal environment, light environment, and acoustic environment. Higher rents, energy and water efficiency, better air quality, sustainability, lower operation cost, a high-quality work environment－all these factors have facilitated overall comfort and driven demand for green buildings in China.

Drivers of the green building market in China

The latest report shows that the growth of green buildings market in China is largely driven by customer demand, environmental regulations, and health-minded communities. The market achieved a five-fold increase in share from 5% to 28% by 2018. New eco homes, hospitals, and public schools are seen as the three most important areas of green building growth. Increasing consumer demand has turned the green buildings market in China into an industry with an output value of 15 trillion yuan in 2017. 

[Data source: Smart Market report, ‘Triggers driving green buildings activity in China’, 2018]

Due to soaring demand, green buildings companies increase their influence in China’s construction market. Recently, Times Media released TOP20 of China’s green housing companies in 2019. The total green building areas of Vanke, Country Garden, and China Evergrande reached 35.02 million square meters, 34.2 million square meters, and 31.31 million square meters, respectively, ranking among the top three. The green building area of ​​the three leading real estate companies totaled 105.3 million square meters.

New building standards in major cities contribute to the growing demand

 Chinese standards require a reduction of the total land used for building construction. Moreover, because of energy shortages and dependence on fossil fuels in China, standards have rigid requirements for energy saving and energy structure optimization for building sectors. Additionally, they require an increase in total green area (trees or grass), namely, total greening rate should be higher than 30% of the total project floor area. In 2019, more than 2,400 projects with an area of more than 133 million square meters were participating in LEED (Local Economic and Employment Development). According to the organization of LEED (Local Economic and Employment Development), green buildings can save 40% of water, 70% of deserting material and reduce carbon emission by around 35%.  In 2019 LEED-certified space in Beijing, Shanghai, Suzhou and Shenzhen totaled 43 million square meters.

[Data source: LEED in progress, ‘LEED certification in Chinese cities (Sqm of certifications (million))’, 2019]

The implementation of green building standards is becoming more and more stringent in various places, and major cities such as Beijing, Shanghai, Guangzhou, and Shenzhen have proposed that land acquisition must meet the two-star domestic green building. It contributes to a demand in the green buildings market in China.

High capital value of sustainable buildings in China

In the past three years, the average capital value of green buildings is higher than non-green ones. Strong demand, good tenant allocation, and higher rents also have a positive impact on the capital value of green buildings. For example, office buildings with green certification usually have higher rents than the market rents of traditional office buildings. From the perspective of energy conservation and environmental protection, green buildings have an advantage in attracting high-quality tenants. At the same time, high-quality tenants and the green premium of rents have a positive impact on the capital value of the property and the return on investment.

Building owners point out that green buildings, whether newly built or remodeled, result in a 7% increase in asset value over traditional buildings. For example, from 2012 to 2018, the stocks of green office buildings in Shanghai increased by 9.1 times. Moreover, most of future construction projects plan to apply for green building certification and enter green buildings market in China. In the past three years, the average capital value of green office buildings in Shanghai has been higher than that of non-green office buildings. In the third quarter of 2018, the average capital value of non-green office buildings in the city was 69,680 yuan per square meter, while the capital value of green-certified office buildings reached 76,411 yuan per square meter, with a premium rate of 9.7%.

China is a global leader in green buildings

Eco architecture in China is based on the constant stimulation of government policy, the constant innovation of scientific research, continuous improvement in the standard system, and continuous technological innovation. Green buildings are moving seeing new dynamics. Today, 80% of domestic green projects are located in the top 10 Chinese provinces showing the potential growth expected by less developed cities of China. Green building growth will also be accompanied by the development of larger amount of green commercial buildings since today only 30% of total green buildings are commercial. At the end of 2016, China had selected more than 4,500 green building assessment identification projects, accounting for more than 500 million square meters of green buildings. According to 2017 China Green Building Report, the green buildings development in China has been accepted by more and more property developers and local governments.

This has already made China the world’s second-largest market for LEED-certified projects, trailing only the United States.  Major developers including Soho China, Excellence Group, Sino Ocean Group and Ping An actively engage in green buildings market in China.

Best green buildings practices: Changning, Wuxi, Suzhou

Changning

Shanghai’s Changning District put in place an energy monitoring platform that tracks 160 of the district’s 165 public buildings. Thanks to the project, 32 buildings have been retrofitted to achieve an average 20 percent energy savings. To encourage the remaining 133 public buildings to renovate, the district is considering using a third-party ranking system to rate buildings on their energy performance. The district also provided $3.34 million in subsidies to help building managers make their buildings more efficient. This lowered the payback period for the private sector, which in turn encouraged them to invest an additional $20.33 million.

Wuxi

City High-Tech Industrial Development Zone is the engine of the Wuxi economy. With 560,000 residents, the zone contributes 17 percent of Wuxi’s economic activity. To drive the construction of energy-efficient buildings, Wuxi issued an innovative investment guidance policy in February 2016: incentives for buildings that meet criteria for green buildings in China: LEED and China’s national three-star rating system.

Suzhou

As China continues to urbanize, entire new cities are being built from scratch. Suzhou Taihu New City in Jiangsu province is one example. Currently in the planning and design stages, Suzhou Taihu New City will house 200,000 residents and focus on high-end service industries such as education and training, research and development, tourism and finance. All of Suzhou Taihu New City’s buildings designed to receive at least a two-star rating for green buildings in China. The city also will boast a green building demonstration area, constructing several projects such as zero-energy schools and monitoring their energy performance.

Liuzhou: The world’s first forest city

[Source: Stefano Boeri Architetti, ‘Liuzhou forest city. Masterplan’]

In 2020, China plans to begin the construction of the world’s first Forest City in Liuzhou, Guangxi Province, China. The Liuzhou forest city is planned to house more than 40,000 trees and 1 million plants of more than 100 species, for its 30,000 residents which will absorb almost 10,000 tons of carbon dioxide and 57 tons of pollutants, and produce approximately 900 tons of life-giving oxygen annually.

The forest city will also be self-sufficient and will help to decrease the average air temperature, improve local air quality, create noise barriers, generate habitats, and improve local biodiversity in the region. The whole city will run on renewable energy especially solar and geothermal, according to its planners.

The Liuzhou authorities want to build about 70 buildings cascading with foliage which will have homes, hospitals, hotels, schools and offices. It is the country’s first attempt to control notorious pollution.  The Liuzhou forest city is a pilot in a series of mini sustainable cities that could become a template for future green buildings development in China.

Challenges in the green building market in China

Over the last few years, the Chinese have been developing a real interest in “green buildings” but they are meeting some obstacles and challenges. Sustainable buildings in China are finding it more difficult to attract clients due to misunderstandings of the green building concept. In 2014, the newest version of green buildings standards was published by the government to clarify the meaning of green building. The Chinese tend to believe green buildings are only high-end buildings with better facilities. Some consider green buildings as a long-term investment with immediate rewards. They are not aware of the more natural and more comfortable living environment of green buildings. This is why in the coming years green building developers will need to accompany their campaign with strong marketing but those are still demand for higher governmental subsidies. In 2016 China’s green building investment gap was nearly 2 trillion yuan.

Lack of environmental awareness hinders the development of green buildings

Despite the using of LEED certification system, the green building concept does not always make it to the Chinese market. Under the new environmental requirements people are debating on the costs and rewards of green buildings. Lack of understanding of green buildings and misaligned incentives are the prime reasons why the adoption of green buildings slowed down in China.

The environmental awareness of different stakeholders has a significant impact on the development of green buildings in China. Builders often base their construction decisions on short-term costs, such as material and labor cost, instead on energy efficiency or green building techniques which offer long term savings. The significant energy saving is tied to an increase in costs, the global leader in real estate service CBRE estimated additional costs for green buildings below 4% however the LEED says those vary between 0.4% and 12.5%. Experts claim the 2% additional cost is enough to reach standards. Constructors are relieved by the CBRE latest report stating that in big cities of China, green buildings are sold at a price 1.5 to 25.7% compared to other buildings. Some developers in China may not see immediate cost savings and often overlook the green features—such as better insulation and sealed windows—that could help the government meet its energy targets. This is especially true in the multi-family residential buildings that most people in urban China live in.

The popularity of green buildings is growing, but the percentage in the construction market is still small

At the 5th China Green Smart Real Estate Forum (2019) many experts said that green buildings market in China has great potential, and its value can reach US $17.5 trillion. Green buildings are undoubtedly an important approach for the Chinese building industry in terms of environmental responsibilities and market benefits, but green buildings market in China still has a small scale and eco architecture in China is not so popular. Still, sustainable buildings make up a small percentage in China’s construction market that is more interested in maximizing profits and lowering building costs, compromising sustainable design and energy efficiency considerations.

However, green buildings market in China has a great potential. More and more construction companies turn to a green development. According to professor at the University of Sheffield Kangjian, “The real green building is building have a balance of nature, human and expenditure. Is something that can benefit people right now.”

[Data source: qianzhan, ‘Proportion of green buildings projects in China’s construction firms (forecast for 2021)’]

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Author: Valeriia Mikhailova

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Green products market in China driven by NGOs and the Government

The awareness of green consumption partly arises from the blooming of 3,500 environmental NGOs in China. For example, the NGO Friends of Nature is playing a major role and is precisely orientating consumers in choosing a green product, creating “blacklists” and developing concrete awareness actions. The other main force pushing the fast development of green products is the government. A first large action was undertaken in 2007, when the Communist Party Congress called for a change of all actors of Chinese companies to behave in a more environment-friendly way.

A year later, an environment protection ministry was created and has been producing measures to regulate unacceptable behaviors. Recently China defined clear targets enabling to overcome the challenge of maintaining at the same time such a remarkable rapid economy expansion and more eco-friendly industries. Matching policies promoting green products in China are being undertaken. It included subsidies for energy saving products and advantageous tax rates for low pollution vehicles.

Green products financing as national development strategy

According to China Chain Store & Franchise Association, government is a key stakeholder in promoting consumption of green products in China. Chinese government has strongly committed to promoting the transition to a green economy. In the past 15 years, China has included environmental protection within the national development strategy, promoting an ‘ecological civilization”.

Financing of green products market in China is one of the instruments for environmental changes. During the “13th Five-Year Plan” period (2016-2020) government improved the system of ecological projects financing, including support of green products. Green credits and green bonds are used to help the enterprises which produce eco-friendly products in China. Data show that in 2016, China’s green bond issuance accounted for 40% of the world’s total.  In 2018, China’s green bond issuance exceeded 30 billion U.S.  increased by 62% from the previous year. At the same time, from 2015 to 2018, China’s 21 major financial institutions issued more than $114 billion of green loans. In 2019 the People’s Bank of China announced the program of support of green enterprises by providing green debt financing instruments. Such government subsidies help to enhance market competitiveness of green products.

[Data source: Xinhua Finance ‘Green bonds issued in China 2016-2019’]

The role of environmental NGOs in China is growing

With the country’s increasing emphasis on environmental protection, various environmental NGOs have rapidly developed in China. The Chinese leadership is aware that the government cannot solve the serious environmental problems alone. The most important function of environmental NGOs is to increase environmental awareness among the population. Strengthening consumers awareness enhances their willingness to consume green products in China.

Recently political space in China has opened up for NGO to help government with environmental policies. Over the past decade, about 100 environmental non-governmental organizations have cropped up, not including the thousands of government-organized NGOs. Additionally, about 200 student environmental associations are active on college campuses.

[Data source: China Sustainable Consumption Research Program, ‘Most influential stakeholders in promoting green products consumption in China’, 2016]

Large preference for green products among consumers

Surveys over the market show the Chinese have learned to protect the environment by daily attention. The habit of saving water, food, and electricity is increasingly practiced in households. Easy and effective actions are undertaken with routine. However, this comes from the fact that the Chinese are purchasing green products in order to protect their own health and safety since scandals concerning the food and medical industry frequently occur. In 2017 survey showed that the environmental sustainability characteristic of a product was only ranked after personal health and safety. A perfect example to this statement is the French premium water, Evian that has been extremely successful those last years by branding themselves with health and purity regardless of the expenses and pollution of transportation.

However, from 2015 to 2017 the awareness of green labels increased from 78% to 89%. Additionally, the awareness of green products in China rose from 58% to 83%. In 2017 71% of respondents said they had been spending more on green products in the past year. According to the data released by the China Chain Store and Franchise Association, in recent years, the concept of green consumption has become increasingly trendy in the daily life of Chinese residents.

[Data source: China Sustainable Consumption Research Program, ‘Consumers agree that consumption has impact on the environment’, 2016]

Green products consumption is increasing, but still far behind the world average

Growing environmental concerns pushed consumers’ willingness to buy eco-friendly products in China. The appearance of online shopping platforms in recent years has seemingly helped to boost the consumption of sustainable products. Compared with the offline market, the number of merchants participating in the online market is bigger, which leads to a great variety of products. The online green products market in China is highly differentiated and consumers can easily switch among various products. For example, the biggest shopping platform in China, Alibaba, claimed that the number of consumers who do eco-friendly shopping has exceeded 380 million in the past years.

Besides, green products have been frequently searched on the Alibaba website. Searches for keywords such as formaldehyde-free, phosphorus-free, fluorine-free, and pollution-free all rose by more than 30%. According to JD online shopping platform, the overall sales of green products in 2019 increased by 18% from 2018. Such categories as food, beverage and homecare products grew faster, with growth rates of 195% and 90% respectively.

Green products in China’s FMCG markets

The food, beverages and apparel industries attract big amount of consumers in green products market in China. For example, consumers have gradually abandoned low-cost chemical fiber clothing from the perspective of environmental protection. They are more likely to choose cotton, linen, and silk materials, which are eco-friendly. At the same time, organic retail sales have increased from $4.712 million US in 2015 to $8.087 million US in 2018. Eco-friendly food has gradually become popular in the past two years, and consumers begun to prefer organic rice noodles and oils.

However, despite the fact that consumption of green products in China has increased much in recent years, the per capita consumption is still far behind the world average level. The reason is that green consumption concept started to take shape in China rather late and it requires intensified publicity and institutional promotion.

Growing demand for green products in China

The demand of consumers for various categories of green products in China has risen significantly, especially for food, beverages and homecare goods. 71% of consumers have increased spending on green products in 2016. In households with an income above 20,000RMB, that proportion increases to 76%. According to “China Sustainable Consumption Research Report” in 2017 about half of consumers were willing to pay 5-10% more for eco-friendly products in China, while in 2019, the number of such customers increased to 80%.

[Data source: China Sustainable Consumption Research Program, ‘Chinese consumers’ willingness to pay more for green products’, 2019]

Chinese millennials choose green products

Compared to their parents, millennials in China are more aware of social and environmental issues and care more about the impact of their actions on society. A survey showed that in 2017, 86% of millennials were interested in sustainable investment.  Chinese millennials, especially in urban areas, are highly conscious of brands, quality, and value. They expect, like all young people around the world, to buy something that embodies their lifestyle choice. They expect the brands that they buy from to have an ethical stance both socially and environmentally. Eco-friendly shopping reflects their positive values: caring for the community, the planets, the animals, etc.  JD.com’s research over 266 million customers in China showed that those aged 26-35 accounted more than half (51.8%) of the total volume of green purchases made on JD’s platform in 2017, and accounted for 48.8% of all users buying green products in China.

Consumers in first-tier cities are more likely to shop eco-friendly

In general, consumers in first-tier cities and second-tier cities have different perceptions of eco-friendly products in China. For Chinese people living in urban areas, safety and health were key priorities in choosing a product. Only interviewees in some first-tier cities actively mentioned that the production process of products should also pay attention to environmental protection. In addition to the understanding of the product’s safety and health, consumers in first-tier cities can be more connected with water conservation, recyclability, and environmental benefits. Studies show that as middle-income people predominate in first-tier cities, they are more likely to pay attention to the environment and choose eco-friendly shopping.

Companies go green to attract customers

The amount of people in China who choose the product because the manufacturer is well-known for fulfilling Corporate Social Responsibility commitments grew significantly. In 2017, consumers purchased only 21.53% of products for that reason, while in 2018, it accounted for 43.2%. In 2019, the proportion has reached 52.35%. As more and more people choose green products in China, enterprises start adopting eco-friendly strategies to increase brand loyalty. At present, China’s green manufacturing system mainly involves green factories, products, industrial parks and supply chains. In November 2018, the third batch of green manufacturing lists was released, featuring 391 green factories, 480 design products, 34 parks and 21 prominent supply-chain management enterprises. With the massive rise in fintech in China, companies such as Pintec or Ant Financial started providing microloans for small companies to “go green”.

[Data source: China Sustainable Consumption Research Program, ‘Customers choose companies committed to sustainable production’, 2019]

Emerging green strategies in Chinese companies

Some industries actively contribute to the development of green products market in China. For example, the fashion industry, which is currently the most polluting industry in the world, contributes to the development of green products. For companies in this industry, “sustainable development” is a powerful branding tool. That was the reason for record number of green manufacturers at the textile trade show in Shanghai in 2017. Green manufacturing is no longer the domain of specialist brands. For example, textiles giant Esquel, the world’s largest shirt maker, has put been putting sustainability at the center of its business. With sales of US$1.3 billion (8.5 billion yuan) in 2018, Esquel manufactures over 100 million garments annually for retailers including Marks & Spencer, Ralph Lauren, and Tommy Hilfiger, and has been focusing on building a more sustainable business for both staff and the environment.

Green products in China have high potential in the food industry. More than 11,000 enterprises have obtained more than 17,000 organic product certification certificates. Also, the number of registered organic marks has exceeded 1.7 billion. In the online food delivery industry, the unique example of eco-friendly strategy is Yikou company (full name, Yi Kou Liang Shi). This company uses only ceramic tableware for food delivery. After consumers finish their meals, Yikou collects cutlery and tableware to wash for reuse. The company’s innovative business model closes the loop on plastic in food delivery.

E-commerce giant Alibaba: example of successful eco-friendly strategy

Alibaba platform actively provides eco-friendly products in China, advocates green concepts, and encourages green actions. Gigantic scale of 11.11 shopping festival in China has huge impact on the environment. This caused by the packing materials used in the shipping of items. Cainiao, Alibaba’s logistics network, delivered more than 1 billion packages during 11.11 in 2018. Alibaba’s efficient logistics and accessible recycling programs are critical to reducing waste. Cainiao has introduced smart technology that improves packaging efficiency by 15%. In 2018, over 150 million eco-friendly packages were shipped without using any plastic tape.

In 2019 Alibaba established 40,000 stations along with additional 35,000 stations by its express delivery partners for recycling of packing materials. These stations act as collection and recycling centers for cardboard boxes and other packing materials returned by shoppers.

[Source: Alizila, ‘Shoppers bring their boxes and bags to a Cainiao recycling station’]

Additionally, the company plans to incentivize shoppers to return their packing materials to recycling stations by adding additional points in their Ant Forest app. This app is a green initiative by Alipay which allocates points to its users when they perform low-carbon activities in their daily lives. It includes cutting down the use of paper and plastic, paying their utility bills online, and using public transportation or bicycles instead of driving cars. Over 500 million consumers have activated this mini-app to track their low-carbon footprint through daily actions and have used their collective credits to plant more than 120 million trees in China.

[Source: Alizila, ‘Users click on an icon on the Alipay app to access “Ant Forest,” a game that rewards users who engage in activities with a low carbon footprint’].

Besides, in 2018, Alibaba provided hundreds of millions of environmentally friendly packaging for food delivery. Ele.me, the subsidiary of Alibaba, launched a no-cutlery option in their app for online food delivery. In 2019 they already accumulated 45 million orders from users who voluntarily chose not to use plastic cutlery.

Trend of “Buying Green” still looking for appropriate supply

Green products market in China is not yet overly competitive, and is limited to niche consumers. The market potential for organics and certified products can be expanded through increasing knowledge and trust. Sustainable standards and labelling are one of the effective measures, but they currently suffer from a lack of consumer awareness and recognition.

At the same time, there is currently a lack of supply of green products in China. In 2015 a gap of 44% was estimated since the demand for those goods is increasing very fast. In 2019 the development of green food cultivation and production technology in China was still relatively lagging behind, resulting in a slow growth of supply of organic food. At the same time demand continues to be much higher, what makes the gap between supply and demand in the market expand year by year. One of the reasons for that is lack of funds for green industry. In 2018, China’s total demand for green financial funds was 2.1 trillion yuan, but the total supply was 1.3 trillion yuan, and the gap between supply and demand was 0.8 trillion yuan.

China’s green products industry needs more investment

According to Xu Shufan, deputy head of the science, technology and standards department of the Environmental Protection Ministry China’s environmental protection industry can be reached fast, “but the industry still needs more investment from the market, rather than simply waiting for governmental investment”.

The research from 2018 showed that food and drinks were the most popular category among green products in China, followed by household cleaning products. Clothing and accessories were joint third in the list, along with personal care products. However, for the moment, many sectors are still waiting to awaken and set off with the population awareness concerning pollution and the global challenge of global warming.

Daxue Consulting can provide you support in entering the growing market of green products in China. We conduct all the market research and consulting services you may need, such as potential analysis, cost analysis, implementation feasibility etc. To know more about the Chinese green products market, do not hesitate to contact our dedicated project managers by email at dx@daxueconsulting.com.

Author: Valeriia Mikhailova

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Astrology is defined as “The study of the movements and relative positions of celestial bodies interpreted as having an influence on human affairs and the natural world.” It originated from the western society. Nevertheless, astrology is popular in China and has affected Chinese people’s daily lives and consumption. Astrology has even made its way into China marketing campaigns targeting young consumers.

The popularity of Astrology in China: western Astrology is more popular with Chinese people

Internet activity reveal the popularity of western Astrology in China. According to Baidu Index, during the period of 2012- 2020  Astrology was searched 16 times more on Baidu than Chinese zodiac. According to Zhihu, 474 topics that are related to Astrology are discussed by Zhihu users in China.

[Photo source: Baidu Index, ‘Search index of Astrology VS Chinese Zodiac’]

The history of Astrology in China

Even though Astrology has been widely discussed by Chinese people in the last decade, it has existed in Chinese society for more than 1000 years. In Sui Dynasty (581-618), Indian monks firstly introduced Astrology to Chinese society. During Qing Dynasty (1636-1912), Kang Youwei, the famous Chinese philosopher and politician standardized the translation of Astrology in China, which has been used in the following years until now.  In the 1990s, Western astrology began to seep into Chinese people’s daily lives. The internet has fostered and spread the popularity of Astrology in China.

Some Chinese consider astrology in who to date and who to hire

During social occasions, Chinese people discuss the latest gossip and tidbits about their astrological profiles. According to The New York Times, social media accounts with millions of followers share weekly horoscope forecasts. On dating APPS, users show their zodiac signs alongside their age, salary, car and home ownership status. More and more Chinese consider astrology  during all kinds of major life decisions including relationship advice, making friends, having babies, and even hiring employees.

Profile of Chinese Astrology fans: dominated by females and youth

Chinese people with different backgrounds hold diverse attitudes and perceptions towards Astrology.

According to a survey conducted by woshipm, 82% of the responders believe in Astrology and females tend to believe it more. Additionally, people aged below 25 are more likely to be Chinese Astrology fans. 47% of the responders read articles related to Astrology occasionally while merely 9% of them read them every day.

[Data source: Research Center of Cheetah Mobile, ‘Chinese people’s attitudes towards Astrology (2019)’]

[Data source: Research Center of Cheetah Mobile, ‘Frequency of browsing content of Astrology (2019)’]

Regarding to content, Chinese Astrology fans are likely to know about personality analysis, lucky numbers/dates/items and relationship insightsadvice.

[Data source: Research Center of Cheetah Mobile, ‘Popularity of Astrology in China’]

In terms of the channels, Chinese Astrology fans access the information regarding Astrology, websites, Astrology apps and influencers’ social media accounts are the common platforms.

[Data source: Research Center of Cheetah Mobile, ‘How Chinese access Astrology related content’]

Rationales for the popularity of Astrology in China: obtaining psychological comfort matters 

Gaining psychological comfort, self-recognition and entertainment, and socializing with others explain Chinese Astrology fans’ obsession with it. Many responders indicate that they turn to astrology for clarity during tough times, which can provide psychological comfort. Chinese Astrology fans feel their lives are out of their control, and reading articles related to Astrology would ease their mind as they can understand the forces behind their destiny. For those who responded gaining self-recognition, they believe that people from different zodiac signs has specific talents. By discovering and  amplifying the talent, these people can maximize their success.

Some answers from Zhihu users have verified these reasons and they are in favor of Astrology. Psychological comfort or related terms is a common  reasons put forth by Chinese astrology fans. Many of them feel that the description of their zodiac signs are accurate as these match their personalities. Some of them mentioned that their belief in Astrology is related to their relationships.

[Photo source: Zhihu, Chinese netizens explaining why Astrology is popular in China]

From the academic perspective, an author from The Outlook Magazine argues that Astrology has been prevalent since ancient China as it was a mean of forecasting national incidents, wars and harvest. Thus this has been a tradition in China, anticipating one’s fate based on Astrology. Nowadays Chinese people prefer the western Astrology instead of Chinese horoscope is due to the fact that the west Astrology is more complex and supported by art works and literature, while Chinese horoscope is relatively abstract and hard to understand.

Astrology market in China: fostered by social media behavior

Social media has been an incubator that has fostered the Astrology market in China as astrology features low barrier to entry, entertainment-orientation and socialization. According to WeChat official accounts, 313 results are tagged as “Astrology” and Uncle Tongdao is the most popular with the search index of 974.1. On Weibo, Jin Li Da Wang (Koi) and Tao Bai Bai have 20.78 million followers and 7.95 million followers respectively. 

Some companies have developed Astrology apps in Astrology market in China. In comparison with Astrology promoted on social media accounts, Astrology apps provide diversified services such as paid Q&A, paid anticipation and Astrology lessons. Moreover, their services are not limited to Astrology but also dice, luck tests and personality tests.

[Photo source: woshipm, ‘Astrology apps in China’]

Case study: the success of Uncle Tongdao

[Photo source: meihua.info, ‘Uncle Tongdao’]

Uncle Tongdao is a successful Astrology brand in China. In 2014, Uncle Tongdao went viral on the Internet as its cartoons and images fitted Chinese netizens’ appetite. By combining Astrology related culture and the 2-dimention culture, Uncle Tongdao is able to win the heart of Chinese Astrology fans. By the end of 2018, Uncle Tongdao had more than 60 million followers on social media and become the representative in Astrology in China. 

The business model of Uncle Tongdao is innovated in China as it combines IP operation, IP authorization, IP E-commerce, IP community and IP crossover marketing. As a result, the company generates its business eco-system and keeps producing business value for its partners. Uncle Tongdao has become one of the most valuable Intellectual Property entities in China.

Astrology co-branding in China

Apart from the online sector, Uncle Tongdao also expands its business area to offline sector by establishing subsidiaries that carry on publishing, souvenir and dramas, etc. On May 20th, Along with many other co-branding ventures, Uncle Tongdao alongside with I-ORANGE, an advertising company set up pop-up wedding dress stores. It was an event for single people and encouraged them to face their relationship status regardless of people’s judgments. It turned out to be a successful campaign as the societal pressures of singles is quite a headache for Chinese young adults.  

[Photo source: meihua.info, ‘Pop-up wedding dress store, an Astrology marketing campaign in China’]

Astrology in the hospitality industry

Uncle Tongdao also collaborated with Atour and established a hotel that features Astrology culture in Chengdu. The business vision is providing a comfort zone for young people to alleviate stress.

[Photo source: meihua.info, ‘Uncle Tongdao x Atour Hotel, an Astrology marketing campaign in China’]

Ride your start sign to work

In 2017, Uncle Tongdao collaborated with ofo, a bike-sharing company in China and launched some Astrology-themed shared bikes in China. Uncle Tongdao claimed that,  riding the personal zodiac signbrings luck to commuters in China. 

[Photo source: meihua.info, ‘Uncle Tongdao x ofo bikes’]

Future trend of the Astrology market in China: focusing on platforms, core values and big data

In the foreseeable future, the development of Astrology market in China ought to innovate its channels and content of products. Finding the right platform

Chinese Astrology fans cannot bother downloading apps to access Astrology information. Instead, WeChat official accounts or mini programs are the more convenient platforms.

Focusing on mainstream culture

Secondly, brands should focus on mainstream culture and subculture that are popular with youth in China so that they can alter their products and tailor to different needs. Astrology is a trend to watch for marketing to millennial and gen Z consumers.

Providing comfort

Furthermore, Astrology companies in China should always maintain the core value of satisfying users’ needs by including psychological comfort, positive energy and stress relief in their messages. Considering the fact that Chinese Astrology fans turn to the art for clarity during tough times.

Getting technical

Last but not least, AI and big data will be applicable in Astrology market in China since they are able to make Astrology more convincing. Since 2018, some Astrology APPs have been developing and testing the feasibility of this application and the result is yet to be known.

Popular Astrology topic: How Chinese people from different zodiac signs behave in the relationship?

Speaking of relationships, Chinese youth, especially girls, like to relate personalities to zodiac signs. Undoubtedly, Astrology serves as a reference when they make decisions on their relationships. The table listed below is the summary of characteristics of different zodiac signs. Whether it is reliable or not, it varies case by case!

Author: Amelia Han

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Coffee shop market in China: Growing Competition Threats Starbucks’ Supremacy

Nestlé in China

The very first foreign brand coming to China was Nestlé (雀巢), which has an occupation rate of 28.5% in 2019, ranked first in the instant coffee market in China. Some researchers see Nestlé entering China as the beginning of the coffee market in China.

Starbucks in China

In 1999, Starbucks China opened its first store in the World Trade Building in Beijing. Before the entering of Starbucks in China, most of the Chinese consumers only knew about instant coffee but had no idea about coffee culture. Starbucks China contributed to the popularization of coffee culture. Nowadays, Starbucks has opened over 4,100 stores in 168 cities in mainland China. As of January 2019, China is already the second-largest market after the US for Starbucks in the world.

Unlike Nestlé, Starbucks targets middle and high-income consumers. Its pricing is comparatively much higher than in the US, which caused criticism by CCTV (China Central Television) in 2013.

Starbucks vs. Luckin Coffee

Luckin Coffee is a domestic start-up coffee chain founded in October 2017 in Beijing. The brand opened stores at a fire pace. By the end of 2019, it manages 4,507 locations in China and surpasses the number of Starbucks stores.

The competition from the homegrown coffee shop, Luckin Coffee is catching up with Starbucks at a fast pace in the coffee shop market in China. Luckin Coffee is threatening Starbucks’ supremacy for several reasons. One of them is the opening of a “Relax” Luckin Coffee outlet inside of the Forbidden City, where Starbucks was evicted in 2017 amid protests of western invasion. Luckin Coffee claimed to sue Starbucks in China for monopolistic behaviours as its publicity stunt. Meanwhile, price competition raises a nightmare for Starbucks. Luckin Coffee’s pricing is 20% lower than Starbucks in China. Also, it provides discount coupons on many platforms, such as Meituan (美团) and Dazhong Dianping (大众点评).

Starbucks Reserve Roastery vs. Specialty Cafés in the Coffee Market in China

Other than Luckin Coffee, some small, independent start-ups are stealing the market from Starbucks as well. With the popularization of coffee culture, the coffee brewed by automatic coffee machines is not able to meet their needs anymore. Consumers in the taste pursue personalized. More coffee consumers in China are enthusiastic about hand drip, ice drip, siphon and other high-quality coffee. To meet the consumer needs, the coffee shops in China develop towards the direction of specialty cafés. Shanghai is the representation of regions embraces the considerable coffee culture.

[Source: Dazhongdianping ‘coffee shop ranking in Shanghai’]

Coffee shops ranked top ten on the list of the top taste of coffee shops in Shanghai are all specialty cafés and roasters. To compete with these upscale coffee shops in China, Starbucks launched a Starbucks Reserve Roastery in Shanghai, which is the first Starbucks Reserve Roastery in Asia. It ranked first on the list of the most popular coffee shops in Shanghai.

[Source: Dazhongdianping ‘Starbucks Reserve Roastery in Shanghai’]

Starbucks Reserve Roastery in Shanghai includes a cold brew coffee bar, high-end Princi bakery, bakery counter, full liquor bar and additional brew station, coffee bar and roaster.

[Source: Barrett ‘Shanghai, China: Starbucks Reserve Roastery coffee bar’]

This Starbucks Reserve Roastery is a prime coffee shop to show Starbucks, as an international coffee chain, still focuses on the coffee craft and to win back the hearts of the coffee consumers in China. The Starbucks Reserve Roastery in Shanghai currently provides seven types of brewing methods, including MODBAR precise self-controlled brewing, hand-pour, French pressure, Siphon, Cold Brew, expresso and CLOVER. It can serve a total of more than 100 types of drinks. Additionally, it offers and sells freshly brewed coffee beans, which are not available at traditional Starbucks. As the result shows on Dazhongdianping, Starbucks Reserve Roastery in Shanghai has succeeded in both sales and reputation.

[Source: Weibo ‘Starbucks Reserve Roastery in Shanghai’]

On the other hand, Starbucks still dominates the coffee shop market in China, especially in non-metropolis area. Carol Liu, the co-founder of Big Sur coffee in Shanghai, says the coffee market is not mature in non-metropolis areas. Consumers could not appreciate good quality coffee but were profoundly affected by brand names. Most of them still put Starbucks as their first choice for coffee. Big Sur used to have another coffee shop in Hefei, Anhui Province. Although the salaries and rent are relatively cheaper in Heifei, the Big Sur coffee shop in Hefei still closed.

Key strategies to enter the coffee shop market in China

Compared with more than 4.2 kg of annual coffee consumption for an average American, the average annual coffee consumption in China is  0.09 kg per person. Coffee consumption in China is far too small to be considered a mature market. Even compared to its Asian neighbor Japan, who, like China, has a long history of tea culture , the Chinese per capita coffee consumption is much smaller. Therefore, many other foreign brands are eying this untapped potential coffee market in China. In 2019, Tim Hortons, a Canadian coffee shop brand opened its first coffee shop in Shanghai and projects to launch more than 1,500 coffee shops in China in ten years.

Some key strategies that foreign companies should bear in mind:

Coffee is a social event

Firstly, according to market research in China, Chinese consumers consider having coffee in a coffee shop as a social event; seldom people drink coffee alone, or on the road, they prefer to have coffee in a comfortable environment with friends. Thus, installing a coffee shop needs a more spacious and comfortable environment. Tim Hortons, which has a fast-food-like seating in its domestic market, has adapted with comfortable and aesthetic coffee shops in China.

Must have sweet and fun options

Secondly, coffee without sugar, such as black coffee, Espresso and Americanos are not popular among coffee consumers in China. Starbucks adds fruity taste Frappuccino and other sweet drinks to adapt to the taste of Chinese consumers. New entrants should not be in a rut. Innovation and localization are both necessary elements in the coffee shop market in China.

Espresso over drip coffee

A majority of coffee consumption is espresso drinks. In fact, very few Chinese coffee drinkers order brewed coffee. Even shops like Starbucks in China, often do not have it prepared and will offer an Americano instead. Chinese consumers will expect a menu of drinks made with espresso, like lattes, cappuccinos, affogatos and americanos. However, in tier-1 cities like Shanghai and Beijing, some coffee shops are expanding to include drip coffee for a higher price.

Need a competitive pricing strategy

Lastly, if companies want to launch a business in small cities where the coffee culture is not mature, the pricing strategy is essential. Coffee prices in China are much higher than in the US, and coffee shops must maintain a balance between being unaffordable and being perceived as low quality. However, young white-collar workers in Beijing and Shanghai consume 100 to 150 cups annually. If companies want to enter the coffee shop market in metropolises, they need distinctions other than pricing to compete.

Do the market research necessary to get the most out of China’s coffee market: Contact our project leader at dx@daxueconsulting.com

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As of August 11, 2019, Nezha, a movie re-adapted from an ancient Chinese mythology, has grossed over ¥3.5 billion ($700 million) in China, becoming the most popular movie of the summer. However, recent sales are not too optimistic for other players. Because of strict censorship, four highly-anticipated movies were pulled from cinemas in one month during the past summer. Shanghai Fortress, a big-budget movie on showing, is suffering a complete box-office smash. What does the changes in movie success say about Chinese consumer preferences?

In the first half of this year, China’s box-office sales fell 3.6%, which has not happened for several years, according to the data from Maoyan Movie and Box Office Mojo. As a key overseas market for most major movie studios around the world, China’s movie industry is brewing a big demand-driven re-shuffling.

[Source: Maoyan Movie data & Bloomberg; Chinese consumer preferences are changing]

Reasons behind this steep drop

On June 23, the overall movie ticket sales in China reached ¥30 billion, which was 7 days later than last year. The drop has been partly attributed to a rise in the average movie ticket prices from 35.56 RMB to 38.6 RMB, according to Alibaba’s Lighthouse data app.

[The expensive movie ticket price of the Avengers: Endgame premier in China]

Nevertheless, the construction of movie theaters is not intimidated by the drop of movie ticket sales in China. This year so far, 4,585 new screens have been built, adding the total national number to 64,085. The growth rate of new screens dropped 15% compared to the same period last year, which suggests the inability of China’s film industry to absorb the weakening economics and the changing moviegoers.

Shanghai Fortress: One of the biggest failures in the recent history of Chinese movies

The highly-anticipated sci-fi movie Shanghai Fortress, with a total production budget of 360 million RMB and massive pre-heat on social medial, was released on August 9. With the appearance of famous actress Shu Qi and ex K-pop star Lu Han, who is dubbed by foreign media as the “Chinese Justin Bieber,” Shanghai Fortress was supposed to win the hearts of Chinese audience this summer. Following the success of another sci-fi film, The Wandering Earth, earlier this year, the market placed huge hope on Shanghai Fortress with a film row piece rate up to 33.5% on its first day of showing.

However, any hope for the film’s success is deteriorating. On August 11, the forecast figure of overall box office by Maoyan was reduced from 366 million RMB to only 138 million RMB. Moreover, it only took three days for the rating of this movie on Douban, Chinese No.1 film rating website to sink to 3.3 out of 10. The failure of Shanghai Fortress is perhaps a symptom of changes in Chinese consumer preferences.

The huge box-office smash and overwhelming criticism have showed warning signs to the investors and creators in China’s movie industry. For many years, China’s box office has relied heavily on the celebrity effects and hot IP topics. In 2013, Tiny Times 1.0, directed by Guo Jingming and adapted from his novels, opened the golden age of Chinese celebrities to make money in the film industry. This hot film series earned more than 1.72 billion in total at national box office with a rate of return up to 250%. Compared to the average movie rating of 4.68 on Douban, the successful movie ticket sales of Tiny Times series proved that celebrities used to have a huge effect on China’s film industry.

[Source: Douban & Big Data Group, Tiny Times series in China proves stardom still affects Chinese consumer preferences]

Six years after Tiny Times 1.0 released, this old pattern of attracting audience no longer works in the current landscape, especially among Chinese young people. A user on Douban wrote, “If The Wandering Earth showed up hope for Chinese science fiction, Shanghai Fortress showed us the desire for money.” According to an online survey conducted by Caijing, 55.7% of the participants believed that the biggest reason behind the failure of Shanghai Fortress is that it is “a fake science fiction with an awful plot”.

[Source: Caijing.com.cn, reasons why Shanghai Fortress’s poor sales]

Reasons why Shanghai Fortress is experiencing low sales are: a fake science fiction with an awful plot (55.7%), bad casting decisions (21.6%), poor timing and strong competition (12.3%) and other (10.4%)

Chinese consumers see through poor movie plots

From Wolf Warriors II in 2017, to Dying to Survive in 2018, to The Wandering Earth in 2019, none of these successful movies leveraged massively famous celebrities to gain movie ticket sales. More and more audience sees through the plot of movie investors and producers, who are merely trying to make money from enthusiastic fans of celebrities. While choosing films to spend their leisure time, audiences are looking for deep and interesting plots, and movies that are highly rated by critics. In other words, movies are one area that show the increasing sophistication of Chinese consumer preferences.

Investors start to adapt their strategies to this changing scenario. Earlier this year, immediately after Green Book won Oscar, Alibaba brought the movie into the Chinese market. Jack Ma even promoted this film as a personal mission ahead of its national release by inviting his celebrity friends to screenings. Despite its deep American societal theme and a story that seems un-relatable for a Chinese audience; Green Book astonishingly earned 122 million RMB during the first three days of its opening.

The collapse of Shanghai Fortress is a nightmare for its investors and movie studio, but it opens a bright future for China’s film industry. At the same time, the success of Green Book proves that Chinese audience is much more open-minded than originally thought. Most popular movie topics around the global are acceptable to their increasingly sophisticated appetite. As long as the films demonstrate their sincerity and creativity, the audience will embrace them with a warm welcome.

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