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Modern advertising as an organized industry and a form of mass communication was a Western invention introduced to China at the turn of the 20th century. Advertising first flourished in Shanghai, China's commercial center, during the 1920s and 1930s. Its development was interrupted when the Chinese Communist Party came to power and began to institute a centralized economy in the 1950s.

Commercial advertising became irrelevant in the transformed Chinese socioeconomic system, serving as a government instrument for political control, and eventually disappeared from the mass media. Its return in the late 1970s was the direct outcome of market-oriented reforms in post-Mao China.

Advertising has since enjoyed tremendous growth. From 1987 to 1996, ad spending in China increased by almost 900%, establishing the nation as the world's fastest growing advertising market. In 2001, it was the world's No. 10 ad market, with ad spending of $5 billion, expected to grow to $5.5 billion in 2002.

Foreign influence

In the 1800s, Westerners not only brought in goods and capital but also introduced China to modern mass media and advertising to promote the increasing flow of goods and expand sales in the untapped Chinese market. Foreign companies were the first to advertise in newspapers and magazines and on billboards in China. Because of a high illiteracy rate among the Chinese population, pictorial billboards were one of the most effective advertising media.

In 1915, an Italian named Bruno Perme established the first foreign ad agency in Shanghai, primarily creating outdoor advertising. During the 1920s and '30s, Carl Crow Inc., Millington's Advertising Co., Consolidated National Advertising Corp. and China Commercial Advertising Agency were the four largest agencies, known as the "Big Four," in Shanghai's burgeoning ad industry. There were approximately 30 advertising agencies in Shanghai in 1937, of which five were foreign owned.

Two of the agencies in the Big Four—China Commercial and the Consolidated National Advertising—were Chinese owned. Both C.P. Ling, founder of the former agency, and L. Lewis Mason, manager of the latter, had studied in the U.S. before becoming ad executives. Mr. Ling started China Commercial Advertising Agency in Shanghai in 1926, and by 1936 had a roster of 97 clients, including Heinz, Parker Pen, Gillette Industries, Quaker Oats and Welch's Grape Juice.

One of the pioneering agencies in China, Carl Crow Inc., was owned and run by Carl Crow, a U.S. journalist-turned-businessman. Over a period of 20 years, he ran a successful advertising operation in Shanghai, and his company is credited with teaching the Chinese how to be consumers.

Advertising in the early 20th century concentrated on consumer goods, such as cosmetics, clothing, food products and pharmaceuticals. Patent medicine marketers and cigarette manufacturers were the two major categories of advertisers. Consumer advertising predominantly targeted affluent Chinese, a small segment of the population, and Western expatriates in foreign enclaves of Chinese cities.

Mass marketing and advertising were also pursued, however. With its introduction of the Mei Foo kerosene lamp, Standard Oil Co. became the first to succeed in mass merchandising a foreign product in China. Another early mass-marketed product was cigarettes, a novelty in China, where the water pipe was the traditional form of smoking. Foreign cigarette brands quickly attracted many Chinese consumers, with British-American Tobacco Co. dominating the cigarette market.

Effects of communism

Advertising in China was altered dramatically when the Chinese Communist Party came to power in 1949. The People's Republic of China under Mao Zedong implemented a highly centralized economic, political and cultural system. Private ownership and production were abolished through consolidation with government-owned enterprises in urban areas and through the commune system in the rural regions.

The restructuring of the Chinese economy during the first decades of the PRC was also exemplified by the increased emphasis on developing heavy industry rather than the service sector. Consumption was discouraged, and many food staples and other daily necessities were rationed. China allied with and drew support from the U.S.S.R. in the 1950s, later adopting a policy of self-reliance. Between 1949 and the 1970s, China's economic contacts with Western industrialized economies were extremely limited.

As the press came under government control, and as the socialist economy developed, commercial advertising was considered irrelevant and virtually disappeared.

In 1950, Shanghai's ad agency association had a registered membership of around 100. Then the Chinese government began to transform private ownership into state ownership, a process declared complete by 1956. All of the independent Shanghai ad agencies were consolidated into a single state entity called the Shanghai Advertising Corp.

With the transformation in China's economic structure and mass media, advertising was no longer viewed as a viable marketing tool. Nonetheless, the potential of advertising to convey messages was not ignored by the Chinese government. At a meeting on commercial advertising in Shanghai in 1959, the Chinese state outlined the concept of "socialist advertising," turning it into a communications tool to showcase the nation's economic achievement.

Outdoor advertising was the first commercial casualty of the Cultural Revolution. Commercial messages on billboards were replaced by political propaganda; neon signs that advertised shops and products were destroyed. The main duty of the Shanghai Fine Arts Co. (formerly the Shanghai Advertising Corp.) was to design political propaganda posters.

The open door

China's new open-door policy in the late 1970s, which began to lift trade barriers and accept some levels of consumption, was welcomed by the world's developed capitalist economies.

Advertising reappeared in the Chinese mass media in January 1979, when Shanghai TV made history by airing the first TV commercial in China (a 90-second spot for a Chinese medicinal wine). In 1979, the Shanghai-based Liberation Daily carried the first print ad (for a Minolta camera) after an almost 10-year absence of advertising from the Chinese press. The first foreign product reintroduced to Chinese consumers through TV advertising was the Swiss Rado wristwatch.

By 1981, at least five multinational ad agencies were actively engaged in discussing business opportunities with the Chinese government. The Japanese agency Dentsu was the first foreign ad agency to open offices in China in 1979. Despite the small presence of their products in the Chinese market, Japanese companies used advertising to create brand awareness for Sony, Mitsubishi, Sanyo and their electronic products and appliances. The U.S. agency McCann-Erickson formed a joint venture with Jardine Matheson & Co., a Hong Kong trading firm, and established an office in China. Other early arrivals included Young & Rubicam, Ogilvy & Mather and the Leo Burnett Co.

In 1981, ad revenue made up about 0.02% of China's gross national product. From this insignificant start, the Chinese advertising industry achieved an annual growth rate of about 48% between 1981 and 1995, rising to 0.47% of China's GNP in 1995. The number of advertising agencies increased from just more than 1,000 in 1981 to slightly more than 57,000 by the end of 1997. Likewise, the number of people employed in advertising grew from fewer than 20,000 in the early 1980s to around 500,000 in the mid-1990s.

The Chinese ad industry

The sheer number of ad agencies in China may be large, but the agencies themselves are generally small, most having fewer than 10 employees. Of the 48,082 advertising agencies registered in 1995, only about 25% were full-service agencies; most of the rest were engaged only in certain aspects of advertising (e.g., creative work or media buying). Some were simply "ghost agencies."

The Chinese advertising industry is also characterized by an unbalanced agency-media relationship, in which the still mostly centralized state-run media overpower weak agencies. Wielding their tremendous social and political influence, media organizations often expand their reach into advertising, setting up their own shops and quoting low rates to compete with ad agencies for clients. Chinese companies tend to emphasize ad placement over ad production, being more concerned with the media-buying function, while ignoring ad execution and production quality.

By and large, the economically more developed coastal region represents the top echelon of advertising development, with the inland region in the middle and the outlying areas at the bottom. (This regional disparity is a corollary of the different levels of economic and social development in China.) Advertising is concentrated in three cities—Beijing, Shanghai and Guangzhou—with ad revenues generated in these three cities accounting for half of the national total at the start of the 21st century.

Foreign ad agencies have grown increasingly enthusiastic about working in China. Major players in global advertising, such as J. Walter Thompson Co. and Saatchi & Saatchi, have set up shops in mainland China, representing a wide array of global consumer product manufacturers. During the early 1990s, Grey Advertising, BBDO Worldwide and DDB Needham each formed joint ventures with local Chinese companies to conduct business inside the country. At first, these agencies primarily served multinational clients in China, but that situation was changing as more and more Chinese domestic advertisers sought multinational agencies.

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