China's the new gold rush, but nothing is as it appears

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Shanghai! The very name is so exotic to our jaded imaginations. The Paris of the East has long been a byword for mystery and decadence. So it is an anti-climax to locate the Ritz-Carlton hotel on infamous Nanjing Road by turning right at the Hard Rock Cafe just before Starbucks.

A common sight here reveals much about growth prospects in the ad world's boom market. In any KFC or McDonald's, children contentedly devour their Happy Meals watched by silent elders who do not eat themselves.

The "every-child-has-six-pockets" phenomenon is a direct product of the Chinese one-child-per-family policy. It means each child has both parents and two sets of grand-parents happy to buy anything he or she desires, especially Western branded goods, even if this means personal denial by their elders.

China's youth not only want everything Western youth have had but they want it all and they want it now. Small wonder that ad spending is growing at 8% a year, with no sign of it abating. But when you visit China it is soon apparent that on the new frontier there are lies, damn lies and China statistics.

How big is China's ad market? Two billion dollars? (If you accept that much of the spending is unrecorded.) Ten billion dollars? (This is the Chinese government's figure, based on Chinese company financial reports.) So much for mathematics.

Multinationals have around 25% of whatever the spending is. The big four agencies are Ogilvy & Mather, Saatchi & Saatchi, McCann-Erickson and J. Walter Thompson. China's ad industry is developing the way the global ad market did. Saatchi is strong in China because Procter & Gamble is big. The same goes for Zenith Media.

However, there are three unofficial rates for buying TV spots: for local clients going direct to the myriad TV stations; for local media buyers; and for multinationals. The price difference can be up to 30%.

China's recent admission into the World Trade Organization will not fix this sort of unofficial regulation overnight, but it has had one immediate, positive effect. The government raised the specter of foreign competition, and warned local corporations of the need both to consolidate and to adapt to Western methods. Suddenly, multinational ad agencies are seeing a sharp rise in interest from curious local clients. Will it last?

It's difficult to give a snapshot of what really is going on in China in the space avail-able here, but it should remain a boom market for the foreseeable future, and one with some independence from the world economy. Only 20% of China's output now goes to exports.

While marketers and agencies remain impaired by difficulties in gaining full access to distribution channels, China's pie is big enough for most to take a lucrative slice. With the WTO and 2008 Olympics in the bag, and foreign direct investment up 15% last year to a new high of just under $47 billion, China is the new gold rush. But a note of caution (it sounds more ominous in Mandarin): Nothing in China is what it appears.

Stefano Hatfield is editorial director of Ad Age Global and Creativity.

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