China's $30 billion ad market catching up to Western markets

Growth is smallest increase in three years

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BEIJING--The breakneck speed at which China has been growing appears to be slowing down. Advertising expenditure grew to $30.3 billion last year, up 18% over 2004 in the smallest annual incease in the past three years, according to CTR Market Research, a joint venture between CITVC and TNS.

Nevertheless, “China now ranks the third, together with the U.K. and Germany, after the U.S. and Japan in the global advertising market,” said Brigitte Lhomme, international development director of TNS Media Intelligence in Paris.

CTR’s research illustrates some of the trends and developments in China’s fast-growing economy. Newspaper spending declined by 1% in 2005, after a sharp increase one year earlier, partly due to heavy reliance on real estate and automobile advertisers, both of which adjusted marketing communication strategies in response to slower sales and more restrictive financing policies.

Auto advertising across all media dropped 2.3% last year, to $133 million (106.6 million RMB), while real estate/construction spending grew just 8% to $177 million (142.7 million RMB). Magazines also suffered, seeing auto advertising grow 9% in 2005, compared to 57% growth the year before.

However, China’s auto boom in the past four years has put more cars on the road and increased commutes due to heavier traffic, bringing new life to China’s radio industry. Leisure and food marketers who cater to auto users have invested heavily in radio advertising, growing the category 39% last year over 2004, up from 26% growth the year earlier. Radio also attracted telecom advertisers, such as China Mobile, which spent $7.9 million in radio advertising, up 61.9% from last year.

Although TV and newspaper spending still dominate China’s ad market and radio is enjoying a boost, outdoor media was the fastest-growing segment. Outdoor expenditure reached $1.7 billion, up 79%, largely due to the rapid rise of Focus Media, which has placed thousands of LCD monitors showing TV ads in office, retail and residential buildings throughout China. (See Player, AdAgeChina, Feb. 15, 2006)

“We believe China’s advertising market will still enjoy double digital growth at 16% in 2006, and new media, [both] new format and new technology development and usage, will rise most substantially,” said Publicis Groupe’s Steven Chang, Optimedia’s CEO, China in Shanghai.

After China’s entry into the World Trade Organization, the tariff on imported alcohol was reduced, prompting foreign brands to rush into the market. Chivas, Hennessy and Blue Ribbon were the top three brands in the imported alcoholic beverage category, which amounted to $138 million in total ad spending, up 80% from last year.

“We have entered a rational consumption stage with China’s economic growth. The Chinese middle class, influenced by Western culture, is becoming a noticeable consumer segment, who want to differentiate themselves in lifestyle with ordinary people. This phenomenon leads us to believe the financial services and luxury goods categories will be the driving forces in the year to come,” said Tian Tao, VP of CTR Market Research in Beijing.

The WTO has also helped expand China’s financial services industry. Credit card marketers spent $112.5 million in China last year, up 80%. The top four advertisers are Visa, whose spending grew 394% last year, China Merchants Bank (+40%), Bank of Communication (+275%) and MasterCard (+710%).

”In the past year, we have seen a sharp increase in communications by the financial services sector. Overall spending has increased as local banks anticipate competition from foreign players coming into the market. We've also seen an increasing level of investment in and strategic use of corporate branding, product and service related advertising,” said Chris Reitermann, managing director of WPP Group’s Ogilvy & Mather in Beijing. Ogilvy Group clients like Agricultural Bank of China, Bank of China and China Construction Bank “are being more pro-active in getting ahead of the competition.”

China’s fast-growing advertising categories (in 100 million RMB): 2004; 2005 (growth %)
1. Industrial: 22.4; 34.7 (954.5%)
2. Finance/Banking/Investment: 24.6; 36.5 (47.9%)
3. Personal Items: 32.1; 46.2 (43.8%)
4. Household: 34.6; 48.1 (39.1%)
5. Computer & Office Automation Products: 53.6; 72.5 (35.3%)
(based on rate card value)

China’s slowest-growing advertising categories (in 100 million RMB): 2004; 2005 (growth %)
1. Cleaners: 43.3; 37.7 (-13.0%)
2. Automobiles: 109.1; 106.6 (-2.3%)
3. Food: 269.7; 287.2 (6.5%)
4. Real Estate & Construction: 132.1; 142.7 (8.0%)
5. Post & Communication: 101.9; 112.3 (10.2%)
(based on rate card value)

Top 10 Brands in ad spending, by all media (in 100 million RMB): 2004; 2005 (growth %)
1. Olay (Procter & Gamble): 47.4; 46.6 (-1.7%)
2. Rejoice (Procter & Gamble): 29.1; 33.0 (13.3%)
3. Crest (Procter & Gamble): 18.8; 31.4 (67.3%)
4. China Mobile (local telecom): 23.8; 28.5 (19.8%)
5. Colgate (Colgate Palmolive): 15.9; 28.1 (76.6%)
6. Naobaijin (local health food): 15.2; 20.3 (33.3%)
7. Huangjindadang (local health food): 16.5; 20.3 (22.9%)
8. Gaizhonggai (local health food): 30.3; 19.6 (-35.3%)
9. Head & Shoulders (Procter & Gamble): 16.8; 16.5 (-1.9%)
10. Safeguard (Procter & Gamble): 14.6; 15.9 (9.1%)
(based on rate card value)

Source: CTR Media Intelligence in Beijing

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