SHANGHAI (AdAgeChina.com) -- China's government just delivered good news -- the mainland's economy is still surging forward, reassuring both advertisers and consumers that it's okay to keep spending.
China's economy grew by 8.9% in the third quarter of this year, on track to meet the government's target of 8% growth for 2009 overall. In addition, the consumer price index fell 1.1% in the first nine months, compared with the same period a year earlier.
The GDP figures released by the National Bureau of Statistics are China's best performance in over a year. China, now the world's third-largest economy, reported 7.9% growth in the second quarter and 6.1% in the first three months of 2009.
While far below the double-digit growth in gross domestic product that China enjoyed from 2003 through 2007 and during the first two quarters of 2008, China is much healthier than many of the developed world's economies this year. While not a major surprise, China's continued growth has eased government and corporate concerns over the drop in exports during the past year.
ZenithOptimedia revised forecast to 5.7%
Major media companies are also bullish about China's performance this year and in 2010. Four days before China's GDP growth figures were released, ZenithOptimedia said China's ad market will be worth $19.966 billion in 2009, up 5.7% from last year.
The figure is slightly higher than Zenith's forecast for China in April 2009, when the Publicis Groupe media agency predicted China's ad spend would be up 5.4% in 2009, way below the 18.8% growth recorded in 2008. Last year, the Chinese ad market was worth $18.895 billion, according to ZenithOptimedia.
TV ad revenue increased 17.9% year-on-year in July 2009, while ad spending on newspapers declined by 2.9% over the same period; the drop in the real estate and automobile sectors was only partly offset by growth in business & services and leisure.
Magazine ad revenue increased 0.6% in July 2009 from a year earlier, with growth from the toiletries and automobile sectors balancing the decline in business & services and personal items. Radio and outdoor spend grew by 1.6% and 8.1% respectively year-on-year in July 2009.
Retail sales, the main measure of consumer spending, rose 15.2% in July, following 15% growth in June. Passenger car sales jumped 70.5% in July from a year earlier to 832,600 units, thanks to the government's stimulus package.
Total monitored ad investment increased 14.5% in July from a year earlier, due mainly to the food and personal items sectors. Yum Brands' KFC fast food chain climbed to the second-most-advertised brand in July, behind No. 1 Kangshifu, an instant noodle brand produced by Ting Yi Holding Corp.
Chinese market far from saturation
In many consumer categories, "China is way below the world averages so there are huge growth opportunities for many brands. I am constantly astounded when I see facts from China," said Malcolm Hanlon, CEO, China at Zenith Media in Shanghai.
"Such amazing statistics exist for so many consumer categories. With still such a huge untapped market potential this is why ad spend continues to grow in China," Mr. Hanlon said.
ZenithOptimedia believes China's ad market will be worth $21,856 billion next year, a 9.5% year-on-year increase, and $24,098 billion (10.3%) in 2011.
Advertisers are optimistic as well. This month, Procter & Gamble Co.'s president-CEO, Bob McDonald, told shareholders that P&G is six times larger than its next biggest competitor in China.
"But we're only in 12 product categories versus roughly 25 in the U.S. [and] the average Chinese consumer only spends $3 a year on Procter & Gamble products," he said. That compares to a global average of $12 a year.
"We're seeing no evidence of cutbacks although there's a lot of client concern about continuing price increases. If there's one market you want to invest in, it's this one," said Doug Pearce, director, media services business, North Asia at Accenture.
"People will still have a cost and containment strategy because costs in China are going up while companies have been asked by global bosses to do more to cut costs, but next year will be a strong year," Mr. Pearce added.
Carat and GroupM also positive about China
Earlier this month, Carat raised its 2009 forecast for ad spending in China to $46.1 billion, up 6.9% from its previous 4.6% estimate issued in March 2009. The Aegis-owned agency also raised its 2010 forecast to 9.0% growth from 7.2%.
In early September, GroupM boosted its forecast for media spending in China this year to $37.3 billion, up 5.8%, a sizable increase over the 3.2% growth it forecast for 2009 back in June. Next year, GroupM expects China's ad market to grow by 9.8% to $40.9 billion.
While ZenithOptimedia, Carat and GroupM all predict similar increases in China in percentage terms, their estimates for expenditure vary greatly, a reminder of how opaque China's ad market remains.
The discrepancy can partly be explained by whether the agencies have excluded agency income, production costs, classified advertising and discounts. But it is also reflects the inability of auditors to fully evaluate private deals cut between media owners and media buyers, whether they work for media agencies or advertisers.
"That's the mystery of China," said Mr. Pearce wryly.
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