What to Expect in the Year of the Rabbit

Ogilvy PR Execs Scott Kronick and Jamie Moeller Predict China's Future

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BEIJING (AdAgeChina.com) -- John Updike, the American novelist best known for his Rabbit series, said the Rabbit is a "zigzagging creature of impulse."

However, Chinese fortune-tellers seem to believe the opposite: that the rabbit represents calm and grace, and people born in the Year of Rabbit make ideal diplomats and politicians.

As we enter the Year of the Rabbit on Feb. 3, five issues are expected to play a major role, according to two executives at Ogilvy Public Relations Worldwide, Scott Kronick, president, North Asia in Beijing and Jamie Moeller, managing director, global public affairs in Washington, D.C.

1. Manage price inflation
Inflation, currently at its highest level in two years, is a major economic concern. The typical rural Chinese worker makes about $5,000 a year--and now spends half of that on food. Garlic, a staple in the Chinese diet, costs more than ever; the price for peppercorns has tripled in some cities, and potato prices have rocketed up more than 80%. Ginger prices soared 300% in 2010.

Scott Kronick
Scott Kronick
The risk facing leaders is that spiraling food prices could lead to instability, which China will avoid at all costs, and the party is taking inflation seriously.

The difficulty lies in the country's ambition to fulfill multiple crucial goals: economic growth, creating jobs, stimulating domestic consumption, and assuming greater international responsibilities, all while keeping inflation under control and maintaining stability. Many of these are incompatible with tightening measures.

2. Encourage domestic consumption
Just as the U.S. savings rate decreased by 2.9% in 2009, Chinese people were saving up to 50% of their income. As China is projected to enter a new phase of development, the government is anxious to transform the current growth model, largely driven by exports and inventory investment, to one that is more sustainable.

Spurring domestic consumption is the primary focus. The government chose to start with cars and appliances as they tend to be big-ticket purchases. Targeting rural consumers, the government gives out 13% subsidies on about 200 kinds of household appliances of designated brands. For urban-dwellers, tax breaks for smaller-engine cars and green cars have been the hook.

In 2011 Beijing will end incentives to buy small cars, while extending subsidies to buyers of fuel-efficient cars, a move that will continue to benefit both domestic and international brands such as General Motors and Ford. But, as car sales have exploded, large cities like Beijing have begun to confront their next big headache: traffic congestion.

Jamie Moeller
Jamie Moeller
One-time incentives cannot help China achieve long-term growth in consumer spending. Instead of focusing narrowly on cars and appliances, China needs to find more ways to court its 1.3 billion residents.

Online shopping could drive the next wave of China's consumption growth. China has 450 million internet users and one-third already shop online regularly. From clothes to car batteries, furniture to airplane tickets, and even meat and diamond rings, no one buys a thing until they compare prices on Taobao.com, China's answer to eBay.

A growing portion of Chinese online shoppers live in second- and third-tier cities. For that reason, brands such as Lenovo, Adidas, Uniqlo and Kappa rushed to set up virtual stores on Taobao.com to reach consumers in lower-tier cities. Goldman Sachs predicts annual sales could grow 275% over the next five years to an estimated $300 billion in 2015.

3. Manage China's labor force
Once a workshop to the world, China is finding it increasingly difficult to manage its workers. They have become noticeably more rebellious in the past few years, demanding larger portions of the pie.

The labor issues of 2010 tested the government's "social stability" meter, evidenced by the unanimous decision to raise the minimum wage in ten provinces by up to 20%. Going into another year of labor shortages in the Pearl and Yangtze River Delta regions, wage pressures in the blue-collar sector will certainly creep upwards. Meanwhile, the industrial map of China will be redefined, with more factories moving inland. The results will be mixed: higher demand for labor will push up salaries at the cost of profits, while workers will have more to spend and thus boost domestic consumption. In the long run the regional gap will be reduced.

As China pushes forward with its urbanization, the rural-to-urban flight will continue. In the next five years, China's urban population will reach 700 million and, for the first time in China's history, surpass the number of rural residents. Meanwhile, the migrant workforce is expected to hit 350 million by 2050, larger than the entire U.S. population today. Such a vast migrant labor force and the policies and directives issued by the government to manage this group will remain pertinent. The country's guidelines for the 12th Five Year Plan specifically said that China will enhance its enforcement of labor laws and improve working conditions, while bringing a healthy mechanism supported by labor unions and enterprises into full play.

4. Reform education, environment and healthcare

China's recent education boom parallels its status as the world's second-largest economy. Between 1999 and 2008, the annual enrollment of undergraduate students increased by more than 500%. In 30 years, university enrollment went from 420,000 in 1977 to nearly 6 million.

Critics worry that the breakneck expansion of universities in China has negatively impacted the quality of education, made the job market artificially more competitive and kept salaries stagnant. Meanwhile overseas returnees, known as "sea turtles", will face more challenges as they swim back home to a new reality. China has grown more difficult for them to navigate. While most of these returnees expect a lucrative job with a foreign company, employers tend to look at them somewhat cynically.

New and more stringent efficiency measures are expected to address environmental challenges. China is expected to introduce a carbon tax in the near future as an incentive to reduce greenhouse gas emissions. Also, China is willing to share more responsibility globally. At the Cancun climate talks China offered to adopt a binding UN resolution on carbon emissions. These events all suggest that China is making steady progress in environmental reform.

China's rapidly aging population creates urgency around healthcare. In 2009, Beijing unveiled an aggressive healthcare reform plan as part of the stimulus package. The goal was to improve people's lives, regulate the pharmaceutical industry and spur domestic consumption (worries about healthcare bills are believed to be a major contributor to China's high savings rate).

We expect to see more opportunities arising from China's private and community healthcare market. GE healthcare has already planned a packaged solution targeting China's 70,000 community hospitals. It includes medical equipment, services, training and financing. The goal, according to GE, was to broaden community access to healthcare at an affordable price.

5. Build brand China
Developing China's soft power and international reputation continues to be a key component of China's greater integration into the international community. But the words and actions of China's leadership in 2010 continued to conflict, with a veritable PR train wreck following the success of the Shanghai Expo in the first half of the year.

International scandals over the Diaoyu/Senkaku islands, Nobel Prize recipient and political activist Liu Xiaobo, and the handling of a residential fire in Shanghai have given the government reason to reexamine its methods.

In the Year of the Rabbit, we expect a resetting of expectations, and a renewed push for soft power in several arenas, engaging a larger host of business and government voices. Central government support will be both in front of and behind the scenes, sharing platforms, offering advice and backstopping the finances.

Parallel to such branding efforts is the Chinese state media's foray into the global market. For example, CCTV International has 45 million subscribers outside China. Last year, state-run Xinhua News Agency launched its English-language TV service, CNC World. Xinhua recently signed deals with outlets in Cuba, Mongolia, Malaysia, Vietnam, Turkey, Nigeria and Zimbabwe. The moves suggest that the benchmark of success for Chinese media going global could be different. Instead of targeting the already-competitive North American and European markets, Chinese media may focus on emerging markets like Africa and South Asia.

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