Market Conditions & Strategic Value
- The Chinese government is shifting the engine of economic growth from exports to domestic consumption and is planning various stimulus policies to boost internal demand.
- These policies include encouraging consumer spending, restructuring e-commerce distribution systems, and easing restrictions in the service industry.
- Triggered by COVID-19, the surge in non-face-to-face consumption has accelerated. China aims to expand consumption steadily and sustainably through new consumer models, such as the development of online services and the integration of online and offline commerce.
Key Issues & Trends
1. Promoting Domestic Consumption-Led Growth
China’s strategies to stimulate domestic spending, foster the service sector, and expand the digital economy will be the primary drivers of domestic market growth.
- Through its “Common Prosperity” initiative, the Chinese government is pushing policies to raise minimum wages and reduce income inequality to boost consumer spending.
- With high internet and smartphone penetration, China’s digital economy has grown rapidly, supporting the sustained expansion of the service sector.
- Share of digital economy in GDP: 2.6% in 2005 → 38.6% in 2020
- In 2019, before the pandemic, the service sector contributed over 60% to GDP growth. Despite setbacks in 2020, it still held at 47.3%.
2. Ongoing Growth in Inland Markets
To promote balanced regional development and new urbanization, the government is increasing investment in central, western, and northeastern regions, where urban growth is outpacing coastal areas.
- China plans to increase the urban population to 1 billion by 2035, centered on key inland cities.
- Under the “New Infrastructure” initiative, investment in advanced and future industries is being directed toward central and western areas, stimulating local economies and enhancing consumer capacity.
- Cities like Chengdu and Chongqing in the west, and five central provinces (Hubei, Hunan, Henan, Anhui, Jiangxi) are seeing rapid increases in total retail sales and urbanization rates.
3. Rise of O2O Marketing
New retail formats and integrated online-offline strategies using digital platforms and technologies like AI and big data are transforming consumer engagement.
- New Retail: The fusion of online and offline channels supported by AI, big data, and smart logistics is expanding consumer access and convenience across all demographics.
- Examples include Hema Fresh (O2O fresh food), BingoBox (unmanned convenience stores), and Tao Café (unmanned cafes).
- Live Commerce: Live streaming e-commerce by major influencers (Wanghong) on platforms and social media is growing rapidly.
- As of 2020, about 388 million live-streaming e-commerce operators were registered, with 66.2% of all e-commerce users making purchases through live commerce.
Entry Strategies by Industry & Promising Product Categories
1. Tailored Approaches by Consumer Segment
As the quality of life improves, China’s consumption structure is diversifying. Companies need to take a segmented approach based on consumer demographics.
- With rising income and the expansion of the middle class, women and middle-aged consumers have emerged as key buyers. Among younger generations, Gen Z, singles, and the “lazy economy” are driving rapid growth.
2. Strengthening Inland Market Entry
A deep understanding of inland distribution systems and consumer preferences is essential. Use successful products from coastal areas as entry points.
- Foreign consumer goods typically pass through multiple distribution layers from coastal importers to inland markets. Understanding this unique structure is key.
- Success depends on adapting products to local needs, simplifying supply chains to improve pricing, and partnering with reliable local distributors.
- To mitigate risk, companies should start with competitive categories (e.g., cosmetics) and test the market.
3. Leveraging Digital Marketing
Understand platform characteristics and tailor approaches based on company capability and stage of market entry.
- For New Exporters: Use C2C platforms like Taobao with low entry barriers to test products, measure performance (search keywords, conversion rates, loyalty metrics), and gauge market response before increasing ad spend.
- Options include indirect entry via agency-operated Taobao stores or direct entry by opening an account linked to a local Chinese bank.
- For Growing Exporters: Companies with branding ambitions and marketing budgets can open brand pop-up stores within major platforms (Tmall, JD, VIP).
- This requires partnering with a third-party operator (TP) for a full range of services including store setup, operations, promotion, sales, and customer support.
Recommended Online Marketing Sequence by Platform:
Step 1: Lead generation through content platforms (WeChat, Xiaohongshu, Douyin, Weibo, Baidu)
Step 2: Direct purchase channels (Taobao, JD, WeChat, Xiaohongshu, Kaola)
Step 3: Conversion optimization via live commerce, reviews, and ads (Taobao, Kuaishou, Douyin)
Step 4: Loyalty marketing for repeat customers (WeChat, etc.)
Case Studies
Case ➊: Company M – “Globalizing Korean Hotdogs”
- Journey: Started as a street snack franchise in Korea, entered the Chinese and Southeast Asian markets via distribution networks.
- Faced challenges like fierce competition, cultural differences in food preferences, and widespread copycat stores, leading to store closures after two years.
- Shifted strategy from franchising to frozen food distribution and importer partnerships.
- Re-entered the market with support from KOTRA for pricing strategy and export certification processes.
- Participated in KOTRA’s service export program, gaining buyer matches and sample deal discussions.
- Takeaway: A differentiated marketing strategy is essential to maintain relevance in the Chinese market.
- Plans to explore new sales channels via e-commerce and SNS marketing, supported by KOTRA.
- Currently active in 9 countries including Cambodia and Malaysia with select overseas stores in operation.
Case ➋: Company C – “Building a Live Commerce Platform for China”
- Journey: After selling through platforms like Taobao Live and Mogujie Live, Company C developed and launched its own live commerce platform.
- Designed for Korean fashion brands and designers, the platform simplifies access to the Chinese market through WeChat-based live sales.
- Key strength lies in reducing the entry barrier for sellers.
- Users only need to install WeChat and link a bank account to access services like onboarding, streaming, purchasing, and viewing.
- Takeaway: The platform aims to help Korean fashion brands navigate rising competition and complexity in China’s major platforms.
- Company C is committed to supporting market entry by lowering barriers and providing digital infrastructure for live commerce.