China News This Week: Wednesday 19 January 2022

This week's news and trends in China:

 Chinese Consumers

KFC Faces Boycott in China Over Meal Toy Promotion: The China Consumers Association (CCA) has called for a boycott of KFC after its promotion this month sent some customers into a buying frenzy.

Shanghai Government Caps Price on ‘Blind Boxes’, Prohibits Sale to Children Aged Below 8: The Shanghai Administration for Market Regulation said the price of a blind box shall not exceed 200 yuan ($31.46) and that sales to children under eight years old are now prohibited. The new laws also restrict speculation in the second-hand market where prices can increase to 20-30 times their original cost. Sale of toxic merchandise, explosives or animals via blind boxes are also banned.

This Chinese Convenience Store Chain Needs to take a Break from its Algorithm Obsession: Bianlifeng, a Beijing-based convenience store chain, recently came under fire for collecting massive personal information without the knowledge of customers and pedestrians. The company stealthily set up cameras in doorways of residential and office buildings, capturing footfall to determine optimal locations for stores. 70-80% of the company's data is collected by camera. Cameras capture almost every action from customers after entering their stores to assist with decision making. Similarly, staff behaviour is also filmed to improve "store management". The company has 700 stores and plans to open 10,000 by 2023.

China Venture Funding Hits Record $131 Billion Despite Crackdown: Venture capital investments in China reached $130.6 billion for 2021, despite the crackdown on tech companies. This set a new record for the country - about 50% higher than the $86.7 billion total the year before. Semiconductors, biotech, robotics and enterprise software were among the fastest risers. The US remains streets ahead for investment, attracting a record $296.6 billion in 2021, although China leads in areas such as chipmakers, integrated circuit designers and other semiconductor startups which received $8.8 billion in funding last year, more than six times equivalent companies in the US.

Mainland China’s urban shoppers are spending less on FMCG: In general, the categories that consumers associate with improved quality of life - such as cheese, air fresheners, mouthwash and ready-to-drink coffee - grew at high speed. Categories that were popular during the lockdown months, such as instant noodles, biscuits, disinfectants and hand wash, experienced negative growth. The foundations of future FMCG growth remain strong, including the expanding middle class, and rising ecommerce penetration.

Digital China

Brands Should Consider China in Metaverse Strategy Even if Beijing Takes Tough Stance: The nature of Chinese consumers to adopt games, social media and new tech innovations point to a market that is likely to embrace the metaverse. Even though there is much speculation about how it will look, brands should consider early moves such as trademarking their brands in relevant classes. As of early January, more than 1,360 Chinese companies had applied to register more than 8,500 metaverse-related trademarks. Just 300 companies had done so 3-months earlier.

Food & Beverage

The Race to Create a Whisky From China, for Chinese People: Banking on the fast-expanding middle class, Chinese and Western liquor companies are eager to build Chinese whisky brands. But with a years-long wait for each batch, domestic and international suppliers alike are betting on the unknown. Whisky accounted for just 1% of China’s liquor market in 2020, while baijiu took up 96%. Diageo has reached over 12,000 potential Chinese whiskey lovers through a "whisky culture education" institution called Diageo Whisky Academy, and has organised 13 whisky summits across China since 2017.

 Beauty

China Chic Beauty Start-Up Florasis Tops Douyin’s Cosmetics Sales Chart in 2021: D2C beauty brand Florasis, with its traditional Chinese aesthetics topped the Douyin sales chart in the cosmetics category. All but one of the top-10 were domestic brands such as Proya, Kans and Bio-MESO, with South Korea's Pramy the only non-Chinese brand on the list. Western brands have been slow to capitalise on Douyin opportunities. 80% of brands that had more than ¥100 million ($15.7 million) of sales on Douyin were domestic brands.

Shiseido Enters Strategic Partnership with Tencent: Shiseido has entered a three-year partnership with Tencent to build a D2C (Direct to Consumer) model and strengthen its social commerce business to provide new services to Chinese consumers globally.

 Fashion

How Fashion Can Leverage Blind Box Marketing in China: Many brands are jumping on the trend, yet over 30% of consumers in a recent survey felt that the quality of the products did not reflect the price of the blind box. Luxury brand Lanvin tested the concept during Chinese Valentine's Day in August, attracting 50,000 players within a month and pushing up Lanvin’s WeChat views five-fold. In 2020, Tommy Hilfiger collaborated with rapper Vava and singer Ma Boqian to create a limited edition blind box.

Uniqlo Parent Expands Automated-Warehouse Network into China: Uniqlo will open a new Shanghai-area facility to serve as a distribution hub for major coastal cities in China in August.  Since 2019, its offline and online inventories have been merged in China, meaning that online orders can be shipped from or picked up at a physical store. The automated warehouse will help fulfil online orders even more quickly. A similar initiative in Japan reduced staff by 90% as the global logistic staff shortage bites. 36% of clothes purchased in China are online.

Chinese Tourists

Chinese Consumers Make Move on Travel Plans for 2022: 78% of Chinese travellers are considering outbound trips in the new year, with 55% having a destination in mind and will go ahead once outbound travel is made possible, according to a December 2021 survey. An additional 17% even have a date in mind and are waiting for international restrictions to be lifted; while 5% have started to plan their itinerary. Respondents identified several factors that will inspire the return of their travel confidence, including the safe resumption of international travel for several months (60%), end of quarantine requirements both ways (58%), lifting of China’s restrictions on outbound group tours (41%), and resumption of destinations’ visa issuance (40%). Travellers in China’s second-tier cities are found to be more conservative. Japan was the destination of choice among Chinese respondents favoured by 17%, followed by Thailand and Australia, both on 8%.

 Finance

China is Pushing for Broader Use of its Digital Currency: China's Digital Yuan, or e-CNY, can now be used on WeChat Pay or Alipay and is accepted on JD.com. The currency is also available to visitors at the Beijing Olympics with ATM machines that can convert foreign currencies to the Digital Yuan.

 Luxury

What Luxury Brands Can Learn From Chinese Tea Chains: Tea chains like Hey Tea and Nayuki Tea offer examples of reaching maximum consumers via lower-key marketing methods including clever collaborations, real-life spokespeople, and thought-out nostalgia.