Chinese Consumption

Industrial and commercial sales in China are typically driven by the initial price. There is an increasing amount of corporate and government buyers who take the value of quality and the lifecycle cost of products under careful consideration. However, U.S. firms with premium offerings are still faced with pressure to decrease their prices in order to compete with lower-quality local offerings. 

The scale of the PRC consumer market make it both highly desirable and extremely competitive.  The negative impact of Covid restrictions in the PRC have caused a faltering of consumer demand in 2021 and 2022.

Below is a graph showcasing the increase in Chinese Consumer Expenditure from 2009 to 2020:

Source: CEIC (https://www.ceicdata.com/en/indicator/china/private-consumption-expenditure)

Guanxi

The concept of guanxi, which refers to having personal trust and a strong relationship in business, continues to be a key factor to successful partnerships.  Keep in mind this is a long-term, patient process.  Having a good general knowledge of China will help establish guanxi.  Familiarity with different aspects of its culture will aid in facilitating initial connections and help build strong foundations for business relationships.

Formal Introductions

Being introduced to a potential Chinese business partner through an intermediary will encourage business discussions because they generally prefer to do business with people they have a personal connection with. In other words, the higher social status your intermediary has, the more chances of success you will have.

Continuous Communication

A vital part of guanxi is the trust between two parties who conduct business, so constant communication, frequent on-site visits, and transparency all play considerable roles in successful partnerships.

Gift Giving

Gifts are well received by Chinese businesspeople and unquestionably reinforce trust and relationships. Gifts that are unique to the U.S. and/or have your company logo are usually the most appropriate.

Localization

New technologies, such as distribution route optimization, have helped get products to consumers faster and more efficiently. This has given U.S. companies more flexibility with their business models because of choice between working with business partners that specialize in local/regional coverage or, rather, ones that are capable of covering larger areas due to the technologies that enable them to do so.

While some of the management workforce in first-tier cities speak English, U.S. exporters should understand the limits of English language proficiency in the PRC. Chinese customers generally welcome U.S.-made products, but to ensure success, some key elements must be taken into account.

These key elements include:

• Manufacturer-provided localized customer support
• On-site training
• Local service centers
• Catalogs and manuals translated into Chinese

Logistics

Logistics in the PRC have become more efficient in recent years with increased transportation options and continued improvement to highway, air, railway, and port infrastructure. According to the Ministry of Transport of the People’s Republic of China, 73.8% of all goods travel by truck. However, this percentage is projected to decrease over time due to the increase in air travel availability.  The pandemic, and tensions in the bilateral relationship, have slowed transportation of goods in some instances.

New aircraft fleets will make the air transportation of goods an increasingly viable option, particularly higher-value products. Most major international logistics companies are now operating in China, although they face regulatory barriers that limit their ability to provide domestic services.

Marketing and Advertising

China is the world’s second-largest advertising market, with internet advertising composing most of the market. Internet ad spending reached $77 billion in 2020, up 14% from the previous year.  85% of internet advertising in 2020 was delivered through mobile devices, according to China Daily.

Advertising in China is heavily regulated, with national and provincial governments exercising control over the content. The Advertising Law of the People’s Republic of China (Advertising Law) was revised in 2015 to cover online advertising.

In order to avoid accidental legal issues by false advertising, especially related to health and property safety or on mobile apps and social media, many U.S. firms establish a representative office in China and partner with a local licensed Chinese company through joint ventures and other types of arrangements. Companies new to the market may gain valuable insight from prestigious advertising firms on crafting an effective advertising strategy directed to the Chinese consumer’s preferences.

Trade Events

• Cosmoprof Asia—Hong Kong
• China Beauty Expo—Shanghai
• China International Consumer Products Expo—Hailkou