China 2016: INTRODUCTION | Overview
Value rises 13% despite slower economy and stock market slide
OPTIMISTIC CONSUMERS MOBILIZE TO PURSUE CHINESE DREAM
The BrandZTM Top 100 Most Valuable Chinese Brands 2016 increased 13 percent in value, a lower increase than the previous year, but a strong performance at a time when China’s economy slowed and the stock market fluctuated with extreme highs and lows. In this choppier period, brand strength became an even more critical success determinant.
A stock portfolio comprised of the BrandZ™ Top 100 Most Valuable Chinese Brands demonstrated the impact of brand strength. It significantly outperformed the MSCI China, a weighted index of Chinese stocks, increasing over time and protecting gains even during the stock market tumult, when the MSCI lost value. (Please see related story.)
In a historic inflection, the majority of value in the BrandZ™ China Top 100 shifted to market-driven from state-owned brands. The technology category, especially mobile Internet brands, rose in prominence, as the stimulus of China’s economic growth continued to rebalance from production to consumption.
For the first time, market-driven brands produced over half the total value of the BrandZ™ China Top 100, 51 percent, and five of the Top 10 brands were market-driven. Just two years ago only two of the Top 10 were market-driven.
Signaling enormous potential, brands ranked 11-to-100 grew over 30 percent in value, while the Top 10 grew only 3 percent. Currently, the Top 10 produce almost two-thirds of total value.
Similarly, nine of the 10 brands that joined the BrandZ™ China Top 100 for the first time were market-driven.In addition, Chinese brands achieved parity with multinational brands in Brand Power, the BrandZ™ measurement of brand equity. Brand Power parity means that Chinese and multinationals are in many ways equally competitive. And the trend favors Chinese brands. In 2010, multinationals scored 115 in Brand Power and Chinese brands scored 89. Today both score 100, which is average.
TECHNOLOGY AND MOBILE DRIVE VALUE
The rising value contribution of market-driven brands is also reflected in the relative proportion of value contributed by the 23 categories examined in the 2016 BrandZ™ China Top 100 ranking. Technology, a category comprised of market-driven brands, accounted for 27 percent of BrandZ™ China Top 100 value.
Two years ago, technology produced just 16 percent of value. At that time banks accounted for the largest segment of brand value, 30 percent. Banks now contribute less than a fifth. Two technology brands, online video provider Letv, and NetEase, the developer of Internet technology and games, registered the largest yearon-year brand value increases, 81 percent and 73 percent, respectively. Four technology brands were among brands that derived a major portion of revenue from overseas business: telecommunications giant Huawei; Lenovo, a world-leading computer and mobile technology company; smartphone maker ZTE; and Tencent, the Internet portal.
Three of the five market-driven brands in the Top 10 are in the technology category, including Huawei, which joined the BrandZ™ China Top 100 for the first time. The other technology brands in the Top 10 are Tencent, China’s most valuable brand, which rose 24 percent in brand value after almost doubling in value a year ago, and the search engine Baidu. In addition, online marketplace JD.com, a strong challenger to Alibaba, entered the ranking at number 15.
Meanwhile, Alibaba, number three in the BrandZ™ China Top 100, continued to expand its ecosystem with the acquisition of the video entertainment brand Youku Tudou, which joined the BrandZ™ China Top 100 for the first time, at number 52. BrandZ™ lists e-commerce brands, like JD.com and Alibaba, in the retail category, but these brands illustrate the impact of technology, and specifically mobile engagement with consumers.
Of China’s 668 million Internet users, 89 percent, 594 million users, accessed the Internet with a mobile device, as of June 2015, according to the China Internet Information Center (CNNIC). Brands increasingly rely on mobile to engage with Chinese consumers and assist their eforts to realize the Chinese Dream of a better life for themselves and their families. Consumers spend over two hours a day on their mobile devices, according to Millward Brown’s AdReaction study.
CONSUMERS OPTIMISTIC DESPITE TURBULENT MARKET
Despite the slower economy and the erratic stock market, Chinese consumers remained optimistic that they would achieve the Chinese Dream over the next decade, and they continued to spend both on necessities and even on big-ticket items. Some postponed buying a car or home, but few canceled those purchase plans.
Reflecting greater consumer buying power and sophistication, shopping patterns changed. The growth rate of FMCG sales declined as consumers shopped less frequently. They sought to save money on items viewed as commodities, while for other items, particularly in personal care and healthcare, consumers willingly paid a premium when justified.
Research by WPP revealed these consumer trends, which impacted the brands and categories examined in the BrandZ™ China Top 100 ranking. A BrandZ™ report investigated the attitudes and behaviors of the consumers who were also small investors in the China stock market. Kantar Worldpanel examined changing shopping patterns. (Please see consumer mood story.)
Consumers were also more skeptical and impatient with products of low quality or unacceptable safety standards. Corporate Reputation in China declined from a score of 101, around average, to a below average score of 97, as measured by RepZ, a BrandZ™ metric. The decline in Corporate Reputation touched both local Chinese brands and multinational brands operating in China. (Please see Corporate Reputation story.)
However, consumers sustained their optimism even as GDP growth slowed to 6.9 percent, the Shanghai Composite Index lost about a third of its value during the summer of 2015, and external forces also battered the economy, including the drop in crude oil prices, which ended 2015 at $37 a barrel.
The government reinforced consumer optimism. Following government intervention, the Shanghai Composite Index rebounded, and ended the year up over 12 percent, beating the S&P 500. Consumers also have faith in realization of the Chinese Dream of a more prosperous, equitable, and internationally respected nation, as first articulated by Xi Jinping three years ago.
GOVERNMENT INITIATIVES ADVANCE THE CHINESE DREAM
President Xi and the Chinese government introduced several domestic and international measures to advance the Chinese Dream. The Belt and Road initiative is intended to connect China with nearby and more distant trading partners. It references the Silk Road, the network of trading routes that laced China and the surrounding territories starting with the Han Dynasty around 2,000 years ago.
The government also accelerated development of a virtual network with Internet+, the plan to prepare China for economic growth in a post-industrial, connected world of mobile devices, big data, cloud computing and the Internet of Things. China’s three state-owned telecom providers accelerated the rollout of 4G and the move to 5G. The 2015 World Internet Conference, held in China, drew attention to China as an Internet technology leader.
In his speech at the World Internet Conference, and in his personal diplomacy, Xi has demonstrated determination to raise the international profile of China and facilitate trade. Since taking ofce in 2013, Xi has visited over 30 countries, in part to strengthen strategic commercial relationships with countries and regions, including India, Russia, the UK, the US, and Middle East.
To stimulate domestic consumption, the government introduced cross border e-commerce zones with lower tarifs on imported merchandise. Chinese consumers enjoyed lower online prices and faster delivery for imported goods. The first cross border e-commerce zone was established in March 2015, in Hangzhou. The government plans to set up zones in Shanghai, Guangzhou and 10 other cities.
In another step to stimulate economic growth, the government rescinded China’s one child policy. Larger families are expected to impact just about every category of products and services, including food and dairy, education, real estate, and baby care. The introduction of the baby care category in the BrandZ™ China Top 100 this year is a preview of the anticipated growth.
Government limitations on extravagant ofcial entertainment or gift giving, aimed at curtailing corruption, continued to impact certain categories, like alcohol. But many of the most successful brands have efectively repositioned and now reach a wider audience, through broader distribution channels with more modest pricing.