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How to Operate Your China Business Remotely during the Coronavirus Outbreak

By Adam Livermore and Thomas Zhang, Dezan Shira & Associates 

With the current outbreak of coronavirus throughout China, businesses are having to consider how to effectively utilize their employees under the situation where physical contact between individuals is being restricted to a very high degree. The gathering of large numbers of staff in offices should be avoided as much as possible, both in terms of infection risks, as well as because many staff have to rely on heavily restricted public transport to reach the office. It is in public environments where the risk of infection is highest. Your business needs to mitigate against having staff travel, if at all possible, during this time.

Similarly, other traditional methods of business operation like utilization of express mail for delivery of important documents cannot function under current situations. Such services have been shut down because both the physical documents themselves and those workers carrying such documents can be a cause of potential contamination. Sending staff to supplier factories to implement quality assurance work also becomes impractical under the restrictions put in place.

In short, most options for the standard operation of businesses using traditional methodologies are temporarily closed. The options that remain open rely on “remote” operations. These methodologies only require the transmission of data through cables / WiFi – something that at least the current coronavirus cannot take advantage of. There are of course other dangers and problems relating to over-reliance on digital communications, particularly for organizations that have not put in place a robust Business Continuity Plan (BCP).

In this article, we outline some options and advice that specifically relate to the Chinese business environment. Considerations should focus on the short-term situation (the coming two to three weeks when employees may be restricted to their apartments while the incubation period for this virus passes) and the medium-term situation.

For the forthcoming weeks, companies will need to rely on the corporate digital infrastructure that they have already put in place and supplement it with the other non-corporate infrastructure that exists in China, while being aware of the limitations and weaknesses of these public channels.

For well-prepared companies, remote working need not be too much of a hindrance in the short-term. To take our firm as an example, our employees have laptops and are working from home. The company utilizes the MS O365 platform quite comprehensively, and our employees can maintain constant contact with each other via this corporate platform. All the documents our employees need for the implementation of their work are available to them on Sharepoint Online and can be shared as necessary. Our ERP and CRM are remotely accessible. Data transmitted between company computers are being utilized at home and our servers are encrypted prior to transmission. There is a slowdown in the transmission of data, because employees have to utilize their apartment internet connections, but this does not have a serious effect. For example, today we held a conference call on MS Teams between nine people in various locations within China (including one staff member in Hubei Province). While the video functionality was weak because of bandwidth issues, audio functionality was sufficient.

But for less well-prepared companies, some problems can be predicted. If your company is not utilizing a robust corporate tool, such as MS Teams or Skype for Business (also known as Lync), intra-company communications may have to rely on traditional telephone, corporate email, or less secure public channels, such as WeChat. If your corporate email server is hosted in your company’s HQ abroad, you may find that employees working from home are struggling to send or receive emails with large attachments. This is a common problem seen when transmitting data into and out of mainland China due to the congestion at international exits. Many companies circumnavigate this problem by setting up VPN-like structures between their China offices and overseas offices; however, when employees are working from home – these contingency plans no longer function effectively.

For client-facing or supplier-facing staff, the impact on operations because of the inability of these employee to physically meet their customers or vendors needs to be mitigated. If your company has robust corporate tools, such as MS O365 at its immediate disposal, you may consider inviting your clients / suppliers to communicate with you through those channels as an “external user”. If you don’t have such channels immediately at your disposal, maybe they do, and you can organize for your key staff to be added into their networks. Such coordination requires time to implement so please arrange for some lead-time for this to be facilitated.

We can assume that there will be some acute short-term problems for companies with operations in China.  Here are some simple guidelines that can be followed to mitigate the effects:

  • Ensure your IT staff (both overseas and in China) are available to deal with connectivity and other related issues that arise. With employees working remotely, more problems can be expected to arise. Consider paying IT resources extra to ensure they are working during the holiday period in preparation for most of your staff to commence working remotely after the end of the extended Chinese New Year.
  • If you have corporate communication tools that can be used effectively in China, ensure your China-based staff have sufficient guidance to use them and know that they need to be logged-on. In our experience, many companies that have these tools don’t inform their China-based staff about their full capabilities. Consider requiring employees to download the apps (Teams / Sharepoint Online etc.) onto their mobile phones as well.
  • Make sure employees know that any costs incurred from corporate communications, which rely on traditional mobile telephone will be reimbursed by the company during this period.
  • If you have emails with large attachments, there is a good possibility that receipt may be delayed for employees in China especially if your corporate email server is located overseas. Consider separating the email message from the attachment. Try to reduce the size of the attachments or find other channels for delivery of such attachments. Note that many services, such as Dropbox etc. are blocked in mainland China.
  • If your employees are forced to rely on non-corporate channels, such as WeChat to communicate and share files etc., ensure you send out some guidance to them on what kind of information may not be shared over such channels. This is an area where your internal legal resources at HQ might be required to provide input. For instance, you may have contracts in place with certain clients or vendors that restrict the sharing of certain information over non-corporate channels. Efficiency is one key consideration for your organization in the coming weeks, but data protection should also be ensured. Without such guidance, you may find that your China-based employees are sharing all sorts of documents and information via their personal WeChat accounts.
  • Setup a clear and regular communication schedule for senior resources during the coming weeks. This is particularly important when people are working remotely. Most modern conference call platforms include not only an online attendance option where full functionality can be enjoyed during meetings, but also a “dial-in” option for those participants who simply want voice functionality through their mobile phones. This functionality is recommended for employees that might be facing limited bandwidth issues from their residential addresses.

These above measures can at least enable your China-based employees to continue working with a reasonable degree of efficiency and security while the situation stabilizes. As that happens, your company should be considering how to deal with the medium-term impact. This is something that can’t be rushed. Business Continuity Plans need to be designed carefully before they are implemented, taking into account the nature of your business, its global requirements, as well as China-specific considerations. Once designed, appropriate hardware needs to be procured, software installed, and data migrated carefully. The process takes months, requiring close liaison between your operations teams in China (and elsewhere) and your IT resources.

Solutions should be put in place as soon as possible. This current situation should be a wake-up call to your organization that such technology is becoming increasingly important. It is not only critical in “crisis” situations, such as the current coronavirus outbreak; digital communication / sharing tools are increasingly being considered as a replacement to the traditional office environment. For those organizations that are “ahead of the game” in this respect, this current crisis should actually provide them with a kind of competitive advantage for a period of time.

For those that find themselves “behind the game”, maybe it is time to make the required investment. Dezan Shira & Associates can advise and help implement robust solutions with our IT Infrastructure Engineering and IT Consulting teams. Please contact IT@dezshira.com to discuss setting up such systems for your company.

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Message of support for China’s battling with coronavirus

To our friends in Wuhan,

It is with shock and sadness that we have followed the spread of coronavirus from Wuhan through Hubei province and across China. Now that the death toll has passed 400, we also share the sorrow of those who have lost loved ones.

We know New Zealanders in Wuhan are anxious to return home. Air New Zealand charter flight is evacuating New Zealanders from Wuhan and arriving in Auckland this afternoon.  Following NZ’s travel ban for foreign nationals travelling from China,  Air New Zealand has also suspended their Auckland-Shanghai service for the next two months.

In reducing contacts between New Zealand and China, we of course hope to protect New Zealanders against the risk of possible infection. However, we need to make sure that we do not also run the risk of damaging the important cultural and economic links that connect us.

New Zealanders have already experienced some of the negative effects of trade barriers in the global economy. Despite the announcement of a much publicised ‘phase one’ of an economic and trade agreement between the United States and China, trade tensions that have built between these two countries over recent years may take just as long to ease.

While we minimise the risk of infection via air flights between New Zealand and China, we must work to maintain open and friendly relations. We must also look for ways to express our understanding and concern as China battles with health challenges posed by the spread of coronavirus among its people.

Chris Lipscombe

Chairperson of NZCCC

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NZ e-commerce group supports Belt and Road, commits to international collaboration

The New Zealand China Cross-border Electronic Commerce Foundation (NZCCC) has become one of six international agencies agreeing to collaborate on Belt and Road initiatives.

The initiatives, reflecting shared values, communication, and international exchanges, were developed by the EU-China Joint Innovation Center (EU-CJIC) based in Beijing, China and affirmed by organisations from the Benelux countries (Belgium, the Netherlands, and Luxembourg), Greece, Spain, New Zealand, and China at a recent conference in Chengdu.

The multi-agency commitment to international collaboration was one of the highlights of the Belt and Road Conference for Chambers of Commerce and Associations held in Chengdu over two days 14–15 November. The conference was organised by EU-CJIC and sponsored by Chengdu Municipal Government and National Business Daily. NZCCC President Chris Lipscombe delivered a keynote address at the conference.

Chris Lipscombe said that, following the conclusion of the NZ-China FTA upgrade negotiations, the time was right for exploring e-commerce partnerships in Chengdu.

‘Trade volumes moving through Chengdu have doubled every year for the past three years. Why wouldn’t we want our businesses to be part of that growth?’

Chengdu was approved as a Cross-border E-commerce Comprehensive Pilot Zone in 2016. In 2018, Chengdu’s cross border e-commerce trade exceeded RMB11 billion (NZD2.44 billion). Some New Zealand e-commerce companies are already exporting to China via Chengdu.

NZCCC is a New Zealand not-for-profit trust that promotes and informs local businesses about cross-border electronic commerce opportunities with China. NZCCC organises seminars, workshops and events to promote cross-border e-commerce with China, updates exporters on fast-changing government policies and regulations, and facilitates access to skills, resources as required.

Click here to see the details of the ‘Belt and Road’ International Organization Alliance- Chengdu Initiatives.

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Amazon opens pop-up store on China’s Pinduoduo until year-end

Reuters
Amazon.com on Monday (25th November 2019)  said it will open a pop-up store on Chinese e-commerce platform Pinduoduo Inc that will run until the end of December and carry a selection of about 1,000 products from overseas.

The move, which was initially reported by Reuters on Sunday, points to how the U.S. firm’s China strategy is evolving after it decided earlier this year to stop operating a marketplace in the country for domestic-selling merchants.

In April, it said it would instead increase its focus on selling goods from abroad to Chinese buyers and on its other businesses in the country like cloud services.

Amazon had found it difficult to compete with entrenched, home-grown players such as Alibaba Group Holding Ltd’s Tmall and its rival marketplace from JD.com Inc. In a sign of Tmall’s dominance, Amazon opened an online store on the platform in 2015.

Its decision to open a store on Pinduoduo, however, points to how the four-year-old startup has disrupted Alibaba and JD.com’s dominance of China’s e-commerce market through its popularity with China’s rural residents.

Competition between the three firms has heated up in recent months and Pinduoduo, which woos customers with deep discounts and group-buying deals, suffered an $11 billion slump in value last week after it posted a much wider-than-expected quarterly loss that stemmed from efforts to fight rivals with heavy subsidies.

“The Amazon Global Store pop-up store on Pinduoduo provides customers with a curated selection of about 1,000 overseas products with competitive prices, authenticity guarantee, and convenient shipping,” an Amazon spokeswoman said in a statement.

“We look forward to enabling customers to enjoy cross-border shopping through this store, in addition to more deals and tens of millions of products available on z.cn,” she said, referring to the website Amazon.cn.

A spokeswoman for Pinduoduo said that the initiative was part of an aim to “offer equal opportunities for our users to access global products”.

“We are committed to working with our partners as part of our global outreach to offer the best value-for-money products worldwide to our users,” she said.

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Teens are shunning WeChat, showing shifting tastes in Chinese social media

By South China Morning Post

Only 15% of teenagers make public posts on the Tencent-owned platform.

Wang Jiaying spends three hours on WeChat every day and knows the minutiae of her friend’s lives through their online posts. But the 45-year-old stay-at-home mom knows little about what her 18-year-old daughter is up to because the first-year university undergraduate seldom posts to the Tencent-owned social media platform.

“I have never shared anything on WeChat,” said the daughter, Xue Shuoyi, who is living away from her home in Shenzhen and attending university in Guangzhou. “For me, it is becoming a platform for my parents and professors, the old generation to sort of keep an eye on the young people. That’s the main reason why most of my friends and I do not post any important thing there.”

Xue is hardly a unique case. Only 15% of people born after 2000 – the oldest of the cohort turn 19 this year – post every day on WeChat, according to JiGuang, a research firm. Compare that to 57% for people born in the 1960s, who would be in their fifties, who take to the platform daily to share about their lives.

By comparison, ByteDance’s Douyin short-video app counts 51% of its users born after 1995, while the proportion of users under 21 years of age increased 13% for QQ.

While WeChat allows users to select who they want share their posts with, the effort of grouping and then setting different permissions for each social circle is proving too much for an increasing number of mostly younger users.

China’s so-called Generation Z are instead migrating to other social media apps less popular with older adults, such as Douyin, the short-video app, or ironically, QQ, the grandaddy of messaging apps that was conceived originally for the personal computer era but has undergone a reincarnation of sorts to become a popular messaging tool for adolescents.

“Short videos have occupied more time of users and then they limited time on WeChat,” said Dingding Zhang, former head of Beijing-based research firm Sootoo Institute and now an independent internet industry commentator. “Young people prefer niche communication tools and the apps that their parents do not use to seek privacy and similar interests.”

WeChat did not respond to a request for comment.

The backlash against oversharing is part of a global trend. In 2018, more than three million people under 25 either quit or stopped regular use of Facebook, which has 2 billion registered users worldwide.

After WeChat released a function enabling users to restrict the visibility of their posts to within three days of the upload, more than 100 million users, or about a tenth of total users, used that setting as a default.

Retaining young users is crucial for WeChat, the dominant super-app in China that has become indispensable for everything from paying bills to booking hospital appointments.

Tencent needs to keep users on the WeChat platform so that it can cross-sell other services to its one billion daily active users. The growing question is whether WeChat has become too big for its own good, opening opportunities for more nimble providers to steal market share in their niches.

To be sure, WeChat is a formidable competitor. A trio of messaging challengers tried to upstage the incumbent last year and died a quick death as users found little incentive to leave WeChat’s ecosystem of more than two million mini-programs or apps-within-app for an unproven alternative.

WeChat also starves its competitors of traffic by blocking links that would direct users to these fledgling service providers, a practice that had competitors including ByteDance accuse the internet giant of monopolistic bullying, which Tencent has dismissed.

WeChat’s creator, Allen Zhang Xiaolong, described WeChat’s news feed-style function -Moments- as “an open square.” “When you post anything it is like talking aloud on the square,” Zhang said at the annual WeChat conference for developers and partners in Guangzhou in January. “You’ll have great pressure when you find many people on the square can hear you … and the pressure grows with the number of friends you have on WeChat.”

Qu Yao, 22, is finding it hard to juggle between her overlapping social and professional networks now that she has graduated and began working.

“When I want to share my personal thoughts and sometimes complain there, I have to block my family members, if not, they would nag about me,” said Qu, who lives in Beijing and works in an education institution. But if she wants to grumble about work, she has to block her colleagues and managers on WeChat, or risk torpedoing her career with an ill-considered post. “It is very annoying to have to group people and think about who can see my posts … Over time, I just quit sharing.”

Qu stopped sharing completely on WeChat after posting that she had ended her relationship after a quarrel with her boyfriend. While the two eventually made up, she was exhausted by having to explain to the army of parents, relatives and friends who swarmed her after the first post.

For Wang Jingyi, 14, a middle school student, posting to WeChat has invited unwelcome scrutiny from her parents. She had posted that she loves Hu Yitian, a popular Chinese actor.

“It annoyed me when my father commented on the post and said that I should study hard and not chase film stars,” said the teenager, who lives in Zhuji in Zhejiang province. “Our classmates have a WeChat group, but we did not talk for over a month.”

Ironically for a social media platform that aims to connect, many older adults are finding isolation from their children instead.

“From WeChat, I can know almost everything, except about my daughter,” said Wang, the 45-year-old stay-at-home mom. “I hope she can share her college life with me.”

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Spotlight: E-commerce a new growth engine for New Zealand-China trade

by Li Huizi, Lu Huaiqian

WELLINGTON, April 24 (Xinhua) — More and more New Zealand brands are eyeing China’s online market, but instead of fighting alone, they now do it collectively as a consortium and are promoted with the help of the government.

With the launch of the New Zealand Country Flagship Store last Wednesday on Tmall Fresh under China’s e-commerce giant Alibaba, an array of high-quality kiwi food products have been put at the fingertips of Chinese consumers and sent to their dinner tables from a country 7,000 miles away.

With a few taps on the Tmall mobile homepage, Chinese consumers, whose appetite for high-end imported food products is booming with the rise of discretionary income, can browse and select from an assortment of New Zealand food products.

The flagship store is a joint venture between Tmall Fresh and the New Zealand Food Basket Ltd., which comprises of 18 of the country’s most-reputable food and beverage brands.

Nicola O’Rourke, chairperson of the consortium, said the opening of the flagship store offers these brands a direct connection to Chinese consumers.

“It will significantly improve our reach and shorten the supply chain in a way that each brand couldn’t achieve alone,” she said.

According to New Zealand Food Basket, an initial batch of nine brands, including Fiordland Lobster, Vogel’s, Rockit and Oha Honey, will begin sales through the online store last week, with another batch of nine to begin sales on Tmall in June.

The discussion about opening a dedicated New Zealand flagship store on Tmall Fresh began around a year ago with the New Zealand Trade and Enterprise, said Maggie Zhou, Alibaba’s managing director for Australia and New Zealand, adding that talks were based on a shared vision of boosting Chinese consumers’ awareness of premium food products from New Zealand.

Moreover, by increasing the brands’ recognition in China, it will help participating New Zealand companies gain greater influence over the positioning, pricing and distribution of their products in this key market, Zhou said.

“It’s no secret that even big, successful New Zealand companies can struggle to get brand recognition on Chinese e-commerce platforms,” said Lewis Road Creamery Founder Peter Cullinane, adding, “A collective approach, with Alibaba’s backing, is a huge opportunity.”

As China’s biggest e-commerce operator with nearly 700 million monthly active users, Alibaba’s online marketplaces are often foreign brands’ preferred gateway to China.

The result of a targeted-promotion test to predict the success of the New Zealand Country Flagship Store showed Tmall Fresh received orders for 1,200 cases of New Zealand apples in two minutes, six times more than normal monthly sales of the same product, according to Alibaba.

Alibaba is the world’s largest retail e-commerce company. In the year ending Sept. 30, 2018, 636 million consumers purchased products and services through Alibaba Group’s China retail marketplaces, the company’s statistics showed.

Sheng Pang, CEO of Juplus Digital, a digital marketing agency based in Shanghai, said digital continues to be the most effective marketing channel in China, as internet is where most Chinese audiences find or engage with brands.

“It’s by far the most effective way to drive brand growth in China,” Sheng told the China Digital Marketing Conference held in Christchurch earlier this month.

He noted that despite warnings of a China slowdown, 79 percent of brands surveyed plan to increase digital ad spending in China in 2019, and digital is relatively more efficient and measurable than traditional media channels.

China has been New Zealand’s largest trading partner since 2013. According to the Chinese government, two-way trade witnessed a 14-percent increase on a year-on-year basis.

New Zealand is the first developed Western economy to sign a Memorandum of Understanding on the Belt and Road Initiative with Beijing. This week, a business delegation led by New Zealand Trade Minister David Parker is attending the second Belt and Road Forum for International Cooperation in Beijing.

INCREASING PRESENCE OF ALIPAY IN NEW ZEALAND

Besides the collective staging of famous New Zealand brands on Tmall, about 3,300 kiwi businesses have joined a Christchurch Airport project to be part of Alipay, the mobile payment and lifestyle platform under Alibaba, since the cooperation was launched two years ago.

Alipay is a smartphone app that can be used to pay for everything from street food to luxury merchandise all over the world, and is a valuable marketing tool for the businesses using the platform.

By taking up Alipay initiative, kiwi businesses can better engage with the large numbers of Chinese travelers visiting New Zealand, along with the 170,000 Chinese residents living in New Zealand, according to the Christchurch Airport who runs a “South” initiative in partnership with merchants and tourism and economic development agencies around New Zealand.

“Alipay is a great example of Chinese ingenuity. Users can look up places to stay or eat and book activities before they leave China, businesses can offer them special discounts. While they’re here users receive notifications on their smartphone when they’re near any business having special offers to Alipay users,” said Christchurch Airport’s Director of the Alibaba Project Ken Freer.

The cooperation is to make it easier for Chinese visitors to book services and shop while they are in New Zealand, then keep ordering kiwi-made items after they return home, Freer said, adding the focus of the partnership is to create a better experience for Chinese visitors in New Zealand and to use Alibaba apps to create, capture and add value for New Zealand’s small and regional businesses, using tourism as the basis for the first interaction.

Launched in 2004, Alipay currently serves over 1 billion users with its local e-wallets partners. Over the years, Alipay has evolved from a digital wallet to a lifestyle enabler. Users can hail a taxi, book a hotel, buy movie tickets, pay utility bills, make appointments with doctors, or purchase wealth management products directly from within the app. Alipay’s in-store payment service covers over 50 markets across the world, and tax reimbursement via Alipay is supported in 35 markets.

Alipay works with over 250 overseas financial institutions and payment solution providers to enable cross-border payments for Chinese traveling overseas and overseas customers who purchase products from Chinese e-commerce sites. Alipay currently supports 27 currencies.

A 2018 Nielson report on mobile payment trends for Chinese tourists found that 32 percent of overseas transactions by Chinese tourists are made via mobile, surpassing cash for the first time. It also found that of the 1,244 overseas merchants surveyed, nearly 60 percent of those that adopted Alipay saw a subsequent growth in both foot traffic and revenue.

About 342,000 Chinese holidaymakers came to New Zealand in 2018 and 54 percent of them were free independent travelers, meaning they organized their own holidays, statistics show.

“Christchurch Airport, and more broadly the South Island of New Zealand, are positioning themselves for significant growth that will come at the hands of the lucrative Chinese tourist market,” said Country Manager of Alipay for Australia and New Zealand George Lawson.

By enabling Alipay, it’s possible to break down payment barriers and create a seamless shopping experience, Lawson said.

Freer of Christchurch Airport said the partnership initiatives are designed to both grow the South Island’s economy and improve the experience Chinese visitors have when they come to New Zealand.

As well as Alipay, Christchurch Airport is working to boost New Zealand’s presence on Alibaba’s online travel agency, Fliggy.

Last week, a flagship store promoting tourism resources in partnership with the South Island’s 13 regional tourism organizations was launched at the Fliggy online platform, which sells tickets, tours, and other tourism products directly to Chinese travelers on a large discount.

“In the third quarter this year, our focus will be on creating a flagship store on Alibaba’s Tmall Global, enabling kiwi businesses to sell their products directly to Chinese consumers,” Freer said, referring to a wider range of New Zealand products in addition to fresh kiwi food being sold at the Tmall Fresh store run by the New Zealand Food Basket Ltd.

“This is about using the power of the Internet to make it easier for New Zealand businesses, of all sizes, to trade internationally,” he said.

Christchurch Airport is the international gateway to the South Island and welcomes almost seven million passengers a year. The airport is New Zealand’s fastest growing entry point for Chinese visitors and welcomes a daily service to and from China’s southern city of Guangzhou with China Southern Airlines.

China is New Zealand’s second-largest international tourism market. Around 460,000 Chinese visitors came to New Zealand over the past year.

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Chinese e-commerce giant JD.com partners with horticulture firms Zespri and Rockit Global

By Aimee Shaw at New Zealand Herald

Alibaba rival JD.com has partnered with two New Zealand horticulture firms.

The Chinese e-commerce giant is gearing up to deliver the first harvests of apples and kiwifruit of the year from Zespri and Rockit Global to Chinese consumers through its online and social media shopping platform.

Havelock North-based apple grower Rockit Global has launched a flagship store on JD.com and Zespri, which first set up a flagship store on the platform in 2017, has penned a deal to supply produce to the retailer’s offline high-tech supermarket chain 7Fresh, which has a network of 10 stores.

JD.com plans to expand that number significantly, and hopes to have around 1000 7Fresh stores open throughout China within five years. Similarly like Alibaba with its Hema Fresh chain of supermarkets, the stores leverage technology to optimise the bricks and mortar experience.

Rockit Global chief executive Austin Mortimer said the partnership with JD.com came about through a representative it has on the ground in China.

“One of the key benefits of being on [e-commerce platforms] is with the e-commerce customer you typically know who they are, what demographic they belong to, where they live and you can see if they are a re-purchaser or first time customer and you can get feedback from them,” Mortimer said.

Data captured from e-commerce consumers influenced the company’s marketing decisions, he said.

“One of our key purchasers is a millennial mum, and we target our marketing message to resonate with that demographic.”

As a result of growing demand from Chinese consumers, Rockit Global will continue to increase its growing volumes by between 30 and 40 per cent each year over the next four years.

“We have a huge unsatisfied demand from China.”

The company will send around 80 40-foot (12m) containers of produce to China this year. Close to 50 per cent of all produce it grows is sent to China, compared to about 2 per cent of its crop which remains in New Zealand.

Rockit Global also has a partnership with Alibaba and has had a flagship store on its Tmall and Tmall Fresh platforms. It was recently selected to be part of Alibaba’s first Country Flagship Store on the platform, which features eighteen local premium food and beverage brands, along with Pic’s and bread brand Vogel’s.

Zespri will be part of the second wave of brands to be put included in the New Zealand flagship store on the marketplace in June.

Xiaozhou Zhou, head of JD.com’s fresh food division at 7Fresh, said the company was pleased to further its partnerships with Zespri and Rockit Global.

“We can’t wait to bring more of these healthy and naturally delicious New Zealand fruits to [Chinese consumers],” Zhou said.

Chinese consumers’ appetite for New Zealand produce is growing. New Zealand fruit exports to China exceeded $600 million last year and sales of fresh produce from New Zealand on JD.com increased by more than 80 per cent.

JD.com sources produce from more than 50 countries and regions globally with more than 110,000 fresh imported products on its platform. Its delivery network covers 300 cities spread throughout China.

JD.com is one of the world’s largest internet companies, it generated $99.8 billion in revenue in the 2018 financial year and has around 300 million active users on its platform.

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China Brief: The state of the economy

Welcome to the first edition of China Brief. In this series, linked to our monthly podcast, McKinsey on China, our China-based partners share the latest insights from this dynamic market.

Pundits have been buzzing in recent months about the slowdown of China’s economic juggernaut. There is evident cooling of GDP growth, especially since the middle of last year, and sales of cars and smartphones have been dropping steeply. Some high-profile companies are flashing warnings of plunging sales and some even of job cuts.

Yet, despite the doom and gloom China continues to rack up one of the most enviable growth rates in the world, adding the equivalent of “another Australia” each year. Consumers continue to trade up to more expensive premium goods and some companies are registering record sales. So the gloom is not uniform. What do the facts tell us about what to expect in 2019? In this first edition of China Brief, we take a quick look at some of the key drivers shaping China’s economy today.

1. Growth is slowing—but China is still adding the equivalent of Australia every year

Economic activity weakened in 2018: Official statistics placed real GDP growth at 6.6 percent in 2018, the lowest rate since 1990. While some observers may challenge the precision of the official numbers, this much is true: The Chinese economy is slowing. The McKinsey Global Institute’s Economic Activity Index, which tracks the performance of the Chinese economy by looking at a basket of 57 different indicators ranging from retail and property sales to electricity consumption, echoes the dipping trend line in China’s official GDP numbers (Exhibit 1).

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The Economic Activity Index takes a broad set of factors into account and has fluctuated more than raw GDP over the last decade, rising higher than GDP in the double-digit period from 2005-2008, and then again from 2010-13. The Index has been lower than GDP for the last four years, and currently hovers at levels similar to 2015-16, when there were similar fears of a hard landing for China’s high growth economy.

The economy is expected to continue to soften in 2019, with consensus forecasts expecting GDP growth to land somewhere between 6.0 and 6.2 percent this year.

Yes, China’s economic engine is cooling down, yet it continues to rack up one of the fastest rates of economic growth in the world. Given its enormous scale, this translates into substantial additions in absolute terms: This year, China will add the equivalent of the entire Australian economy to its GDP.

For many companies, the real question is whether they can adapt quickly enough to slower growth, or whether their strategies, balance sheets, and operations require higher growth to thrive, or even survive. For entrepreneurs who took growth rates and share-price valuations for granted, and who, for instance, pledged recently listed shares to secure funding for visionary projects, the slowdown risks tipping this precarious balance into a real corporate disruption.

2. The consumer story is still strong, but also changing

The raft of negative news from multinational and domestic companies in China that have seen their sales drop in recent months has triggered a wave of concern over the strength of China’s consumer engine. Despite the headlines of plunging sales by Apple and other multinational companies in recent months, China continues to be the world’s best consumer story.

According to consensus forecasts, Chinese consumption is expected to grow by about $6 trillion from today through 2030. This enormous sum is equivalent to the combined consumption growth expected in the US and Western Europe over the same period, double that of India, and ASEAN economies together.

China’s economic rebalancing toward consumption and services continued; they contributed about 76 percent and 60 percent of GDP growth, respectively. Growth in retail sales edged lower to 9.0 percent in 2018 from 10.2 percent in 2017, reflecting weaker auto sales. Real per capita disposable income was 6.5 percent in 2018, in line with GDP growth, and China created 13.6 million new urban jobs in 2018, exceeding the 11 million target.

Beneath the slowdown lie changes in the patterns of consumption. Sharper drops in sales of individual companies, or even of sales in categories like autos or cosmetics, do not tell the whole story. Online sales, for instance, grew at a strong 24 percent. For the first time in China, we also see a new segment of customers trading down. The success of Pinduoduo, a lower segment discounter appealing to customers explicitly trading down—and which has disrupted China’s e-commerce duopoly (an attacker of the attackers)—indicates a maturing and changing market.

First-tier city consumption remains very robust, while lower-tier cities soften: Could this simply reflect the larger “wealth buffer”, higher real-estate values, and affluence bolstering the confidence of wealthy consumers yet to feel the slowdown already apparent lower down the income scale? The next few months will tell.

3. The credit crunch is real

The last ten years of stimulus and deleveraging is a story of “eight-plus-two.” Eight years of government stimulus after the global financial crisis, followed by a couple years of conscious deleveraging and credit reduction.

The crisis kicked off a round of stimulus and financial liberalization measures that lasted for the next seven to eight years. This led to the rapid growth of shadow banking and informal lending and spawned a range of experiments in debt issuance. China’s debt-to-GDP ratio soared from 120 percent in 2007 to 253 percent in Q2 2018 (higher than the ratios in Germany and the United States).

However, recently the efficacy of government stimulus has been waning. Each renminbi of economic stimulus that the government pumped into the economy delivered less in actual GDP growth than in the past. The rise in ICOR, the Incremental Capital-Output Ratio—the amount of money the government needs to put in to yield a unit of growth—meant that economic stimulus was, in other words, getting more expensive.

Years of priming the credit pump also created asset bubbles in the economy sustained through excess liquidity. Real estate prices have continued their upward climb even as nominal GDP growth has now settled into single-digit territory.

Since 2016, regulators have acknowledged these challenges and emphasized deleveraging. The government’s crack-down on shadow banking and P2P lending, including arrests of executives, is having an additional dampening effect on the flow of credit. This has led to a significant drop in credit availability over the past 24 months. Growth in outstanding credit fell from 13 percent in 2017 to 7 percent in 2018, below nominal GDP growth of 9.7 percent. This reflects a marked contraction in shadow banking financing that grew by 13 percent in 2017, but declined by 7 percent in 2018 (Exhibit 2).

 

Exhibit 2

 

It takes a lot to slow the Chinese economy, but the impact of the credit squeeze has started to be felt, particularly among smaller enterprises in the private sector, and among companies in tier three and four cities. And, since the Chinese economy is increasingly dependent on consumption and services, a squeeze on companies ultimately ripples through to incomes, consumption, and overall growth.

A lot of recent news reports have led many to believe that the trade spat between the US and China is leading to the current economic slowdown; politicians have also used this as a convenient explanation. But China’s GDP is far less dependent on trade today than what some would have us believe. In fact, China’s net trade surplus was only 1.7 percent of GDP in 2017, down from 8 percent in 2008. The effect may be more indirect, impacting consumer confidence and causing private sector companies to hold off on making decisions to invest in more manufacturing capacity.

Regulators are now figuring out ways to re-open the credit spigots, but they are moving more cautiously, and are applying levers in a more targeted way than they did during the eight years of credit expansion. For example, the PBOC (People’s Bank of China) has recently announced measures to boost bank liquidity through perpetual bond issuance. This is intended to allow banks to issue bonds and recapitalize, and lend more, but under the condition that the target of lending achieves certain minimum credit standards.

Ultimately, China will have to chart a course between providing more stimulus (with the resulting bubbles and externalities), pushing through structural reforms of the state-owned sector (which may be politically sensitive), or accepting slower overall growth rates. These policy choices may be influenced as much by political and geopolitical factors as economic considerations. The next few months will be indicative of which course we are on, as well as whether we are in a longer or shorter period of economic slowdown.

4. Acquisition opportunities are opening up for fast movers

The government’s squeeze on credit put pressure on private sector liquidity, and the number of bond defaults by private firms rose from 42 in 2017 to 147 in 2018. With the intense credit pressure being applied particularly to mid-sized private sector companies, we expect there could be a considerable round of consolidation on the horizon.

In the prior periods of credit tightening, industry consolidation favored the state-owned enterprises over their less-well-funded private competitors. Today a deeper capital market and the massive growth of private capital in China might change this dynamic somewhat. The question for many private companies remains how much of their “powder” is still dry, or have they leveraged themselves up, pegging their balance sheets to unsustainably higher growth rates and valuation assumptions.

This, combined with a potentially increased openness to foreign direct investment across several sectors being discussed in broader trade-related negotiations, could create a window of opportunity for multinationals, with scale and significance in China, and the willingness to make bold moves, to acquire domestic competitors caught in the credit squeeze.

Ironically, just as headlines about China become less exuberant, now might be precisely the time to more purposefully step up presence and engagement.

To listen to a podcast conversation on this topic with Gordon Orr, former Asia chairman of McKinsey, and Jonathan Woetzel, senior partner and Asia director of the McKinsey Global Institute, please click here.

About the author(s)

Nick Leung is a senior partner in McKinsey’s Hong Kong office.

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How young Chinese consumers are reshaping global luxury

Global brands face new opportunities as luxury represents a powerful form of social capital for young Chinese consumers.

Set to be the engine of global spending on high-end shoes, bags, fashion, jewelry, and watches, China’s affluent upper-middle class presents an enticing prospect for the world’s designer brands. In fact, Chinese luxury spending is expected to double to 1.2 trillion renminbi by 2025, delivering 65 percent of growth in the market globally (Exhibit 1).

Imbued with the confidence to spend, underpinned by a lifetime watching new skyscrapers rise in tandem with their family incomes, young Chinese consumers in particular are eager to tap luxury as a means of social advancement and self-differentiation. This is so even in the context of the sharpest slowdown in China’s economy since the financial crisis, along with decreased demand for discretionary items such as new cars and mobile phones.

At the high end, negative impacts are evident in Hong Kong, where jewelry sales and imports of Swiss watches have slowed, but even in these categories demand remains relatively strong from mainland consumers. Indeed, the luxury segment remains robust, amid a continuation of a trend in premiumization that has seen sales of premium cars and prestige cosmetics, outperform the wider market.

Young Chinese consumers view ownership and affiliation with designer brands as a form of social capital, not just something to wear, but a lifestyle choice that marks them as part of a distinct and exclusive community. That community is constantly being refreshed via a glittering stream of online content, keeping pace with which demands consumers are “always on,” immersed and engaged in a digital world that is nothing short of a way of life.

Research for the China luxury report 2019 shows that the majority of these young consumers are fresh to market (Exhibit 2), presenting both a tantalizing opportunity and an implicit imperative for brands to stay current, or risk losing out to more digitally savvy rivals.

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What’s more, while some fashion houses excel at various aspects of online marketing and commerce, even China’s most popular luxury brands have yet to establish a comprehensive presence across the digital ecosystem. Consequently, opportunity abounds as brands seek to engage the attention of consumers in the world’s most lucrative and fastest-growing luxury market. In this report, we focus on five takeaways for brands to consider.

  1. Chinese consumers are set to contribute almost two-thirds of global growth in luxury spending.
  2. The new luxury consumers—the post-’80s and post-’90s generations—power the Chinese market.
  3. Promoting iconic brand-product combinations is key, including developing a Chinese nickname to increase the likelihood of going viral on social media.
  4. Everything is media. Social is everywhere.
  5. While discovery is omnichannel, purchases are influenced and made in store.

The imperative for global brands is to become the leading form of social capital for China’s luxury consumers and stay there. This demands an “always on” approach driven by a rapid cycle of newness: refreshed product and collaboration launches that intimately intertwine with ready-to-go viral media, including “sticky” nicknames and creative digital campaigns.

 

China’s young luxury consumers are more interested in aspiration than heritage, making it imperative for brands to modernize their stories, and launch limited-edition products to make young consumers feel they are brand VIPs. This includes fostering an atmosphere of exclusivity through an annual calendar of special events, particularly around art and fashion, while offering as many opportunities for personalized brand-consumer interaction as possible.

Savvy brands should design a go-to-market strategy that understands young Chinese consumers’ appetite for consuming media at every available touchpoint: entrusting their digital marketing teams to make quickfire decisions and encouraging them to experiment with local, emergent media favored by young consumers; balancing “media” spend beyond earned, paid, and owned marketing channels to include stores and e-commerce; offering a seamless shopping journey from overseas and domestic stores to e-commerce with distinct channel roles.

Young Chinese consumers are set to fuel the global luxury market but winning with this segment will require companies to respond quickly by adopting a savvy, consumer-first mentality.

Download China luxury report 2019: How young Chinese consumers are reshaping global luxury, the full report on which this article is based (PDF–2MB).

About the author(s)

Lan Luan is a partner in McKinsey’s Shanghai office, Aimee Kim is a senior partner in the Seoul office, and Daniel Zipser is a senior partner in the Shenzhen office.

The authors wish to thank Cherry Chen, Chris Fang, David Green, Saskia Hedrich, Felicia Jia, Glenn Leibowitz, Frannie Li, Xiaoyun Li, Lin Lin, Adrian Lo, Erik Rong, Minyi Su, Jeannie Tse, Dina Xiao, Lei Xu, and Cherie Zhang for their contributions to this report.

 

Chinese_New_Year_2019_4_Trends_Marketers_should_capitalise_on

Chinese New Year 2019 – 4 Trends Marketers should capitalise on

Source from NZCTA

TRADE ADVICE

Chinese New Year is undoubtedly one of the most important (if not the most important) time of the year for brands and businesses targeting the Chinese market. It is a time where Chinese consumers spend big, indulging in new clothes, new appliances and furnishings for the home, gifts for and meals with friends and family, and trips to visit family in their hometowns, as well as for leisure. This year, Chinese consumers spent 926 billion yuan ($146 billion) shopping and in restaurants during the Lunar New Year holidays – 10% more than during last year’s holiday season, according to the Ministry of Commerce.

This type of spending extends beyond the border of China too, with many international cities home to large Chinese communities, and welcoming lots of Chinese tourists as well. Sydney, for example, boasts one of the biggest Chinese New Year celebrations outside of China, drawing crowds of around 600,000 people.

While traditions and family are still at the heart of this holiday, nowadays Chinese New Year also reflects consumers’ modern sensibilities, with an increasing focus on self-gifting, leisure travelling, health and wellness, and sustainability.

Here are 4 key consumer trends marketers need to be aware of in order to truly capitalise on Chinese New Year 2019.

1. Wellness and sustainability are becoming priorities for consumers
Chinese consumers are becoming more mindful of health and wellness, and this is particularly true of a younger demographic sometimes referred to as “xiao qinxing” or XQX, which literally translates to “small and fresh”. This is a demographic that favours light, clean and simple aesthetics, and focuses on self-development, and, as a result, health and wellness trends are sweeping the nation.

Yoga, for example, is becoming an increasingly popular pastime, with Yoga International calling China the ‘new yoga superpower’. According to them, around 10 million Chinese now practise yoga regularly (compared to about 16 million Americans).

Activewear brand Lululemon has already capitalised on this trend, launching a global Chinese New Year 2018 campaign called “Practice takes practice”, which drew links between ten lifestyle practices – discovery, endurance, patience, mental clarity, etc. – and linking these with Chinese cultural elements, effectively combining the contemporary with the traditional.

Lululemon also released a collection of sportswear featuring rich, red floral artwork, including flowers such as magnolias and lily blossoms, which are traditionally used to symbolise growth and rebirth during this time of year. The strategy appears to be paying off, with Lululemon CEO Laurent Potdevin announcing earlier in June that its stores in China were currently exceeding all store metrics and were set to bring in US$1,600 in annual sales per square foot.

Chinese consumers are also becoming more environmentally conscious, and making more sustainable choices as a result. According to a report by JD.com, Chinese consumers are both demanding and buying more green products than ever before, with the total volume of green purchases on the platform increasing by 71% in 2017, compared to the previous year. The younger generation are also playing a key role in this trend, with millennials aged 26–35 accounting for more than half (51.8%) of this volume.

2. Chinese consumers favour mobile apps
China is far and away a mobile-first economy, with around half of the population accessing the internet on a mobile device. And it appears these consumers are looking for a more seamless experience, with data from Criteo indicating that the biggest sales uplift in the weeks prior to Chinese New Year 2018 were seen in mobile apps, which showed a 56% increase, far outstripping the sales increase seen on mobile web (23%).

This is a particularly important consideration for those in e-commerce – especially considering China is the biggest e-commerce market in the world, with more than 40% of the world’s e-commerce transactions taking place in China. Cross-border e-commerce is also becoming a huge trend: in 2016, the market size of cross-border retail e-commerce sales in China was $78.5 billion, and this figure is expected to exceed $140 billion by 2021.

Any business that is serious about tapping into this fast-growing market during the festive season needs to consider the type of mobile experience they provide to their customers, ensuring it is as smooth and intuitive as possible.

3. Chinese consumers are travelling more, and further, than ever before
Chinese travellers again broke records during Chinese New Year 2018, making around 286 million domestic trips during the holiday period (an increase of 12.1% on the previous year). Tourism revenue also grew by 12.6% to reach 475 billion yuan (A$94.5 billion).

Most people travelling during the festive season are returning to their hometowns to visit family. In 2018, however, we saw more Chinese travellers opting to go on leisure trips, with around 6.5 million overseas trips made during the same period (an increase of 5% on the previous year).

While once this would have been considered taboo, a growing wanderlust among Chinese millennials coupled with increasing incomes has meant Chinese travellers are more eager to take advantage of the relatively long amounts of annual leave granted during this period to explore new places. (While all enjoy a full week of public holiday, many also save their annual leave for this time, typically taking up to 15 days off in total.)

Not that family isn’t still important – according to one survey, 90% of people who travelled abroad went with family or friends, in a party of four people on average.

These travellers represents a big opportunity, not just for those in the travel industry hoping to attract such travellers, but also for retailers wishing to target tourists. Brands, for example, could create special-edition Chinese New Year ‘travel-size’ gift packs for people to present to their elder relatives during or after such trips.

4. Chinese New Year campaigns are becoming longer
Chinese consumers no longer seem to be waiting for their hongbao (red packet) money to spend big, with data showing that Chinese New Year shopping sprees are beginning 2–3 weeks before the actual festival. Marketers, therefore, should consider starting their marketing campaigns at least 3–4 weeks before Chinese New Year 2019, if not sooner. (Travel companies, on the other hand, will want to start CNY campaigns around 2–3 months prior.)

Much of this money is put towards food, travel and gifts; this year, however, also saw high-tech consumer goods (such as robot vacuums) get a boost. Fashion also remains a highly popular category, as Chinese consumers traditionally wear new clothes during the holiday to symbolise a new start and fresh hopes for the new year.

Brands have already started taking advantage of this earlier spending, with Nike, for example, launching its Kyrie 4 ‘Chinese New Year’ range in January 2018, one month before Chinese New Year.

Post-Chinese New Year spending is also seeing gains, as young Chinese look to spend their lucky money, rather than save it, as their predecessors once did. This give retailers another 3–4 weeks after the Chinese New Year to further optimise sales.

By keeping on top of Chinese consumer trends, brands can ensure they stay relevant and maximise opportunities for sales during this highly lucrative time of year.

This article was originally published Sinorbis.
By Nicolas Chu, Sinorbis