In light of slower private consumption, it seems puzzling that lately, at 14.5 percent, advertising expenditures are growing nearly twice as fast as GDP. One explanation: despite the slowdown in consumer spending, companies have still made huge profits. Some of these include large food chains like KFC, Nestlé, and Coca Cola that offer affordable products to the masses, not just the top 8 percent of urban dwellers. Their success has attracted other companies to the country. A list of China's top 1,000 brands looks shockingly similar to that in the United States. Foreign companies dominate the top 10, with Apple at number one. Samsung, the number-five brand, attributes its success in China to its enormous marketing efforts -- US$866 million in the Asia Pacific in 2011 alone. "They spend heavily on media, which helps the brand be even more pervasive," Zayn Khan, CEO Asia-Pacific of FutureBrand told Campaign Asia .
As more businesses enter the Chinese market, competition amongst them has also increased, requiring more strategic and perhaps costly marketing. McKinsey reports that Chinese consumers are far less brand-loyal than those in the West. Only 46 percent say they cling to one brand compared with 71 percent in the United States. This means that "brands must work harder to educate their consumers about their brand and their products in order to drive consumers toward their stores," said Kevin Der Arslanian, an analyst at China Market Research.
Advertising may also be growing in anticipation of demand. The consumer slowdown is not expected to last. While it is hard to predict whether rising incomes and better social safety nets will encourage China to spend more, urban growth may. China is expected to add another 200 million to its cities by 2020. Urbanization increases income levels and also exposes people to affordable products and a larger selection of goods.
The Communist Party, in particular, has been worried about the unsustainability of investment-led growth and has now made the boosting of private consumption one of its priorities.
"Expanding domestic demand -- particularly consumer demand, which is essential to ensuring China's long-term, steady, and robust economic development -- is the focus of our economic work this year," said Premier Wen Jiabao in March. "We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups, and enhance people's ability to consume."
Just a few weeks ago, a fierce debate arose on Weibo, China's Twitter, about the right balance between saving and spending. The Guos, a young Chinese couple from Jiangsu province managed to retain 90 percent of their monthly income of 9,000 yuan (US$1,440). The state-owned newspaper China Daily ran the story, appearing torn between praising the couple for their thriftiness and promoting the behavior of people like Xu Bin, a 30-year-old employee of a state-owned enterprise who spends 50 percent of his monthly 10,000 yuan (US$1,600) on horseback riding.
"I am living a life I enjoy and don't want to sacrifice what I like for a number in a bank account," he said.
The online debate is a reminder that for the Chinese, becoming willing consumers isn't all about crossing into the middle class. There's an ideological hurdle to overcome, too. For their part, advertisers are hoping their next commercial or billboard might be enough to nudge Chinese consumers over that line.