Ties That Bind - Bay Area Council Economic Institute

Advertising
0DUNHW (QYLURQPHQW
96
Ties That Bind
China lifted a nationwide advertising ban in 1979 as part of its initial opening, with an ad
market in the first year of just over $1 million—mainly newspaper ads for dry goods, food and
herbal medicines.
Creation of special economic zones in the Pearl River Delta region and coastal areas raised living
standards and created the beginnings of a middle class and consumer markets by the late 1980s.
Major advertising firms like Saatchi & Saatchi, Ogilvy & Mather, J. Walter Thompson and Leo
Burnett followed Procter & Gamble, Unilever, Coca-Cola, Colgate-Palmolive, Nestle and others
into the emerging China market. Minority joint ventures were permitted. Early examples included
DYR, a partnership of Young & Rubicam, Japanese agency Dentsu, the China International
Advertising Co. and the China United Trading Co. in Beijing (1986) and Ogilvy & Mather
Shanghai, a JV between O&M and Shanghai Advertising Corp. (1991). A 1995 Advertising Law
laid out approved advertising standards and practices.
WTO membership liberalized the advertising sector by allowing majority-owned joint ventures in
2004 and wholly foreign-owned enterprises in 2005. It also lowered tariffs and opened up the
China market to liquor, cars, electronics and other consumer goods coveted by increasingly affluent
urban Chinese. At the same time, credit cards are gradually gaining acceptance and ecommerce
has exploded. An auto boom has put a record number of cars on the road and
boosted radio advertising.
Average per capita income in China is still around $1,700 per year, with an average household
savings rate of 40% to cover health care, college education costs, saving for a home and so on.
Still, it is estimated that as many as 100 million Chinese constitute a middle class in the PRC,
with annual incomes mainly in the $3,000–5,000 range and a growing number of affluent consumers
earning $12,000–25,000 a year. McKinsey forecasts a middle class of 290 million by 2011,
rising to 520 million by 2025; an affluent class remaining constant at about 40 million people
over that same period; and a $1.7 trillion consumer market by 2025. In 2005, retail sales in China
totaled $764 billion, up 13% from 2004.