Outlook 2023: China POV
How the key trends in media and innovation are playing out in China
Each year when investigating major trends around the world for Outlook, we come to a consensus that the Chinese market offers a unique lens that reflects and filters the trends differently than the rest of the world.
While the detriments from Covid is becoming a distant past for the rest of the world, and collectively, they are experiencing new cycles and paradigm shifts in consumer behavior and technological developments, China experienced its worst Covid outbreaks in 2022, with nationwide lockdowns impacting economic growth and consumer confidence.
According to a survey done by Deloitte in November, overall sentiment at the end of 2022 was bleak. Consumers did not want to spend due to heavy pessimism towards the future. In fact, when speaking to Chinese consumers in the “Gen Z” bracket, they had no idea what the future holds, and say they sometimes experience anxiety-inducing level of uncertainty.
Suddenly it all ended overnight in early December — the abrupt changes in China’s “Zero-Covid” policies naturally resulted in some rapid changes in consumer lifestyles and market opportunities. China had been moving at the speed of light in the past decade, with constant developments and adoption of new technologies, and in this context, this year’s Outlook theme “Interregnum” highlights a very interesting period of transition in China — 2023 marks a transition into positive, fresh beginnings.
According to Ipsos & Statista, the Consumer Confidence Index for China ranged at 73.6 points in January 2023, up from 72.2 points previous month. In comparison, the Consumer Confidence Index for the United States stood at 50.2 points in January 2023.
Following the policy change, Chinese consumers are feeling a rush of energy from this regained sense of freedom, with an urgency to get out of the house, to travel, and to try new things. After a long period of social distancing and “stay-at-home” inactivity, Chinese consumers have saved a lot and are now ready to spend, brands are now acting fast to grab a share of this pent-up demand.
Let’s see what this new positive energy means for the four Outlook trends in China this year.
Digital Oligopoly, Reborn
In recent months, there has been a lot of market developments indicating the digital media duopoly of Meta and Google in the West is in decline. In China, however, digital media giants have been remained dominant, and it seems this will still prevail for a while. The four tech giants — Baidu, Bytedance, Alibaba, and Tencent (also collectively known as “BBAT”), altogether accounted for over 65% of media spend in China in 2022. Yet, BBAT are also called “the four walled gardens” of the Chinese media ecosystem because of their relative independence from each other and a lack of basic interoperability, which has made it quite more difficult for marketers to track across platforms and decide which ones to invest in.
Despite a top-down government-led attempt circa 2021 to crack down such siloed operations between the BBAT, two years later, there are still no clear sign of any progress on connecting the walled gardens. According to market analysts, the government recently had even decided to put a pause on the crackdown, as they deemed a healthy development of these tech companies critical to economic recovery following the pandemic.
In the meantime, these companies are going through an ongoing evolution of their business propositions, extending beyond digital media into horizontal development. Following the global hype in web3 and everything metaverse-related, Chinese companies also want to ride on the wave and therefore began their own developments, and received a lot of support from the government, hoping it would draw in more investments from abroad. Around the time when Meta announced its new branding, there were more than 400 companies applying for trademarks related to “Meta” or its alternatives in China; Alibaba launched Ali Metaverse immediately the day after Meta’s announcement. Baidu launched a metaverse app in December 2021, under the name “Land of Hope” (in Chinese: 希壤). Yet, despite great momentum in such developments, things took quick abrupt turn and cooled down seemingly overnight. After a year or so of investing into the Metaverse concept, tech giants are now slowing down on its development, claiming the space is too competitive between the companies and requires more than projected investment. In February 2023, Tencent announced that, as a result of recent economic downturn, they will halt their plans in regards to the Metaverse, including developing VR headsets and other hardware devices designed for the Metaverse.
Tencent’s initial plans in hardware development is part of a larger trend where homegrown platforms and software companies are shifting into hardware and even service businesses. For example, Tencent has been evolving its gaming properties to various services that has underlining “social good” purpose, including flight simulator, clinical research, and so on.
Baidu, primarily known as the Google of China, had expanded its focus to cover electric vehicles, AI, and autonomous driving technologies the past several years. Recently their Robotaxis service received a permit to offer fully driverless rides in Beijing, expanding its autonomous ride-hailing service to three major cities in China. Baidu’s stock price soared over 15% on the day of its announcement. As Baidu launches ERNIE (China’s current closest iteration of ChatGPT) it also became handy to launch it with their newest EV car under their subsidiary Jidu Auto, making it the first responsive AI enabled EV car. Baidu is not the only tech giant tapping into auto industry. IM Motors, a joint venture between Alibaba and SAIC motors, also started mass producing luxury sedan EVs since last year.
It will be interesting to continue to observe the developments of these tech companies as they extend into horizontal categories and with more joint ventures, as ways to escape the controls on them as a platform.
Twenty-Twenty-Me & Hobby-Driven Consumerism
In contrast to the collectivism-leaning nature of traditional Chinese culture, the digital culture in China has surprisingly leaned towards individualism and self-expression. Alongside the acceleration of new tech adoption and a world-leading creator economy, hyper-personalized experiences and carefully crafted online personas have been the norm for Chinese internet users for years, giving rise to new digital-native professions such as avatar designers.
Then the Covid-19 pandemic changed everything. While the shadow of self-centeredness still lingers in the digital realm, there is a notable shift of users going back into the offline world to seek exploration and self-discovery, which, in turn, has given rise to a wave of brand-friendly offline activities. For example, Camping+ (露营+), a crossover of camping and a theme park, has been gaining popularity among younger consumers in China in recent years. In November 2022, Volvo created a consumer immersion event based on the Camping+ concept. Instead of a simple camping experience, the auto brand incorporated various leisure activities such as delicacy-tasting, archery, and frisbee into the event to show off the joy of exploring the great outdoors and the versatility of Volvo vehicles.
As immersive offline brand activations that cater to this growing consumer demand become a popular marketing tactic in China, a new marketing term “hobby-driven consumerism” (兴趣消费) was coined to cover various themed activations designed to help Chinese consumers rediscover themselves in the offline world. Whether it’s rock climbing, wearing traditional Chinese garments (汉服), surfing, camping, or skateboarding, many offline hobbies are now co-opted by brands to create branded experiences around these hobbies that are gaining momentum among Chinese consumers. These hobbies are activities that requires time and financial investment, in contrast to previous types of branded activations such as exhibitions and pop-ups, so consumers are also happy to see a brand footing the bill for their preferred leisure activities.
Hobbies are personal pursuits; therefore brands need to work together to grow these initially niche points of interest into mass consumer trends. For example, Vans had struggled to properly transplant their brand’s skateboard DNA into the Chinese market for years, primarily because there were limited locations or communities for skateboarders. However, now with more brands tapping into this space, and thus creating a bigger community of skateboarders and boosting visibility, skateboarding is now a mainstream hobby in China that many consumers may identify with and leverage for self-expression. In turn, brands are able to tap into the growing skateboarding culture as a selling point for product design and marketing campaigns.
After a long period of digital-centric marketing in China, it is refreshing to see brands shifting their focus to offline interests. This shift is evident in the way brands are now defining their audiences based on their passion points in the real world, rather than only their online behavior. We foresee this trend to continue growing in 2023 and beyond, as some of our clients investing in new offline consumer trends in order to engage and connect with a broader base of consumers, beyond the usual suspects that have been previously engaged.
The Rise of Synthetic Media & The Race to AI Dominance
Generative AI has swept the world by storm overnight. While it has been in development for a while, the hype around ChatGPT in early 2023 pushed it into mainstream consciousness. While Chinese consumers may not be directly experiencing the same level of excitement around the generative AI tools that are common in the West, local tech companies are certainly jumping on the trend as well with home-grown AI tools.
For example, on March 16, Baidu (aka China’s Google) showcased the company’s new large language model, Ernie Bot. Designed to be a ChatGPT for Chinese users, Ernie Bot promises to answer various creative inquiries, such as solving math questions, writing marketing copy, and answering questions about Chinese literature. Ernie Bot (whose Chinese name is 文心一言, or Wenxin Yiyan) reportedly performs particularly well on tasks specific to Chinese culture, like explaining a historical fact or writing a traditional poem, but pales in comparison to ChatGPT in other tasks. As a result, Baidu’s stock shares plummeted after Ernie Bot fell short of investor expectations after the public showcase.
Another Chinese tech giant looking to enter the global AI arms race is Alibaba, which plans to launch its own ChatGPT-style chatbot called Tongyi Qianwen across its platforms, starting with DingTalk, Alibaba’s workplace communication app, and Tmall Genie, Alibaba’s AI assistant deployed on its smart speaker devices and other smart home appliances. Moreover, Alibaba Cloud will offer its clients access to Tongyi Qianwen on the cloud and help them build customized large language models for consumer-facing use cases. As of early April 2023, no in-market applications based on Tongyi Qianwen has been released yet. Still, these latest initiatives underscores how Chinese tech firms are stepping up their development of competitive generative AI tools.
Looking back, AI development in China has been on an interesting course. While China was lagging behind the world in AI development, we have quickly caught up in recent years as a leading force in AI research worldwide. China’s massive population not only forms a strong foundation of big data collection, but also drives demand in new consumer-facing applications of AI. Ride-hailing app DiDi, for example, was processing more than “70TB of data, with 9 billion routes being planned a day and 1,000 car requests a second” in 2021, according to an HBR report. And according to McKinsey , ‘China accounted for nearly one-fifth of global private investment funding in 2021, attracting $17 billion for AI start-ups”. All of this momentum is part of the “China 2030” plan, where the country aims to officially overtake U.S. as the world leader in AI.
As we have seen, China will always try to build out its own version of what’s available in other markets. Therefore, we have the aforementioned Ernie bot from Baidu, as well as Taiyi, our own version of Stable Diffusion, for text-to-image tasks. Tencent’s Different Dimension Me, for example, is a tool that can generate anime characters based on photos of real people. While local tech developers are equally excited by the potential of generative AI platforms like Stable Diffusion and DALL-E 2, AI experts say China is at the forefront of regulating generative AI, and one of the major reasons behind it is to filter out politically sensitive topics and content related to it.
Despite the quality of AI output may be hindered by local regulations, local variants of generative AI tools are quickly becoming consumer-ready in China as well. And if the recent phenomenon of Chinese video game developers using AI to create in-game content is any indication, China certainly won’t be exempt from synthetic media’s global breakthrough in the coming years.
A Return to the Kitchen Table Internet
As we pointed out in previous sections, the tech industry in China is again at an interesting crossroad. While the market clearly recognize the upside of expanding beyond the BBAT firms to encourage independent tech developers in order to accelerate overall tech market growth, it often run into concerns related to regulations. Thankfully, this has not stopped curious minds in the Chinese tech community to gather, share, and learn from each other.
In recent months, there has been an emergence of local communities with interest tech development, especially in the context of web3. They are small private interest groups and would gather offline in locations that relatively discrete where they share the latest trends and creations. For example, Dali Web3 West is a small bespoke event hosted in a small village called Yinqiaozhen in Dali Yunnan, roughly 2,640 kilometers away from Shanghai, where independent developers gather to share ideas with a common goal of growing web3 communities and hope its development can contribute positively to society.
We also see platforms welcoming technologies that originated beyond BBAT. Working with independent developers and even ones abroad allow platforms to infuse a sense of authenticity in user experience and can somewhat simulate the experience overseas. Little Red Book, for example, annouced in January their partnership with Conflux Network — a layer-one blockchain developer orginated from Toronto with offices across Asia and now also Beijing — and has intergrated their permissionless blockchain into the LBR interface allowing users to showcase NFTs sitting within Conflux. This is one of the many projects Conflux is doing to help China realise Web3 within the heavily regulated environment where they are the only regulatory-compliant public blockchain company in China so far.
Other than the rise in independent communities in tech development, the scene around independent creators and the creator economy still prevails as a strong force. China has gone through various phases of the creator economy in the past decade. Being one of the most advanced markets in the world, China’s creator economy had an early start when social media became mainstream platforms for people to express and share their personal POVs and snapshots of their personal lives. This, described in hindsight as the “attention economy,” has now morphed into a new “creator economy,” where user-generated content are now infiltrating design, art, and even gaming interfaces. This evolved iteration of creator economy is a shift from ‘showing’ to ‘making’, and it has became a springboard for a variety of new careers such as NFT or digital artists and avatar designers.
Overall, it is exciting to see a new wave of creativity and new avenues for brands to connect with consumers as a result.
