China's slowing GDP growth: Why businesses should care

2016 has begun on the same note as 2015 for an economy that perhaps matters the most to the world right now – China.China’s GDP growth figures are just in and it stands at 6.9. Whilst not bad on its own, it is the slowest the giant economy has ever grown in the past two and a half decades.Although the economic volatility caught most by surprise at the end of 2014 itself, where last quarter saw a significant dip in spending, it only caught more momentum in 2015 where trillions of dollars were wiped off the value of global stock markets and the Asian stock markets saw biggest drops since March 2011 - a sharp reaction to a slowing Chinese economy.And with the latest GDP growth figures, the slowdown is reinforced. As the market continues Yuan’s devaluation, grappling with plunging foreign reserves and sluggish growth in manufacturing, its ripples will be felt far and wide, especially in Southeast Asia, given the close trade ties.A ZenithOptimedia report said China, Malaysia, India, Indonesia, Pakistan, Philippines, Taiwan, Thailand and Vietnam, which have been categorised as Fast-track Asia, recorded the highest growth rate among all the regions, at 9%, in the global market between 2015 to 2016.However, China accounts for 74% of adspend in Fast-track Asia, “so its slowdown naturally has a large effect on the region as a whole”.How will this affect marketing budgets and plans for 2016 for brands within China and outside?For 2016, the marketing budgets have shrunken but this was already planned into the client budgets as they continued to cut back on budgeting and adjust to a new normal in 2015, according to Amrita Randhawa, CEO of Mindshare China."Planning budgets for 2015 seemed to already have either 0% growth or decline factored in as marketers too did not want to have to face the risk of chopping and changing mid year,” she said.Within China itself, there is an interesting polarity. Large, well established clients are no longer looking at bullish high double digit growth unless it is the e-commerce parts of their business. Overall, the industry is eyeing low single-digit growth as targets.“On the other hand,  mid-size clients in categories that are niche or growing still have a healthy double-digit growth target and are on the path to achievement of those,” she added.For global marketers looking at China, it will not come as any surprise that the natural reaction (and one that we have certainly observed) to the current China market is to pull back investment. "They are not seeing the growth numbers that ‘widen the eyes’ and as such react accordingly. Instead of ‘’optimistic” investment behaviour, we are seeing a much more cautious approach." Robert Sue, deputy general manager of Starcom Shanghai, head, Luxury & Global Network Client practice for Starcom said.Amongst industries, high-end luxury will be relatively stable as there are so many intangibles in luxury purchase, said Sue, adding that utimately consumers will trade-down a level across most categories such as Shampoo, clothing, food, cosmetics and so on. "Chinese consumers are known as some of the most price conscious, going to lengths to secure even small savings /discounts," he said.Is it all gloom and doom? It is a given that in such a situation, there will be much more scrutiny on media investment and the focus will be on making every yuan work harder.However, according to sue, the behaviour mirrors that of brands that are seeing negative growth. "This is strange as brands are still growing here in China and the economy is still growing."There is still so much un-tapped potential but it’s human nature. When things are not as good as they used to be, even when the new position is still relatively good, reactions are more doom and gloom.While the wait and watch approach is pervasive, there are also brands who continue to invest in China as the market represents an unprecedented opportunity over the long term for many different kinds of businesses. Moreover, strategically, it’s not in the best interest of brands to disinvest or slow down aggressively and abruptly.Echoing this sentiment, KP Unnikrishnan, marketing director, Asia Pacific & Japan, Palo Alto Networks said in spite of two major stock market crashes recently, China continues to dominate in the technology space both as a consumer and manufacturer.“B2B companies that consider China a priority market are in it for the long haul and are not likely to make a major switch in their marketing strategies unless they are directly affected,” he said.There are a few things going in China’s favour still. Capital availability, competitiveness, regulatory environment, stability, local market and business climate as well as international trade continue to make China a strong business case.“Specifically for Palo Alto Networks, thanks to the demand and need that we’re seeing from organisations in China to build a strong cyber security infrastructure, it’s in our interest to continue and ramp up our sales and marketing efforts in the market,” Unnikrishnan said adding that for Palo Alto Networks, it will be going forward and executing its 2016 marketing campaigns as planned.He advises that despite the current environment, brands should continue to market in China and uncertainty and challenges should be looked at from a different perspective. Few tips to remember, he shared are as follows:Marketing and selling in China is different compared to other markets in the region and globallyPersonalised and customised marketing will be key and will go a long wayTiming is importantSocial selling the China way is always preferredThe impact on media In an evolving market like China, media will continue to fragment with digital and mobile leading the way. But within that, the market will see a much greater growth in performance based media such as e-commerce, search, programmatic and social versus display and online video.“This is the simple result of brands being more focused on converting further down the funnel,” Randhawa said.The other space to see continued growth in is content. According to her, already some TV channels’ revenue from content is starting to be at par, if not exceed, traditional ad revenues and their focus now is to bring new programmes which allow brands distinctive integration.“This will continue given the raft of brands that have seen success with this approach in China in 2014-2015,” she said.Proliferating social media platforms is another area marketers would be focused on."We Chat is one of the key platforms that global marketers should consider investing in, something that we are also planning to do at Palo Alto Networks,” Unnikrishnan said.“However it shouldn’t stop there. Even with the boom in digital in China, we expect that marketers will have to continue to developing 1:1 relationships with customers in order to establish rapport, build confidence and demonstrate commitment,” he added.Image: Shutterstock