In the above article, I suspect China's advertising industry is going to be much stronger than what people thought. In addition, there might be segmentation taking place. The top tier advertising providers such as CCTV, Sina and Sohu would benefit while lower tiers providers such as verticals would suffer. In addition, the push to cheaper yet more efficient internet advertising would benefit. This internet push would benefit Sina, Sohu, Ntes, and Fmcn.
Two new pieces of information can serve as further confirmation to my theory.
On November 12, 2008, MasterCard released its survey on consumer confidence in Asia. The following is the link:
I put the Chinese consumer confidence number in the following table:
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1997 – 1998
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From the above table, it is clear that average Chinese are still wildly optimistic. Given this unprecedented global financial crisis, Chinese still have higher consumer confidence for 2009 than historical average.
On December 19, 2008, there is another survey on the Chinese enterprises.
In that survey, 78% of Chinese companies remain highly optimistic about their 2009 sales growth. 30% believe their sale will grow by 25% in 2009. Most of the enterprises will concentrate on two things. They will concentrate on reducing cost. In addition, they will concentrate on developing and producing higher value products.
How could this be? How the average Chinese can felt so optimistic? How can the average Chinese companies have such audacity? How can the Chinese companies felt so brave they spend unprecedented amount to buy CCTV TV slots for 2009?
I am pretty sure millions of Chinese (if not tens of millions) working for export companies had already lost their jobs (or are going to).
If this happens in the United States, the consumer confidence would crash and the companies would run for their life.
But we are not talking about the west, we are talking about China. Here in the United States, every few years we would have some painful economics crashes or corrections. But China had been experiencing more than 30 years of breakneck growth of 9, 10, 11, or 12% GDP growth. For average young and middle-aged Chinese, year after year, they never experience any real economic corrections. World around them might be falling down in times such as internet bubble burst, or Asian financial crisis, but China's economy just keep on ticking.
If you never experienced any real setback, even though the world went though spasm of crisis from time to time, will you be confident when the next world economic crisis hit?
It makes perfect sense to me that average Chinese are so confident.
I am certain that if the government doesn't have pro-active policy, eventually after witness months and months of layoffs, average Chinese confidence will crash. But that is not the case, China is the most pro-active (in my view) of all countries to tackle this problem. As long as most of the people left unemployed from the export section be picked up by the government's infra-structure program in a few months, average Chinese consumer will stay highly optimistic.
Will average Chinese all in a sudden become big spender and accumulate debt? Of course not. They are not going to be reckless spender all in a sudden, nor does they need to. As long as they are highly optimistic (and willing to spend) and the government is willing to spend for infrastructure for the next couple of years, until the current global crisis pass, China will get past the next two years with only a minor hiccup.
From that December 19, 2008 survey on the Chinese enterprise, it points to highly optimistic growth forecast for 2009 by the Chinese companies themselves. They are also going to do cost cutting and going up the value chain. That implies segmentation (for the advertising industry) is going to take place.
First, the growth in the 1H of 2009 is going to slow down due to companies cutting cost. But they are also going to introduce new products. That mean they have to do advertising to educate the consumers. It implies segmentation where tier 1 providers and more efficient internet advertising providers will benefit. Companies like Sina, Sohu will benefit because they are both tier-1 and internet portals. Companies such as Ntes and Fmcn will either benefit from this trend or stay neutral. The companies that will suffer are most likely magazines, newspapers, small TV stations, or smaller internet companies.
Lastly, I think everybody have missed a critical point. Chinese exporters never spent a dime on companies like Sina, Sohu, Bidu, Ntes, etc. Their customers are not Chinese customers. But the government's 580 billions stimulus plan goes to companies serving domestic needs. When those domestic-serving companies need to advertise, they go to Chinese internet portals or search engines.
For example, the stimulus package includes building millions of low income houses. These real estate developers (that will benefit from the stimulus package) will put ads on the portals while the exporter toy maker will never do.
Even if the 580 billion stimulus plan doesn't fully compensate for the loss of the export sector, it would still be pure gain by the Chinese internet advertising providers. The suffering of the exporter doesn't directly affect China's internet portals. But the stimulus plan directly benefits China's internet portals because it helps those Chinese companies that will buy advertising from the portals.
Combined all the above factors, I predict the portals will have a year over year growth rate of 30% in the 4Q 2008 and 1Q 2009. That is down (but not drastically) from the 40% to 50% of the last few quarters. But by the 4Q of 2009 when the stimulus package starts to go into full effect, I predict there will be a drastic increase of 40% to 60%.