Chinese ad market climbs

16 March 2011

BEIJING: China could become the world's second largest advertising market in 2011, as global events serve to accelerate its ascension.

GroupM, the media arm of WPP Group, suggested Japan, whose ad market is currently behind only the US in adspend terms, will suffer major economic effects following the recent earthquake and tsunami.

The company had previously predicted Japan would witness 3.1% revenue growth in 2011, but Adam Smith, its futures director, warned anything other than a decline is a highly remote possibility.

"I think this event will have the most serious economic consequences of any I can remember - El Nino, Katrina, SARS, 9/11, southeast Asia's 2004 tsunami," he told the Financial Times.

"The likely range of revision must surely begin in minus territory now."

While factors from fluctuating exchange rates to the veracity of official Chinese governmental data always make forecasting "haphazard", Smith believes all trends indicated a shift towards the world's most populous nation.

More specifically, GroupM has estimated Chinese advertising expenditure should climb by 10% in 2011, after reaching $45bn (€32.4bn; £28.1bn) at the close of 2010.

Given that Japanese adspend hit $51bn last year, essentially flat on an annual basis, the seemingly inevitable contraction of this figure might mean the country trails its Asian neighbour by the end of 2011.

However, Smith added such a change can, at best, be seen as symbolic, as the vast majority of clients have already decided where their strategic focus lies.

"Most people know their next billion customers are going to be coming from China," he stated.

Even before the devastating events in Japan, Sir Martin Sorrell, WPP's chief executive, asserted a fundamental transition was underway.

"The world continues to move at very different speeds, both geographically and functionally," he said.

Drawing on an English football analogy, Sorrell named Brazil, Russia, India and China as the "Premier League" players boasting the best prospects, joined by further fast-growth economies like Mexico and Turkey.

The US, was, along with Germany in the second tier, described as "The Championship".

A third category, "League One", primarily featured Western European countries such as France, Italy, Spain and the United Kingdom.

This left Japan alone in "League Two", because it has been "stagnant for almost twenty years."

Looking beyond advertising, trade clearing service MF Global argued the luxury industry - long reliant on Japan as a key outlet - could similarly be forced to adapt.

"Weaker consumer sentiment, and the psychological impact of conspicuous consumption, is likely to affect luxury good sales, clothing and jewellery retailers and prestige cosmetics companies," it said in a research note.

Richemont, the owner of Cartier and Piaget, did not even conjecture on the sector's outlook.

"It is simply speculation to try to assess what the problems there will mean for the economy and business," the company said in a statement.

Elsewhere, automakers such as Toyota, Honda and Nissan may suffer in their efforts to gain ground in China's premium car market.

"The Japanese are already way behind the German brands," said Klaus Paur, Synovate Motoresearch's managing director, Greater China.

"The earthquake will hurt their luxury brands further as they don't make them here in China."

Data sourced from Financial Times, BBC, Wall Street Journal, Reuters; additional content by Warc staff