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E-commerce & Brand Building in China Today: A discussion on the Opportunities & Risks

China’s e-commerce is booming and social media has become a powerful channel that no brand owner wants to neglect when engaging their audiences and converting customers in China. This article addresses the most significant opportunities and risks related to the growing trend.

 BAi-Leen Lim, CEO and Principal Counsel, AWA Asia (part of the Awapatent group)

A staggering RMB120 billion (17.4 billion US dollars) was the sales revenue reported for Tmall, Alibaba’s e-commerce platform, over the course of one day, 11 November, 2016. 11 November, or 11.11, has become known as Singles’ Day in China, and is the country’s online shopping carnival day set aside by its e-commerce providers for their largest sales event of the year. This is when online purchasers are out in full force on their mobile phones, indulging themselves with great bargains and deals. In addition to Alibaba’s Tmall and other largescale e-commerce competitors such as Taobao and, multiple new online and mobile services have been emerging in considerable numbers, all of whom are seeking to find a niche in this ever-growing internet based business and consumer community that is projected to be the world’s largest online e-commerce market by 2018. Also, Chinese internet and mobile companies are not only been expanding rapidly in their own growing domestic digital economy, but have actively been entering global markets, in turn bringing new business opportunities for international players. 

The past year has seen several significant regulatory developments in IP and internet law in China, including the introduction of the draft E-commerce Law, the enactment of the Cyber Security Law, as well as SAIC’s Interim Measures for the Administration of Internet Advertising. Brand owners will need to pay attention to such regulatory changes and adjust their policies and strategies accordingly.

When effectively tapped, social media and the online landscape can be powerful yet inexpensive channels for brand building. This article gives a brief overview of the online landscape in China, together with the attendant risks and key regulatory developments that require brand owners’ awareness and oversight.

E-commerce continues to change the daily lives of people in China
In the past few months, China’s streets have seen a revival of bicycles as a mode of transportation brought about by mushrooming start-up bicycle-for-hire companies such as Mobike and Ofo. You can find a bicycle from any of these providers parked anywhere along the street, scan the code to unlock and proceed to ride to your destination. When you are done, you can simply park anywhere along any street and pay for the hire with your phone. 

The Chinese internet companies are not only expanding in China, but also themselves entering global markets. In 2016, the acquisition of Uber’s business in China by local player Didi finally put an end to the fierce battle between the two companies. By the first quarter of 2017, the International Data Corporation’s (IDC’s) statistics show that Huawei has taken up to 9.8% of the cellphone market, ranking third worldwide behind Samsung and Apple. Moreover, the internet search engine company Baidu is investing heavily into artificial intelligence and self-driving cars, not dissimilar to other major digital players such as Uber and Google.

Needless to say, this fast-growing online economy consisting of more than 700 million mobile phone and app users (and still growing) makes China an obvious choice for international companies wishing to build their brands and expand their customer base outside their home or mature markets.

Social Media: China style
Major international social media platforms such as Facebook, Twitter, Instagram are all blocked in China. Chinese internet companies have created their own social media platforms (users of which often comment that these platforms are more intuitive and have more multi-faceted functionalities than their western counterparts). These are:-

Weibo: - Weibo, Sina’s social media platform, has a large base of users, with a young following. PR Newswire reported that in 2016 more than 80% of Weibo users are under 30. As users can re-post, comment and like others’ posts without being friends with them, Weibo can be an effective platform for far reaching or viral-style online marketing campaigns, especially targeting younger audiences.

WeChat: - Almost every smart phone user in China has WeChat on their phone. This app was primarily a chatting app (like WhatsApp), but has now added more social networking features, including video and sending of voice messages. As WeChat users can only view their friends’ posts, marketing on WeChat may seem to be limited in comparison to Weibo. However, users are also able to subscribe to brand owners’ official accounts as friends and maintain an interactive connection with these “brand-friends”.

QQ: - This used to be the most popular instant messaging software in China. Though it is gradually losing its users to WeChat (both owned by Tencent), QQ still has a large base of users, especially in rural areas and cities classified as second tier and below in China.

Douban: - Social networking site, Douban has a smaller user base than Weibo and WeChat, but its users have relatively higher education levels. In addition, users of Douban are able to choose tags and topics, and join groups based on their own interests. This enables brand owners to better locate, reach and communicate with their target audiences.

Zhihu: - Similar to Quora, Zhihu is becoming more and more popular in China, and again users tend to be have higher education levels. These users ask and answer all types of questions on Zhihu. Hence it is a good platform for brand owners to both monitor consumer commentary and educate their target audiences about their brands.

Video and live-broadcasting medium: - It is often said that video and live-broadcasting is the future of social media. Major social media platforms such as Weibo and WeChat have added functions for users to post short videos. In addition, new apps focusing on video and live broadcasting have emerged, such as Meipai, Miaopai and Muse. It is popular for celebrities to post videos or make live broadcastings where they answer fans’ questions. Video and live-broadcasting social media gives brand owners a direct platform to communicate their products and services to targeted audiences throughout China.

Chinese actress, Jing Tian, known for her reserved nature, connected more closely with fans by broadcasting her make-up removal via Miaopai (above). The video has been watched over 12,170,000 times.

Social media has become more and more connected with e-commerce. With more than 800 million active account holders and users on WeChat for instance, Chinese social media is a powerful force that companies can, and are probably obliged, to take advantage of for both building their brands and converting customers. Setting up official accounts, and actively participating in and monitoring these accounts across a range of Chinese social networks is the most direct way to reach and communicate with targeted audiences within the Chinese online ecosystem.

Xiaomi, a pioneering Chinese consumer technology company, is a textbook example of how a company can use social media marketing to interact directly with customers. A Xiaomi fan complained on Weibo that one of Xiaomi’s retail stores was too crowded. In response to that post, CEO Lei Jun posted that they plan to open up 200 more stores by the end of the year (below).

Celebrity endorsement is also an effective social media marketing strategy in China, as celebrities normally have tens of millions of followers on their personal accounts. In September 2012, Chinese pop star, Lu Han published a celebratory post about his favourite football team, Manchester United. By September 2015, this single post had subsequently received more than an astounding 100 million comments from fans and followers, winning Lu Han a Guinness World Record.

Risks to be managed when pursuing a Social Media campaign
Along with the tremendous advantages of social media marketing, there are risks that brand owners need to actively address. Some of these risks include:

  • employees or third parties incorporating companies’ trademarks into their social media user names and content;
  • bad-faith registrations of social media accounts using well-known trademarks;
  • use of social media platforms to sell counterfeit products; and
  • Social media platforms as an outlet for negative sentiment and reputation damaging commentary.

To mitigate the risks, brand owners should set up official accounts to prevent their names / trademarks being squatted by employees or third parties, and monitor the internet for unusual or infringing activity, while taking necessary and appropriate steps to enforce against suitable targets. They should implement a cohesive social media and marketing communication strategy for China, including having documented policies and guidelines stipulating how their brands’ social media accounts are to be updated and managed. In addition to the legal aspects, brand owners may also consider engaging local PR and social media marketing professionals to monitor Chinese social media for market sentiment and customer commentary and deal with any PR issues quickly and appropriately. One important point to note is that not all legal breaches need a strict legal, enforcement style of response. Some activities could be innocent and inadvertent actions by fans of the brand, for example, when they are showing enthusiasm and active support for the brand and its related brand values. Then, a more PR based approach to steer matters in the right direction (as opposed to a litigation based approach is recommended).

Chinese regulatory developments to look out for when advertising online or conducting e-commerce related activities in China
Set out below are recent noteworthy developments that brand owners need to be aware of:

Draft E-Commerce Law:- China’s draft E-Commerce Law was published in December 2016 for the solicitation of public opinion. The draft law applies to e-commerce activities occurring within China. If this draft law is passed, companies handling online payments, logistics, deliveries, cross border sales or have access to customer data could be affected.

Cyber Security Law:- In effect from June 1, 2017, one of the heatedly discussed topics relating to the new Cyber Security Law is its regulations on data collection. Under this new law, data collected within China is required to be stored in China unless it is necessary to transfer overseas for critical business purpose. However, such overseas transfers of data will need to go through a government-defined security review. Currently the implementation details are not yet defined.

Internet Advertising:- In July 2016, the State Administration for Industry and Commerce (SAIC) announced the Interim Measures for the Administration of Internet Advertising, which has taken effect from September 1, 2016. This Measure clarifies that the provisions of the amended Advertising Law applies to internet advertising. Internet advertisers and platform operators will be most affected by the Measure, while key opinion leaders and celebrities endorsing products online shall also comply with the regulations. According to amendments earlier enacted in 2015, terms such as “best” and similar superlative statements, (if written in English would include words with the “-est” suffix such as “cleanest”, “fastest” and “softest”) that proclaim the extreme merits of the products and services they are advertising will fall foul of the Advertising Law.

Some final thoughts
China’s rapidly expanding internet economy is an ongoing major development trend which has a significant impact on the everyday lives and spending patterns of the Chinese consumer. At the same time, Chinese internet companies are also entering global markets. To take advantage of these trends, brand owners can rely on effective social media marketing to promote and expand in China, while at times also partnering with Chinese companies (with the relevant distribution channels or reach, where appropriate). No doubt, along with the numerous opportunities, there are also risks for brand owners, but these can be mitigated with appropriate strategies and effective internal protocols such as having a multi-disciplinary social media policy in place. Last but not the least, recent changes in the Chinese regulatory landscape concerning IP and the internet are important to take into account in trademark portfolio management and brand building activities in China.


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