What a key trade indicator is saying about China’s consumer recovery.

BEIJING – Businesses in China are spending cautiously on advertising this year because domestic consumption is not expected to rebound for some time.

Trading revenue increased in the first three months of 2023. It is on a year-by-year basis.

Heading into the 618 shopping festival this month, brands are being cautious.

“For 618, brands in general are definitely trying, but it’s a little tired compared to when it was,” said Ashley Dudarenok, founder of Chozan.

“We know that today compared to 2021, it costs exactly the same amount of money to bring a customer into your store, but the customer spends 30% less in your store,” she says.

In the first quarter, the average disposable income of urban residents in China was officially 12,175 Chinese yuan ($1,739), up 3.9 percent from a year earlier. Education, healthcare and travel are the top three categories for planned spending, a central bank survey found.

“The general consensus in the industry is that 2024 will be a year of growth and recovery,” Dudarenok said. “2023, let’s get out of recession, stay connected to the platform, to the customer,” she said.

Dudarenok also observed that ad agencies are spending only to test search engines. Both Baidu and Microsoft’s Bing have been working with innovative artificial intelligence technology.

Slow economic growth and uncertainty about future income since the Covid-19 pandemic have weighed on Chinese consumer spending. In the absence of national stimulus checks, retail sales rose modestly in the first four months of this year. May figures end June 15.

This year, consumers in China are looking to buy better quality products – and get more value for their money, said Dave Xie, principal at Oliver Wyman, a consultancy specializing in the Chinese retail sector.

He pointed out that local cosmetic products have been able to expand their market share with international brands by promoting product functionality and affordable prices around the 618 Marketing Festival.

Asked on Tuesday about the outlook for Chinese consumers this year, a JD retail representative said growth could be difficult.

As online marketing trends change, companies are seeing different results across platforms.

Brands are looking to spend more on ByteDanceDuein without incurring the ad spend they spend on Alibaba’s Taobao and Tmall e-commerce platforms, said Oliver Wyman’s Xie.

ByteDance is not publicly listed and does not frequently disclose listing numbers.

Among the major Chinese Internet platforms listed in the United States, PinduoDuo posted the largest year-over-year increase in ad revenue in the first quarter. The company also runs a group-buying app known for its bargain deals. That development may be a sign of local residents’ reluctance to leave.

“A lot of people around me are using Pinduoduo,” said Sun Hao, a partner at Beijing-based Goodidea Growth Network, a media group whose website lists Nestle, P&G and Tmall among its clients.

Also for the Little Red Book or Xiaohongshu app, it has seen great growth in cities with spending power, as the users tend to be mothers and white-collar workers. The app is not publicly traded.

However, according to Sun, many brands did not meet their performance targets in the first quarter, and his impression is that overall advertising budgets, especially traditional media, are contracting.

And for brands spending on Duyin, he said, the return per dollar of investment is diminishing.

The end of China’s strict Covid controls and the outbreak itself have undoubtedly boosted travel and in-person events. Travel booking site Trip.com said it doubled its spending on sales and marketing to 1.8 billion yuan ($256 million) in the first quarter.

For iQiyi, nicknamed the “Netflix” of China, offline shopping has become more important because of the recovery in foot traffic since China reopened, said brand director Kelly Shi. The company used billboards and interactive experiences to promote its content.

IQiyi’s selling, general and administrative expenses rose 48 percent to 1.1 billion yuan in the first quarter from a year earlier, “mainly due to higher marketing costs,” the statement said.

Slow growth in China’s domestic market is pushing many domestic consumer goods companies to look overseas — sometimes through acquisitions or mergers with other brands.

Thanks to that strategy, China-based consumer product companies have seen the fastest growth among Asia-Pacific peers over the past decade, according to a Bain & Company report released in late May.

Philip Ling, head of Bain’s Asia-Pacific M&A practice based in Shanghai, said more Chinese overseas deal activity is expected in the next six to 18 months.

For many companies in China, the strategy is now to acquire brands that will benefit from both overseas markets and China, he said.