China Hopes to be DM Player, Offers First Catalog, Middle Class to Hit 200 Million

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SHANGHAI - China is out to become a global direct marketing powerhouse and China Post has taken a first step by issuing a catalog of Chinese goods it hopes to sell to Chinese immigrants in the US.


It has set up the China Post Mail Order Company headquartered in a Beijing building with 8,000 square feet of office space. "They're trying to figure out how to sell direct to the US," H. Robert Wientzen, CEO of the US DMA said.


"They intend to sell replicas of art objects from their museums and they asked me for information about how to go about doing that," Wientzen said after returning from the China Direct conference held here last month. "That is going on even as we speak."


The 68 page book flogs products that would appeal to overseas Chinese including food, cosmetics and various home health remedies. But it also features cutlery, noodle machines, apparel, simple electronics, toys and binoculars.


The text is in Chinese, the prices appear to be in yuan.


"I was astounded by the degree of interest in direct marketing. It really took me by surprise; so did high level government interest," Wientzen said.


He spent an hour with the head of Shanghai's economic development board whom he described as "well informed, very interested in direct marketing and extremely knowledgeable about what was going on. They seem to see DM as a potential solution to some infrastructure challenges."


The growth of cities like Shanghai, Wientzen noted, has caused mammoth traffic problems and makes getting in and out of cities on shopping trips difficult and onerous.


"They see direct selling into suburbs as a potential benefit. It is a way of getting goods and services more widely dispersed than they could in any other way."


That interest in DM was reflected by Chinese involvement in the China Direct conference, an event co-sponsored by USPS's International Business Unit (IBU) and the DMA, and attended by representatives of a dozen US direct marketing companies.


"We had the head of Chinese customs present their positive attitude of working in a positive way to assist direct marketers and help them get into their country," James Grubiak, the vice-president in charge of IBU said.


"They are reviewing their customs restrictions and hope to improve their position on imports let into the country," he added. China still has major restrictions on imports. (See p. 3)


The DMA's Wientzen conceded that challenges to US direct marketers in China remained formidable. He noted that the German Otto Versand is making "a big splash" with a catalog it launched last fall.


But despite super-model Claudia Schiffer on the cover


and lingerie models inside who resemble those used in Victoria's Secret US catalogs, Otto has problems - not enough lettershops, too few good lists, among others.


On the other hand, Wientzen said, a basic DM infra-structure is taking shape - television, telephone, credit cards, even the Internet are growing rapidly.


China has 250 million of the world's 828 million TV sets. In urban areas set ownership has gone from 15 percent in 1985 to 90 percent in 1996. Beijing has 119 TV sets per 100 households, meaning a lot of households with two sets.


Cable is still small relative to population but the gross numbers are large. Shanghai, a city of 14.7 million, has 2.23 million household with cable. In all China 50 million people are on cable.


"A huge TV market is opening up in China boosting interest in goods they can't buy in local stores but could from catalogs or from DRTV." Guthy Renker and Interwood among others are showing infomercials in China, he noted.


Credit and debit cards are growing rapidly. One Chinese bank has 25.1 million cards outstanding, three others more than 19 million, Wientzen said. Grubiak put the total number of cards at 54 million.


Phone penetration is trickier, Wientzen said. Nationwide it is 23.4 phones per 100 household but in Shanghai it is 70.5 phones vs. 49.2 in Guangzhou and 38.4 in Beijing. Overall, urban phone penetration is 54 percent.


China started a toll-free 800 service in 1995 and now has 9 cities along its eastern coast on that web. "I talked to the vice-minister who heads up communications and he said they expect to have 30 cities with 800 numbers by the end of this year," Wientzen said.


AT&T has a contract for developing a call center in Shanghai able to handle 800 numbers, do telemarketing and order processing. It will have an Internet capability, too. But the number of people on the Internet is still small - only 620,000.


Incomes are rising. Grubiak estimates that China will have 200 to 250 million white collar workers within a decade who have disposable income to spend.


Average incomes are $3,000 but those who make $4,000 to $5,000 a year are doing well since that dollar amount is far larger when measured in terms of PPP - purchasing power parity, i.e., what consumers can buy with the money.


At the conference Grubiak unveiled his New Marketing Opportunities program in China. This allows US mailers to test up to 25,000 catalogs at lower ISAL rates with a package of other "freebies" including a translated order form thrown in.


"From my perspective the timing for going into China is right. There never is a perfect time. The window of opportunity is when you can be one of the first to get in and develop a business," Grubiak said.


"Being first involves a pioneering attitude and that carries some risk. But our new marketing opportunity program provides Americans with a low risk entry to test the waters and begin to build."
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