Interview with Shaun Rein, the author of The War for China’s Wallet

661
Interview series by US-China Investment News editor Li Hu
The War for China's Wallet
The War For China’s Wallet: Profiting from the New World Order

Shaun Rein’s book covers more geopolitics than his previous two books and looks at how China is cementing its power through economic carrots/ initiatives like One Belt One Road and by punishing countries like Norway and companies like Lotte that do not follow its wants politically. The book looks at how China is dealing with Southeast Asia, the Korean Peninsula, the Middle East, and how the US needs to respond

1.) What was the writing process like for the book? How did you get the idea to write the book?

I started the China Market Research Group (CMR) in 2005. Over the previous decade our hedge fund clients would ask us what brands Chinese consumers preferred and what long-standing macro-economic themes they should focus on. But that started to change 2-3 years ago when all the questions became politically focused — will China keep punishing South Korea for deploying THAAD (a missile defense system)? Do Chinese consumers hate now South Koreans like they hate Japanese or will they eventually go back to buying South Korean brands like Amore Pacific, Lotte, or shop at Shilla Duty Free?

I wrote this book to help investors, as well as multi-national executives and government officials, understand how to navigate China’s growing economic power and profit from it. 

The book takes us to all corners of the globe — from Qatar to Canada to Vietnam to New Zealand. I traveled extensively over the past two decades which has given rise to the book. For writing I spent most of my time in Thailand, Qatar and Vietnam writing the book. I find Thailand to be a very peaceful environment to write. 

2.) In the book you talk about how “As China’s domestic market continues to be plagued by consumer distrust, and as Chinese brands attempt to counteract it, foreign brands have an enormous stake in understanding the low-trust environment and in launching the right strategies to capitalize on it.” This consumer distrust of the domestic market (diapers or baby food or health products for example) – do you see this as something that will ever change down the road? And if this opens the door for foreign brands, are there a few foreign brands that you think have done a really good job of capitalizing on this opportunity and why?

Right now there is a monumental shift in consumer preferences in China. Five years ago we interviewed 5000 consumers in 15,000 across China. At the time 85% of respondents said they preferred foreign brands over local brands. When we did the same research last year, 60% of respondents said they preferred domestic Chinese brands. Part of the shift is due to rising nationalism, patriotism and pride in being Chinese in recent years — but an even larger part is Chinese companies like Mengniu and Yili are outcompeting slow-moving multinationals like Nestle that simply do not understand the Chinese consumers.

Local brands have focused on moving up the value chain and selling more expensive ice creams, yoghurts and baby formulas for example than Nestle’s. Chinese are so worried about product safety that they often equate high price with better safety. However, premium foreign brands still have great opportunities as long as they did not like dilute their China-made products as P&G or Johnson & Johnson have done. For example, a Chinese-made Pampers diaper uses inferior materials to American and even Hong Kong made diapers. Or their Tide detergent line in a watered down version compared to the US line. 

Chinese now will buy foreign products that are made for the foreign market and brought to China. Australians and Dutch brands especially have been savvy to bring to China the exact same formulas they sell in their home market. This builds trust. 

3.) In regards to China’s growing middle class, you say “One of the key areas that companies selling to Chinese tourists need to understand is that no Chinese truly think of themselves as middle class—as the shoppers at Macy’s in the United States would most likely self-identify—they think of themselves on the way to riches” – with this type of mindset, how do you think brands should best approach marketing to the middle class? 

Many brands make the mistake of thinking that Chinese middle class consumers are the same as middle class consumers in the United States and thus position their brands the same way. I have already mentioned a few brands like Nestle and P&G that have made this mistake. Marks & Spencer is another example — their positioning was not cheap, good value enough nor was it aspirational enough. Brands need to decide should they be more aspirational in China than they are in other markets as ECCO shoes, Adidas, and Starbucks have done quite well… or should they go cheaper and thus lose the trust of Chinese consumers as Nestle, Marks & Spencer have done.

The reality is most Chinese still retain optimism in their long-term career prospects— dropping frankly the past 3 for years because of rising real estate costs — so brands that position slightly aspirational tend to do better. Now, Chinese consumers are becoming more sophisticated so more and more look more for uniqueness and individualism than before when shopping, but they still largely equate high price with better quality across a range of product and service categories, from autos, to clothes, to food. 

4.) A more general/overarching question: you mention that you’ve lived in China for 15 years now. What are some of the biggest changes you’ve noticed in China during your 15 years? What excites you about the future of China? 

I first arrived in China in 1997 and spent about 6 months a year living in Tianjin, China until 2003 when I moved to Shanghai full-time. The biggest changes I have seen in the can do attitude that has spread across the whole society. When I first arrived, there was an electric optimism that people’s children could lead a better life than they had — but their goals were much more modest. As China, and Chinese themselves got richer across all sections of society, a real can do attitude emerged in the country. 

People started to believe that anything can happen, which is why you have seen ambitious companies like Huawei, Tencent and Alibaba harbor not just China focused ambitions but global ones. They want to become true global players. You can see Alibaba and Tencent alone are investing billions into Silicon Valley, becoming the largest foreign investors there aside from Samsung. It is exciting to see how that can do attitude I first saw in 1997 has manifested itself in China becoming strong, confident and ambitious. Quite nice. 

Copyright 2017 – US-China News Interview Series. To be featured in our next series, contact info@uschnews.com