TheChek News Flow

Last year, hotel giant Marriott International saw its Chinese website blocked for seven days after Taiwan, Tibet, Hong Kong and Macau were listed as separate countries on a customer questionnaire.

In Shanghai, Japanese lifestyle retailer Muji was fined 200,000 yuan (or $31,000) for suggesting Taiwan was a country on its packaging. Chinese regulators have also demanded apologies from the fashion brand Zara and medical device maker Medtronic, when their websites appeared to do the same.

International airlines have also been slapped with official sanctions, with Cathay Pacific being forced to fire staff and limit others from flying mainland China routes if they are known to support protesters in their home market of Hong Kong.

Less than 9 percent of United Nations member countries formally recognise Taiwan — and most are tiny island nations or microstates. Hong Kong and Macau are granted SAR (special administrative region) status but are an integral part of the People's Republic of China.

"I personally think [recent controversies are caused by] a continuation of habits. Foreign companies have always listed the mainland, Hong Kong, Macau, Taiwan and other regions in terms of organisational structure and internal performance reports. But in a strict sense, this is not in line with [today’s] legal and political norms," Shanghai-based fashion business consultant and columnist Leng Yun told BoF.

In many cases, the listing of Hong Kong, Macau and Taiwan as country options in drop-down menus of company websites is a product how software is designed and built. When designers construct a website, they will either copy International Organisation for Standardisation (ISO) country codes for the locations shown in their menus, or simply choose a "country list" or "address" module compatible with the software framework they are using to put the site together.

The problem is, separate ISO codes are created for "countries and their dependent territories", meaning Hong Kong, Macau and Taiwan are given their own codes, which then make their way onto "country" drop down menus, making it look as though they are considered separate countries.

“I think these are mostly [just] silly mistakes or ignorance about local political sensitivities rather than brands making overt political statements,” the mainland-born, Shanghai-based editor-at-large of Hong Kong luxury magazine Prestige, Jing Zhang, says.

The speed with which companies such as Coach, Givenchy and Versace moved to apologise for their mistakes in listing Hong Kong, Taiwan and Macau as countries on products, and companies including Calvin Klein issued apologies for listing Hong Kong and Taiwan as separate countries elsewhere, seems to confirm they were not deliberate statements supporting the independence of the regions and territories involved.

But whether or not these cases stem from oversight rather than intentional political provocation matters little to the Chinese.

“[Whether or not it’s intentional] these brands are doing something ignorant and politically incorrect. Macau and Hong Kong are not independent countries; they are part of China. I can’t believe these Western brands are still this uninformed today,” says Chinese stylist, editor and publisher of WeChat magazine LEAF, Leaf Greener, who has previously made comments on Instagram supporting Hong Kong's autonomy but only, she explained, as part of China's "One Country, Two Systems" policy.

In one example of the depth of feeling surrounding this issue, a survey circulating on Weibo on Monday asking about people’s attitudes to brands that “insulted China” quickly garnered more than one million responses, with 70 percent of them saying they'd "never buy their products even if I have nothing to wear."

It is little wonder Chinese people are more defensive and vocal about sovereignty than before. Nationalism — and in some cases patriotic fervour — is running high as China weathers storms on several political fronts and the consistent message coming from Beijing and echoed in state media on a daily basis is that the trade war with the US and protests in Hong Kong are all part of a broader international effort to blunt China’s rise.

Although there is some evidence that China’s government is waging an information war against protestors in Hong Kong and the US with its trade dispute, it would be a mistake to dismiss the anger and offence felt by Chinese citizens. Enraged mainland citizens view any ambiguity about the status of Hong Kong as a colonialist affront to their country’s sovereignty. Some even equate the issue — or conflate it, depending on your point of view — with racism.

According to Wang Dan, Chief China Analyst for the Economist Intelligence Unit, China’s ascendant consumer class has started to realise the new-found power it wields. It’s unlikely that Chinese consumers will put up with any slight, whether perceived or real in the foreseeable future.

"I think the impact [of this run of scandals] needs to be a conceptual shift in foreign companies. The Chinese market has changed from being purely a large market, to being the most important market that can determine the fate of a company [and] that changes the relationship,” he said.

For luxury brand executives who are wringing their hands over the public relations nightmare in which they are now embroiled, things could be a lot worse. Despite the reputational and other damage that has been done to brands caught up in the past week’s controversies, some argue that they have got off easy compared to the official sanctions and fines that hotel, airline and other sector brands have endured.

Instead, the current playbook includes issuing apologies quickly and unreservedly (with the exception perhaps of Dolce & Gabbana), laying low for a while to weather the storm and then gradually working their way back into the good graces of the Chinese consumer, which, according to McKinsey & Company spent 770 billion yuan ($115 billion) on luxury goods at home and abroad last year, equivalent to a third of the world’s total.

So rather than risking the biggest potential business opportunity in the world (Chinese consumers are set to make up 40 percent of global luxury spend by 2025), and weathering months (or longer) of poor public perception and sales, the question on everyone’s lips is how to avoid these situations in the first place?

“I think having somebody, whether you call them ‘China Cultural Officer’ or whatever, there should be someone who is thinking about this stuff on a daily basis and giving final approval on any web content, any product content that could be a problem,” Benjamin Cavender, China Market Research Consulting's senior researcher.

“Having someone like that makes a lot of sense given how important China is as a market for these brands now. They can’t afford to be making these mistakes,” he adds.

Advocates of a senior executive representing the interests of Chinese consumers at company headquarters argue that such a role would nip many of these issues in the bud.

Although some find the comparison with Chinese outrage unfair, this year has seen the fashion industry wrestle with its image and values after an unfortunate spate of blackface controversies. These scandals rightly prompted action in the form of diversity chiefs being appointed at Chanel, Gucci and other major houses. While the verdict is still out on the effectiveness of these executives, the intention is that a greater focus on diversity can help avoid unnecessary, hurtful and damaging mistakes in the future.

Greener believes that greater representation of Chinese at the global level is key, but is concerned recent moves toward diversity will do little to change broader cultural hierarchies baked into many luxury companies.

“It’s one thing to have a diversity [chief] or department, but actually having diversity throughout the organisation is more important,” she told BoF.

“Right now, I feel like companies are treating diversity as a trend, but that’s totally wrong. Diversity is not a trend, it’s a really important thing to take seriously.”

Greener points out that diversity is not just about having people who look different on a team. It’s just as important to have representation of non-Western cultural viewpoints in leadership positions in order to create a culture that isn’t so myopically Western.

In October last year, Hong Kong-born Charles Leung became the first person of Asian descent to hold a global CEO post within luxury conglomerate LVMH, as head of heritage jewellery line Fred. A year before that, Chinese-born economist Jin Keyu made waves by joining luxury conglomerate Richemont’s board. But the fact that these appointments make headlines at all points to the exceptionalism of Asian representation at the top levels of global management and decision-making.

There are also undeniably powerful China and APAC based executives working within luxury companies and conglomerates — Cai Jinqing, President of Greater China for Kering, and Andrew Wu, President of Greater China for LVMH are two such examples. But perhaps the way their roles are structured as regional power centres means they are not able to simultaneously perform those roles and have oversight of broader company culture decisions made at headquarters.

“Certainly, given the portion of revenue coming from China for most of the big luxury brands, they should have specific, native Chinese representation sitting at the senior table with the other grownups for a start,” Mark Tanner, Managing Director of China Skinny insights marketing agency.

There are other ways to mitigate risks or overcome a crisis. Tanner points out that Marriott have largely been able to recover their reputation in China a mere 18 months after having their website blocked by joining forces in a big way with Chinese Internet giant Alibaba. The two companies now share membership privileges with Tmall and Taobao’s 600 million users given access to Marriott rewards when they sign up to Alibaba membership, intrinsically making Chinese travellers feel more a part of the “Marriott family” and therefore engendering a lot of good will.

If it’s not a newly invented role in the style of a China Cultural Officer that will act to fix the never-ending PR crises impacting brands in China, the answer may lie in a much simpler notion. Brands need to truly empower the Chinese voices that already exist within these organisations: their existing China team members.

“Local talents are [still largely] not allowed to participate [at a global level],” Leng said. “Luxury goods are by far the weakest part of the fashion industry in terms of localisation [of product and messaging].”

The situation still commonly referred to in China as the “Dolce & Gabbana insult”, started with an advertisement that saw a Chinese model struggling to eat Italian food with chopsticks. It was reported in Chinese media at the time of the incident that local members of Dolce & Gabbana’s team had advised against running the ad, but were ignored by the brand’s head office in Europe. It is a harsh lesson in what happens to brands who ignore perhaps their best resource for a pulse check in China.

But the hesitation to embrace localisation in a more substantial way is no accident, with global luxury brands careful to manage the level of their products, compliance and communications across different markets in order to protect arguably their most precious assets — their heritage and luxury positioning.

Leaf Greener recently concluded a months-long contract consulting for Chloe, in the lead-up to their show in Shanghai in June. She has seen first-hand the hesitance of luxury brands to give too much leeway to local teams.

“Of course they need to listen to their local team, but the problem is, [in my experience] a lot of local team members, they don’t know what’s going on [because they aren't informed by company headquarters so] they only know what is going on in China,” Greener explained.

“I can see this issue going on with Chinese management and Western management in conflict about how to build up brand image globally. What brands might need to do inside China might not be right for the brand image globally and I know that’s a concern for luxury brands.”

This is not a problem unique to China. Markets outside of the Euro- and US-centric hubs of luxury, including the Middle East, Latin America and other parts of Asia, where culture and language often act as a block for information being shared adequately between headquarters and local teams, and perhaps, vice versa.

But if this is the root of the problem for brands, then they also have the tools to improve the situation, namely, by sharing more information with their Chinese teams to inform them of global strategies and context. This would better enable them to offer guidance from a Chinese perspective, while also allowing brands to retain their international positioning, without losing their DNA of luxury or heritage.

“They need to trust, train and rely on their local teams a bit more to have both the foresight and the balls to pull things up that might be sensitive. It’s about integrating these China teams more with headquarters,” Jing Zhang said, adding that this change needs to “be psychological, not just structural.”

She, along with others interviewed for this story, believes the answer lies in combining a more active role in decision-making about China-related content and products from Chinese teams, as well as a genuine commitment to non-Euro and US centric diversity within the headquarters of fashion brands.

While some changes — like replacing “country” with “location” options on website drop-down menus — are relatively easy, a restructuring of the relationship between Chinese teams and luxury brand headquarters is considerably harder, and requires long-term planning and implementation.

Real and lasting change is difficult, but it’s also necessary, with never-ending PR scandals in luxury’s most important market the decidedly less appealing alternative.

时尚与美容
FASHION & BEAUTY

In response to President Trump's plans for a 10 percent tariff hike, Beijing allowed the value of its currency to drop 2 percent against the dollar this week (its lowest level since April 2008), aiming to offset the effect of Trump's tariffs by making US-bound Chinese imports less expensive. In the wake of the news, LVMH, Kering and L'Oréal's shares dropped 4.2, 1.9 and 3.1 percent respectively. Brands are fretting that the falling yuan and China's slowing GDP will affect consumption in the mainland, where they may have to increase prices locally, undoing the price harmonisation moves they have been making over the past year to boost sales. Experts forecast that the yuan could still drop a further 5 percent before the end of 2019, and brands should brace themselves for rougher waters ahead. (Jing Daily)

China’s largest annual streetwear fete is back. Dazed Media Co-Founder and Chief Executive Jefferson Hack was named this year’s creative director of Yohood, Chinese streetwear media empire Yoho!’s annual consumer-facing fair taking place August 29-31. The announcement celebrates the launch of Dazed China’s first print issue, and the three-day fair is expected to draw over 60,000 visitors. The Youthquake-themed space, visually reimagined by artist and Dior and Adidas collaborator Daniel Arsham, will feature areas designed by A-Cold-Wall* Creative Director Samuel Ross, collaborations between DazedChina and designers Craig Green and Ambush. (Dazed Media)

According to a recently published white paper by Tencent-backed plastic surgery marketplace app SoYoung, China now boasts the highest spending on medical aesthetic services, which spans treatments from the non-invasive to surgical.The report adds that while consumers in first and second tier cities are maturing and boast higher conversion rates, consumers third and fourth tier cities still lack knowledge of the medical aesthetic market and tend to raise queries on the app rather than book appointments. Meanwhile, consumption in China’s so-called "new tier one cities" such as Kunming are set to overtake that of established top tier hotspots to drive growth. Compared to the US’ 420,000 facial surgery estimated to take place this year, SoYoung forecasts that the number of Chinese surgeries will exceed 738,800. (Jiemian)

科技与创新
TECH & INNOVATION

Youtube Could be the Next Frontier for Douyin’s Biggest Stars
Douyin (or its western equivalent Tiktok) is the app to watch. As of July 2018, 14-year-old YouTube’s monthly users exceeded 1.9 billion, whereas 3-year-old Douyin is catching up with global users exceeded 500 million. However, with Youtube’s monthly activity quadrupling that of Douyin’s, many are wondering if Chinese influencers will soon expand to other platforms to potentially reach a larger audience. According to Mediakix, global influencer spending will reach $10 billion by 2020, and the first Chinese stars to successfully establish a presence on global platforms are likely to reap the rewards, considering the diversity monetisation options available to Youtubers. (36KR)

Troubling Time for Xiaohongshu
Social e-commerce app Xiaohongshu has been going through a rough patch. Recently, the firm has been removed from the Google Play store, disenfranchised its community KOLs after enacting new creator posting and sponsorships rules and battled rumours of escort listings, fake accounts and the unlawful collection of user data. According to Parklu’s Elijah Whaley, the company faces a plethora of obstacles, from its easily hackable social recommendation engine to its contradictory pursuit of authenticity and restricting what users post. He writes, “if the company doesn’t value the creator community, tighten up its PR, and find a way to monetize without negatively impacting the user experience, someone else will.” (Technode)

Behind the Livestream E-Commerce Boom
Three years after e-commerce players Taobao, Mogu, Suning and JD.com saw success with their livestream functions, the feature has become par for the course for China’s retail firms. Early on, these frontrunners positioned sales at the heart of the medium, with conversion rates and sales volumes as indicators of success. According to Taobao, livestream users spend an average of an hour a day watching content, and the number of users and time spent on the app per day are both on the rise. And though many compare the rise of livestream e-commerce to QVC-style retail, the former has thrived by virtue of its interactivity, immediacy and perceived authenticity, bringing consumers a more realistic experience and allowing China's livestream 'anchors' to single-handedly orchestrate a niche product's overnight success. (36KR)

消费与零售
CONSUMER & RETAIL

On August 7, Chinese luxury e-tailer Shangpin filed for bankruptcy, reported National Business Daily. It was announced on the retailer’s site and app on July 31 that it would suspend operations, though no mention was made of bankruptcy or liquidation; according to a number of former employees, they received an email from the company containing the subject line “Bankruptcy Dismissal Notice” on the same day. Shangpin’s downfall illustrates the cutthroat nature of China’s e-commerce landscape, largely dominated by tech and retail giants Alibaba and JD.com and increasingly uninhabitable for smaller outliers. Founded in 2010 by David Zhao, Shangpin pivoted from a flash sale model to focus on forming ties with brands from the affordable — Shangpin served as Topshop’s official China e-tail partner for years — to the high end. (NBD)

In spite of the trade war tariffs adding to the costs of imported goods, mainland consumers are spending more on consumer goods and services, and plan on spending more over the next 12 months, according to a UBS survey. The survey results, made up of data collected from 3,000 respondents in May, reveal that one in three consumers said they were spending more on goods and services, while one in five said they would spend more in the next year. While it was announced in July that GDP growth slowed to 6.2 percent (the weakest quarter since record-keeping began in 1992), monthly retail sales had increased year-on-year for more than a decade, and onlookers remain optimistic — for now. (SCMP)

China’s top e-tailer is focusing on content to drive sales. On August 8, the e-commerce giant global arm opened its first celebrity-curated online stores. The launch sees the retailer move into territory currently occupied by social e-commerce app Xiaohongshu and Look, a tech company that manages e-commerce storefronts for KOLs; while Tmall will manage the logistics and customer services, influencers and celebrities will take the reigns as ‘buyers’ and content creators of their own online boutiques. “The Great Wall” actress Jing Tian was the first to collaborate with Tmall to debut her store, and harnessed Taobao’s livestream function and Weibo’s vlog platform to promote its offerings, which included her favourite Aspiration curling iron and Phillips electric toothbrush. (Tech 163)

政治、经济、社会
POLITICS, ECONOMY, SOCIETY

Though mentions of Hong Kong’s escalating protests were previously censored across Chinese social media, Beijing has changed tacts. The demonstrations, now past their fourth month, are currently trending on Chinese social media site Weibo as well as video app Douyin and news app Toutiao, with state media propagating hashtags and illustrations in favour of the city’s Beijing-elected government and police force. Though a handful of netizens have voiced their support for protestors, many have since been labelled ‘traitors’ by other users, and a majority of mentions are calling for the protection of Hong Kong and support for its police force. In sharp contrast to reports of police brutality, reports of violence against police officers are circulating, and some posts accuse western media of fabricating reports of violence against protestors. Meanwhile, a Chinese armed police truck convoy has rolled into neighbouring Shenzhen in what state media claims is a drill, but analysts have deemed a "psychological warfare tactic." (What's on Weibo)

Since China let the yuan drop to its lowest value since 2008 last Monday in response to Trump’s threat of new tariffs, the prospect of a fully-fledged currency war has flustered global markets. The German sportswear giant’s Chief Executive Kasper Rorsted said that the company is more worried about a currency war between the US and China than the possibility that President Donald Trump will increase tariffs on footwear, as the former will lead to “a slowdown in the global economy.” Rorsted made his comments during a call with the press after Adidas released its second-quarter earnings that narrowly missed estimates, and the company’s shares fell for most of the day on August 8, then plunged 8 percent after Rorsted told analysts that margins would decline in the second half of the year. (Bloomberg)

Chinese youth are embracing the idea of a "single society." As social and economic shifts widen generational gaps in China, a growing cohort of the country's post-'90s generation is putting off marriage, and phrases such as “people born after 1990 do not want to marry” are trending on social media. According to official data, the number of Chinese couples who tied the knot fell from 13.47 million to 10.11 million from 2013 to 2018, a trend that experts are attributing to young women becoming more financially independent. Meanwhile, as social and medical insurance covers most Chinese residents, couples are feeling less inclined to start families for benefits, and are focusing on their careers instead. (Inkstone)