China Outdoor Advertising Industry

China is one of the fastest growing markets in the world, and one of the largest advertising markets in Asia. In 2003, China’s advertising expenditure reached RMB 108 billion, or USD 13 billion. It is about 5 times of the value in 1994.

At the same time, China also witnessed a fast expanding outdoor advertising industry. Based on the data from China’s State Administration of Industry and Commerce, the CAGR of outdoor advertising from 1994 to 2002 was about 19%. Currently, outdoor advertising has become the third largest medium after TV and print media, and will play a more important role in the future. It indicates a great investment opportunity for foreign investors and local companies as well.

Although China as a whole is a big market for outdoor advertising, there are big gaps between the various regions. Generally speaking, growth rates for outdoor advertising are positively correlated with the consumer spending power. Beijing, Shanghai and Guangzhou are the top three advertising markets in China, and Beijing occupies the largest share of outdoor advertising. In 2003, the top two industry sectors in terms of outdoor advertising expenditure are Post & Telecommunication and Real Estate.

It is estimated that there are around 50,000 outdoor advertising companies in China, with operations highly scattered. Most of them are local enterprises. Through a series of acquisitions and expansion, four outdoor advertisers have grown to be nationwide operators, namely, Clear Media, Media Nation, Media Partners International and Tom.com. They are all joint ventures and listed on the Hong Kong Stock Exchange.

The performance of these four companies can be viewed as benchmarks for potential foreign investors. Clear Media enjoys monopoly in bus shelter advertising in Guangzhou and Shanghai. This reveals a potential entry barrier to new investors since outdoor advertising’s resources are geographically limited and are not easily replaceable.

In accordance with China’s WTO agreements, the SAIC and the Ministry of Commerce have, on March 2, 2004, issued the Administrative Provisions on Foreign Investment in Advertising Enterprises. The foreign party is entitled to own controlling share in the joint ventures, but the proportion of capital investment cannot exceed 70%. Wholly foreign-owned advertising enterprises may be establishedafter December 10, 2005.

In addition, the Closer Economic Partnership Arrangement (CEPA) between Hong Kong/Macao and the Chinese Mainland, which is a free trade agreement under WTO rules, allows Hong Kong and Macao advertising companies to set up wholly-owned advertising enterprises in the Mainland as from January 1, 2004, some two years ahead of their foreign counterparts.

Nevertheless, ambiguities can be found in the regulation of outdoor advertising in China. Various government organs claim certain power in governing outdoor advertisements. Foreign investors must pay attention to the procedures for seeking local approvals and observe operational rules to avoid unnecessary risks.

The overall economic picture for China’s advertising industry is optimistic. With an increasingly stronger purchasing power, and with the 2008 Beijing Olympics and the 2010 Shanghai Expo upcoming, China’s outdoor advertising will grow at a greater pace.