When tropical storm Matsa landed on southeast China in early August, it definitely had no intention to hurt outdoor advertisers there.

But it did. Before the storm came, numerous billboards thought to be dangerous to passers-by were dismantled. Some advertisers reportedly went bankrupt as a result.

Billboards advertising goods and services, Chinese or foreign, have changed the outlook of some Chinese cities, in particular the developed cities on the coast such as Shanghai and Hangzhou, which bore the brunt of the attack by Matsa. What happened to billboards and advertisers there, in its own way, suggests that the domestic outdoor advertising industry is still somewhat vulnerable.

Outdoor adverting now enjoys an increasingly great boom in China due to a booming demand. According to the State Administration of Industry and Commerce (SAIC), China's total advertising expenditure reached 126 billion yuan (about 8.11 yuan against the US dollar at the current rate of exchange) in 2004, about six times as much as in 1994.

In comparison, outdoor advertising expenditure increased 20 times from 611 million yuan in 1990 to 13 billion yuan in 2003, representing an annual average growth of 26 percent.

Outdoor advertising has become the third largest medium, after TV and newspaper, taking about 12 percent of the entire advertising market. "If everything goes well, China's outdoor advertising industry should attain what the United States has accomplished in five years," said Sun Yingcai, vice-president of China Advertising Association (CAA). "It may become the greatest in the world in seven or eight years."

The industry, which now furnishes 0.93 percent of China's gross domestic product (GDP), is seen as undergoing a "period of takeoff" in light of global experiences. The industry will be regarded as "mature" when it has grown good enough to account for two percent of the national GDP. "The gap indicates that China's outdoor advertising has an immensely great potential for development," Sun Yingcai said.

"The potential can be tapped, given the increasingly strong purchasing power and the upcoming 2008 Beijing Olympic Games and the 2010 Shanghai Expo," he added.

The gross volume of China's outdoor advertising is by all means remarkably large. Its development, however, remains far from being desirable, industry insiders told China Features.

SAIC statistics show that China had around 69,000 outdoor advertising companies in 2004, mostly operating on local markets. Through merger and acquisition, five have developed into nationwide operators, which together have a 20 percent share of the domestic market.

In 2004, the growth of revenues all exceeded 10 percent for the top five. Clear Media, the largest, yielded 538 million Hong Kong dollars in revenue and 95 million Hong Kong dollars in pre-tax profits, up 10 and 16 percent over the previous year, respectively. With monopoly of bus shelter advertising in Guangzhou and Shanghai and an 86 percent share of Beijing's outdoor media market, the company has come to be rated as the most successful overseas operation by its parent company, the US Clear Channel.

MediaNation Inc., which is owned by Europe's top advertiser JCDecaux, reported 439.6 million HK dollars in revenue, up 17 percent year on year. It is the sole agent for advertising in the Beijing Metro and owns 1,000 newspaper kiosks in Shanghai,

Though a late comer among the top five, Tom Outdoor has nonetheless built a business network that covers 60 cities. It witnessed a revenue growth of 24 percent to 369 million HK dollars and a profit leap of 118 percent to 5.8 million HK dollars.

The competition is fierce on the increasingly market-oriented Chinese market. "A few hours after a message of 'ad needed' is released, guys from a dozen advertisers will show up to scramble for a contract," said CEO Li Jian of Tom Outdoor.

Business executives interviewed for this article agreed that small, local advertisers now find it increasingly difficult to survive, for short of resources to develop customized services. Moreover, arbitrary interference from local governments has made their life even harder.

In Shenyang, capital of Liaoning Province, advertisers used to apply to the city government for setting up outdoor billboards. The city government, in turn, called meetings of its urban planning and construction departments to examine applications from advertisers. In 2004, the city government changed this old practice, demanding that the right to operate outdoor billboards be subject to public auctioning.

It seems nothing is wrong with the decision. Problem is that even if an advertiser has won the right to operate a billboard, the billboard could still be dismantled if it goes against any of the "provisional regulations" allegedly to improve urban planning and construction. More often than not, such regulations are based on the arbitrary will of some leading officials.

Massive dismantling of advertising billboards began shortly after the decision was ordered by a vice-mayor to "thoroughly rearrange the outdoor ads." Shen Hongru, a local advertiser, had his last billboard torn down in early August 2005, leaving him penniless. "I can't stand it any longer," he told China Features. "I should have sold all my billboards before that."

CAA Vice-President Sun Yingcai compared what Shenyang officials have done to tropical storm Matsa. Said he, "Matsa destroyed our billboards, and reckless official interference has wrought about havoc in our industry." Major advertisers, however, know how to protect themselves, he continued, citing those billboards carrying Pepcicola along the Nanjing Street, a business center in Shanghai.

Not long ago, Sun said, a newly-appointed senior local official asked to pull them down, claiming that "it is improper to allow foreign name brands to occupy our core street." The operator of these billboards, an international advertising giant, lost no time to seek support from Beijing, declaring that government's incredibility may threaten foreign investment. The result: the billboards are still there.

Commenting on the story, He Chaobing, president of Dahe Group, the only Chinese company among the top five, complained that the government is much more lenient toward foreign advertisers operating in China. "We want fair treatment," he said. "Why is it that domestic operators have to buy operating rights while foreign companies can get such rights through negotiation?"

The local operators are getting organized to press the government for a change in the current policy. In September 2004, some 130 of them gathered in Shanghai to discuss how to extricate themselves from the current predicament. In a declaration issued at the end of the gathering, they called for long-term regulation of the advertising market rather than random changes to it.

An official with SAIC, who declined to be named, disclosed that a measure regulating the content of outdoor advertising will soon come out, though regulations on long-term administrative mechanism, including those concerning the property rights of outdoor media, are still being studied.

In the opinion of Li Jian, Chief Executive Officer of Tom Outdoor, merger and acquisition are the only way out for China's outdoor advertising operators. "You've got to be large and strong enough to survive or to sell your billboards," he said.

He was referring to experiences of his own company, Tom Outdoors, which claims to have developed into the largest of its kind in China in just three years after its founding in 2001, mainly through merger and acquisition. The 2004 expansions of Dahe Group and Tom Outdoors in this way were rated as among the industry's nine major events for the year.

Echoing, CAA officials said that it is high time to "tidy up the market," and also high time to welcome in foreign media giants since few domestic advertisers are financially and technologically competent for leading the business.

Under China's WTO agreement, wholly foreign-owned advertising enterprises should be allowed to operate in the country after December 10, 2005. The current policy, however, limits the foreign stake in a joint venture to 70 percent.

Tropical storms and typhoons are bound to hit China in the years to come. "But," said Sun Yingcai, "Merger and acquisition will usher in large, technologically sophisticated companies, companies able to withstand any adversity."

Source: Xinhua