Team Finland Future Watch Report "Signals of online revolution for china"

China's Future Signals 2-5 years
10 March 2014
China Skinny
China Skinny | www.chinaskinny.com | info@chinaskinny.com | +86 21 3221 0237 | Suite 805, 69 Yanping Road, Jing’An, Shanghai, China
1
China's Future Signals
Looking 2-5 Years Ahead
10 March 2013
China Skinny

10 March 2014
China Skinny
2
Table of Contents
Executive Summary
Introduction & Overview
Signals:
1. Increasing Education Needs
2. Social Media-Integrated Rich Mobile Entertainment
3. Soaring Staff & Operational Costs for Businesses
4. The Trend Towards Wearable Technology
5. In-Car Telemetry Integration with Everyday Lives
6. Rising Independent Travellers
7. The Worsening Likelihood of Ill Health
8. Smarter Environmental Intelligence
9. Food Production Corporatisation
10. The Food Safety Movement
The Last Word
3
4
5
6
7
8
9
10
11
12
13
14
15

10 March 2014
China Skinny
3
Executive Summary
The Chinese market is unique in the world. Whilst it presents significant prospects, its scale, rate of change and regional
variances, coupled with social changes makes it necessary to understand and anticipate trends to realise these
opportunities.
The following report assesses key Chinese political, technological, economic and social trends over the next 2-5 years and
combines them with some of Finland’s key strengths to define 10 B2B and B2C future signals. These signals provide
opportunitiy guidelines for Finnish companies to develop products and services most likely to service China’s future needs.
These signals are interrelated and may be best achieved with Finnish businesses collaborating on their strengths.
The first signal identifies Chinese parents’ focus on education, and the opportunities rising wealth presents for alternative
and complementary technical-based education tools, especially in the field of creativity. Finland’s excellence in both
education and technical/gamification positions it well to service this need.
Mobile gaming is soaring in China due to rising smartphone penetration. Integration with social media platforms such as
WeChat will create new opportunities for richer multi-player games, building on Finland’s leadership established by
companies such as Rovio Entertainment.
Soaring labour and operation costs in China, coupled with a shift to higher value industries will lead to increased demand
for online tools that create business efficiencies.
Wearable technology is set to boom in China, and Finland’s Nokia ecosystem, design leadership and sports companies
position it well for this. Likewise, in-car telemetry will grow faster than car ownership, capitalising on similar industries.
China is already the world’s largest market for outbound tourists, and travellers could double within the next five years, with
a shift towards independent travel. Something these tourists will have in common is a smartphone, so apps and services
that assist with travel are set to be in high demand.
Health is one of the biggest issues facing Chinese consumers, and online tools that integrate with health products, services
and health fads to capitalise on connected middle classes will find success in China.
One of the significant contributors to poor health is China’s environment. The Government, businesses and consumers
are all potential customers for tools which help deal with the worsening situation, providing many market niches.
To meet rising demand for food, China is moving away from small farms to corporate farms, which by proxy, will drive
demand for efficient farming tools and processes. Related technologies to monitor and create safe processes in food
production will also be sought after by businesses and consumers.
China’s unprecedented growth and transition present significant new market opportunities for Finnish companies, however
it is important that Finnish businesses understand China’s unique traits and challenges to create solutions to best service
these.

10 March 2014
China Skinny
4
Introduction & Overview
The Chinese market is like no other. Its scale, rate of change and regional variances, coupled with influences such as
political intervention, a rising middle class, urban migration, changing family dynamics, rapid modernisation and
internationalisation, and the increasing influence of the Internet, social media, eCommerce and smartphones has created a
market more dynamic and complicated than anywhere else.
The sheer scale of China means that meeting future needs of the country's organisations and consumers provides massive
economic opportunities, even for market niches.
China Skinny has assessed key Chinese political, technological, economic and social trends to identify ten key signals over
the next 2-5 years. These signals provide opportunities in both B2B and B2C and are well-suited to Finland's strengths
and areas of expertise. China Skinny has provided examples of Finnish companies that are well placed to benefit from
the opportunities in China, however this not an exhaustive list.
The ten signals identified are: education tools, smartphone entertainment, business efficiency, wearable technology, in-car
telemetry, independent travel, health aids, environmental intelligence, food production corporatisation and food safety.
We have focused on areas where technology and the Internet will have a significant impact.
In this increasingly integrated world, many of the signals are related to one another as seen in Chart A: China Future Signal
Connectedness. Collaboration between Finland's key businesses and industries will see it ideally placed to take
advantage of the significant future potential of China's economy.
We hope that you find these forecasts enlightening and helpful, and look forward to providing a further study into the
chosen signal.
Chart A: China Future Signal Connectedness

10 March 2014
China Skinny
5
1. Increasing Education Needs
Summary With most families having one child in China, parents have just one chance for their offspring to succeed and provide for them in
their retirement. Chinese parents place great importance on education, and it is not unusual for them to spend more than 30%
of their household income on education. According to research by Boston Consulting, Chinese parents stated education would
be their number one priority if they were given a 25% increase in discretionary spending. A significant rise in incomes between
2016-2019 will drive spending on education. There will be a rapid rise in education-related services that complement existing
schooling and enhance areas poorly provided for such as creativity. A natural preference for devices such as smartphones and
tablets will drive adoption of scalable, tech-based educational tools. Finland's education system is rated as the best in the
world, which coupled with creative technology companies, sees the country well placed to take advantage of this. Gamification
(Section 10) is becoming an increasingly popular way to learn, and could combine Finland’s excellence in both education and
gamification.
Rating [A] Education spending will grow faster than incomes overall creating a significant opportunity for tools that capitalise on Finland’s
lead in education, tech and gamification.
Macro
Viewpoint:
[A] Consistency with policy trends.
Consistent with Chinese Government aims to encourage creativity and
raise education standards.
[A] Consistency with technology trends.
China is part of a global trend to utilise technology to create interactive
educational tools, in addition to rising mobile and tablet adoption.
[A] Consistency with economic trends.
Middle class households in China will increase from 8 million in 2010 to
57 million by 2020 with a large portion increasing spending on education.

[A] Consistency with social trends.
Education is a key Confucian ideal and has always been important with
Chinese, however as China becomes more competitive, parents
understand they need to differentiate their children’s education and focus
on areas such as creativity.
Disposable Income Growth versus Household
Education Spending
Source: National Bureau of Statistics of China & Euromonitor
Micro
Viewpoint:
[A] Market Impact.
Fill gaps such as creativity addressed poorly by Chinese education
system.
[A] Spirit of Innovation.
Innovative solutions will be required to drive adoption.
[A] Uniqueness.
Chinese parents place even more focus on academic education than their
Western counterparts.
Notes The Chinese Government fiercely guards its education sector, and foreign education businesses located in the Mainland require
a Joint Venture with a local company.

10 March 2014
China Skinny
6
2. Social Media-Integrated Rich Mobile Entertainment
Summary With more than 500 million online smartphone users in China, there is already a significant market for mobile entertainment. Of
the 14.7% of Chinese smartphone users who paid for an app in the first half of 2013, 63.7% paid for a game, more than double
the next highest category. Chinese consumers’ lifestyles are ideally suited to mobile entertainment, with a high portion of public
transport users, and a low percentage doing out-of-home evening activities such as sports and going to the pub. 4G handset
sales in China are forecast to grow 1500% this year to 72.4 million, and given the average Chinese consumer purchases a new
device every 6 months, within 2-5 years, China Skinny estimates more than 350 million consumers will have a fully featured
smartphone with a minimum of 4G data speed. 570 million games were downloaded on WeChat alone over a 3-month period
in 2013, sewing the seeds for fully integrated social-networked, multiplayer games. In addition, external accessories that
enhance the gaming experience through all senses will create unlimited possibilities for significantly richer gaming experiences.
Over the next 2-5 years, the mobile gaming industry will grow at a faster rate than mobile penetration overall. Companies such
as Rovio Entertainment, and its ecosystem, strongly position Finland to take advantage of the opportunity.
Rating [B] Finland’s experience, insights and ecosystem for creating successful games places it in an excellent position to create
innovative social games, and gain access to social network APIs.
Macro
Viewpoint:
[B] Consistency with policy trends.

Integration of gaming with social media platforms coupled
with constantly improving smartphone capacity and data
speeds.

Chinese youth spend more time on their smartphones and
have smaller range of competing interests to games than
most nationalities.
China's Mobile Game Revenue
Source: iResearch
Micro
Viewpoint:
[A] Market Impact.
Established social media gaming channels will create a
viral route to market for appealing games.
[A] Spirit of Innovation
With such a competitive gaming market, gamers need to
innovate to create cut through.
[A] Uniqueness
The ubiquity smartphones and social networks such as
WeChat and it’s interconnectedness with the gaming
community provides the most established mainstream
gaming platform in the world.
Notes Gaming consoles are currently illegal in China, meaning mobile entertainment has had less competition from other channels.

10 March 2014
China Skinny
7
3. Soaring Staff & Operational Costs for Businesses
Summary Labour costs in China are rising more than 10% a year. Related costs such as office rental are also mounting, with Beijing now
the forth most expensive location in the world, costing more than New York and Tokyo per square metre. Coupled with that,
Chinese businesses are increasingly moving away from low-skilled industries such as low cost manufacturing and focusing on
higher value sectors. Each of these trends is driving up the cost of staffing, training and retention in China. China Skinny
predicts between 2016-2019, it will become commonplace for Chinese businesses to invest in tools that enable them to increase
staff efficiencies and automate tasks, with cloud-based solutions and apps less susceptible to piracy. Finland is well placed to
service this need with a strong reputation for efficiency and technical solutions, with companies such as Tieto.
Rating [A] The shift to efficient workplaces in China over the next 2-5 years presents significant opportunities for Finnish businesses who
provide technical solutions that meet the need.
Macro
Viewpoint:
A key Government imperative is to raise wages in China which will
drive the need for efficiency tools; and
The 12th
Five Year Plan aims for value-added output of emerging
strategic industries to account for 8% of GDP, driving further focus on
efficiency.

The cost of labour in China has reached tipping point, with businesses
now justifying technological investment over additional labour.
Economic growth and the corresponding business expansion is
creating increased price and service-focused competition, and
competition for skilled employees.
The Chinese workforce is shifting from manufacturing-focused to white
collar and service-based.
Wage Inflation in China
Source: The Ministry of Labor and Social Security for the PRCMicro
Viewpoint:
[A] Market Impact.
Reduce issues around staff churn;
Service increasingly important need for customer service; and
Support efficiencies in business.
[B] Spirit of Innovation

[A] Uniqueness
In the space of a decade, China will develop from a cheap labour
economy into an advanced economy where efficiency tools and
automation are imperative.
Notes ***

10 March 2014
China Skinny
8
4. The Trend Towards Wearable Technology
Summary Finland’s leadership in design and mobile technology puts its businesses in a strong position to capitalise on the rising trend of
wearable technology in China. A Baidu survey discovered 93% of Chinese Internet users were aware of wearable technology,
with 75% willing to purchase, although the industry is still in its infancy. Health, fitness, sports, social media, child monitoring,
employee efficiency, information and entertainment tools and aids could utilise the unique opportunities from wearable
technologies. Fitness, health plans and social sharing are the top three perceived uses by consumers and companies such as
Suunto, Amer Sports and Polar Electro could collaborate with Nokia equipment engineers and related ecosystems to develop
solutions to meet this need.
Rating [B] Whilst wearable tech is not a essential pressing need in China, China’s large population and love of gadgets presents a
significant niche well suited to Finland’s tech and sporting strengths.
Macro
Viewpoint:
Chinese consumers are looking for gadgets and
online tech that integrate with other life needs.
[B] Consistency with economic trends.

[B] Consistency with social trends.
Chinese consumers place high importance on social
capital gained from having the latest gadgets.
Wearable Tech Expected Uses by Chinese
Source: Baidu
Micro
Viewpoint:
[B] Market Impact.

Utilises Finnish strengths in innovating mobile
devices, apps and sports.
[B] Uniqueness
Notes ***

10 March 2014
China Skinny
9
5. In-Car Telemetry Integration with Everyday Lives
Summary The China auto industry has become the largest in the world. In 1990, there were just 5.4 million cars on the road in China, now
there are more than 20 million sold a year. China's increasing middle classes will see this growth continue for decades - in
2012 there were just 8.3 cars for every 100 people in China, versus 61.2 in Finland and 79.7 in the USA. China is forecast to
buy half of the world’s new cars by 2020. China’s smartphone usage amongst the middle class who own cars is among the
highest in the world, leading to increasing consumer demand for integrated in-car technology. Chinese consumers have a
preference for embedded factory-installed telemetry systems. However, increased fragmentation and dependence on
smartphones will see demand for device and hybrid solutions soar within the next 2-5 years. Nokia equipment engineers and
related ecosystem are well placed to take advantage of this growth.
Rating [B] Although in-car telemetrics are not of primary concern for the majority of Chinese consumers, there are still significant numbers
of car owners in China, almost all of whom are big smartphone and other technology users.
Macro
Viewpoint:
Technology is becoming increasingly integrated with
Chinese consumers lives.
Rising incomes in China are driving car purchases,
which by proxy, will raise demand for in-car
telemetrics.
[B] Consistency with social trends.
New Vehicle & In-Car Telemetry Sales in China
(Millions of Units)
Source: BAIH, NBS China, CAAM, IHS
Micro
Viewpoint:
[B] Market Impact.

Solutions will need to be innovative and specifically
meet Chinese driver needs.
[B] Uniqueness
China’s scale makes it unique, with significant
opportunities from the half of the world’s car sales
expected in China in 5 years.
Notes ***

10 March 2014
China Skinny
10
6. Rising Independent Travellers
Summary More Chinese tourists are going overseas every year. In 2012, 83 million Chinese travelled internationally, growing to 94
million in 2013. Rising incomes and relaxed visa restrictions mean as many as 200 million could travel in 2017 according to
CLSA. Although Chinese have traditionally joined tour groups on overseas trips, an increasingly confident traveller wanting
new and unique experiences is travelling independently. In late 2013, 62% of Chinese going abroad said they preferred
travelling independently; China Skinny expects this to rise to 80% by 2019. The majority of these tourists will have a
smartphone, ensuring that there will be a significant market for mobile tools that meet the unique needs of Chinese travellers,
such as catering to emergency health concerns, shopping aids (Chinese shop more than any other nationality when abroad),
tools for travellers lacking confidence when speaking English/other languages, Chinese restaurant finders, etc and tools
integrated with wearable technology (Section 5) and in-car telemetry (Section 7). Finland’s strengths in the mobile and online
app segment positions it well to take advantage of this rising trend.
Rating [B] Whilst there are countless opportunities to provide apps and tools to hundreds of Chinese travellers, Finnish companies are
most likely to have success focusing on market niches.
Macro
Viewpoint:
Government policy is reducing visa restrictions
for lower-tier denizens coupled with countries
lessening their visa restrictions will drive
Chinese tourism abroad.
Increased smartphone adoption will create
channels to reach travellers.
Rising incomes are driving travel growth.
Chinese consumers are increasingly valuing
life experiences, which is driving tourism
growth.
Outbound Chinese Tourists
Source: CORTI, CNTA, CTA, CLSA
Micro
Viewpoint:
[B] Market Impact.

Innovative solutions to market niches will drive
demand
[B] Uniqueness
Notes ***

10 March 2014
China Skinny
11
7. The Worsening Likelihood of Ill Health
Summary Health is the number one concern for affluent Chinese. Cancer, diabetes, obesity, infertility, premature births and antibiotic
usage rates are all soaring, attributed to rising pollution, food safety issues, increasingly stressful urban lifestyles and an aging
population. Putting money away to cover future health issues is the top reason for China’s high saving rates. By 2019,
increasing ailments and awareness of health, coupled with an highly tech-literate population, will create significant opportunities
for healthtech tools and products that provide an alternative to, or are complementary to China’s crowded health system.
Demand for proactive solutions will also rise. Online/app developers and smartphone accessories can work with Finland’s
established Healthtech companies such as Mendor, Planmeca Group, Arc Dia and Suominen to create attractive solutions for
Chinese customers.
Rating [A] Health is already an industry of primary importance in China, and will continue to grow over the next 2-5 years based on current
trends, presenting significant opportunities for Finnish companies.
Macro
Viewpoint:
[A] Consistency with policy trends
Health is a leading focus for the Chinese Government, who
have invested 270 billion Euro in healthcare reform since
2009. Numerous other prime Government focuses such as
pollution can trace their roots back to health.
[A] Consistency with technology trends
Advancements in technology are addressing health issues
globally.
[A] Consistency with economic trends
In addition to rises in general health spending, BCG
forecasts China’s health and wellness market will be worth
nearly $70 billion by 2020.
[A] Consistency with social trends
Increasingly urban lifestyles and aging populations are
driving health awareness and concerns.
China's Worsening State of Health
Micro
Viewpoint:
[A] Market Impact
Provide complementary, alternative and proactive service to
meet China’s soaring health needs.
Innovative technology solutions are most likely to meet the
needs of China’s mounting health issues.
[A] Uniqueness
China’s health issues are extreme internationally, and the
infrastructure is not up to a standard to support an
increasingly wealthy middle class.
Notes ***

10 March 2014
China Skinny
12
8. Smarter Environmental Intelligence
Summary It’s no secret that China’s environment is among the worst in the world. Just 1% of China’s 700 million urban dwellers breathe
air considered safe by the European Union. 90% of China’s cities’ groundwater is polluted to some degree, with almost two
thirds severely polluted. Pollution contributed to over 1.2 million deaths in 2012 and is the primary reason for 80% of Chinese
who plan to emigrate. China’s pollution is a major issue for all segments of China, from the Government, to business, to
consumers. Although the Government is focusing on reducing heavy polluters, rising non-renewable electricity consumption
and car usage will continue to worsen pollution levels over the next 2-5 years. Rising awareness and negative sentiment will
also drive demand for solutions. Tools that can measure, monitor and address China’s pollution at any level stand to
significantly benefit in China, with environmental measurement companies such as Vaisala well positioned to benefit.
Rating [B] Although China’s environment issues are significant, opportunities for Finnish companies are likely to come from providing niche
solutions such as measurement and monitoring.
Macro
Viewpoint:
Inviting of foreign investment environment protection
industries is a key pillar of the 12th
5-year plan.
Between 2011-2016 the Chinese Government plans
to invest 350 billion Euro on environmental
protection, with significant investment likely to
continue until 2019 and beyond.
[B] Consistency with technology trends

Pollution is a substantial drain on the economy from
a productivity, health and emigration standpoint.
Air and water pollution, are Chinese consumers'
fastest growing concerns and the number 1 reason
for emigration.
Daily Average PM2.5 Pollution 2013
China's Worst 10 Cities
Source: China's Ministry of Environmental Protection, ALA, WHO
Micro
Viewpoint:
[B] Market Impact

[A] Uniqueness
Although other cities around the world are polluted at
similar levels, the scale of China’s pollution,
awareness and size of middle classes affected make
it unique globally and provide large opportunity for
niche solutions.
Notes ***

10 March 2014
China Skinny
13
9. Food Production Corporatisation
Summary China’s rising middle class are eating more food every year, with China forecasted to account for almost half of the global
increase in food demand between now and 2050. Over 15% of China’s arable land suffers from soil pollution. Coupled with
climate change and urbanisation, increasingly less land is available to produce significantly more food. The Chinese
Government aims to supply almost all of food demand domestically, requiring technology that enables farms to do more with
less. Part of this shift will be enabled by the trend moving away from small individual peasant farmers to company-operated
farms, who will start to utilise connected technology to monitor and produce food more efficiently over the next 2-5 years. This
technology could include telemetry providing monitoring and control through online tools. The falling cost of smartphones in
China will bring the Internet to the majority of rural Chinese by 2019, putting technology solutions into the hands of the farm
workers, in addition to urban white collar farm company workers. Like In Car Telemetrics (Section 7), the Nokia equipment
engineers and related ecosystem could collaborate with farm machinery companies such as Sampo-Rosenlew.
Rating [A] As a key Government focus, there will be significant investment into efficient farming in China, creating large opportunities for
synergies between heavy machinery manufacturers and tech companies.
Macro
Viewpoint:
The Chinese Government has had a long standing
target of 95% food self sufficiency; and
China's 12th
Five Year Plan supports foreign
investment in modern agriculture.

Rising demand for food is a direct result of economic
growth in China.
A stable food supply is one of the key contributors to
overall social stability.
Food Consumption Trends in China
Source: SSBc
Although the Food consumption table above only displays data until
2010, it is utilised to illustrate the broad categories of increased
consumption as Chinese consumers get wealthier, a trend that will
continue until 2019 and beyond.
Micro
Viewpoint:
[A] Market Impact
A stable food supply will be secured.

[A] Uniqueness
The scale and rate of the transformation of China’s
food supply chains is unique globally.
Notes The dairy industry is an example of farming corporatisation in China, where the Government had aimed to move 70% of
production from small farms to company-operated farms by 2011. However, just 40% of production was from
company-operated farms by 2013.

10 March 2014
China Skinny
14
10. The Food Safety Movement
Summary China’s infamous 2008 melamine dairy scandal and resulting 300,000 victims brought China’s abysmal food safety standards to
light. Social networks and an increasingly transparent state media have raised awareness further and as consumers become
wealthier, they are demanding safer food. Whilst some of the need for safe food will be met by rising imports, China’s domestic
food supply is focused on improving its safety and reputation. Finnish tech firms have opportunities from both a B2B
standpoint, such as agricultural technology (Section 3) and processes (Section 2), and B2C such as tech developers and food
producers like Raisio Group, HKScan and Olvi working together to create competitive advantages selling to Chinese consumers
through smartphone and web tracking of food origins, to packaging with companies such as Huhtamäki.
Rating [A] Food Safety is one of China’s most pressing social issues providing significant opportunities for technology solutions for process,
packaging and food producers from Finland.
Macro
Viewpoint:
The Government is committed to fixing the food
safety issue allocating significant resources to
regulation, process changes and propaganda.

The rise in consumers with the ability to pay for
safe food is a direct result of economic growth in
China.
The market is demanding safer food, with a lack of
trust in local food and beverage driving imports to
57 billion Euro by 2018.
China's Food Safety Issues & Sentiment
Source: PEW Research
Micro
Viewpoint:
[A] Market Impact
Increased reliability in food supply; and
Increased transparency and efficiencies in food
supply.

[A] Uniqueness
China’s vast supply chain and rampant corruption
contribute to a food safety issue that is unique
globally, especially in a market with such a sizable
middle class prepared to pay for safe food.
Notes ***

10 March 2014
China Skinny
15
The Last Word
China’s unprecedented growth and transition presents significant new market opportunities for Finnish companies.
However, the complexity and dynamism of China means that it is important to fully understand China’s unique traits and
challenges before investing to create solutions to capitalise on these opportunities.
This report has provided a high-level view into future opportunities based on trends and signals in China, and deeper
investigations should be made into understanding the intricacies of a segment should Finnish companies look to pursue
these opportunities.
China Skinny hopes that Tekes and the desired audience have found this report helpful and insightful. We look forward to
providing further investigation and analysis into the chosen signal.

Team Finland Future Watch Report "Signals of online revolution for china"

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (7)

Similar to Team Finland Future Watch Report "Signals of online revolution for china"

Similar to Team Finland Future Watch Report "Signals of online revolution for china" (20)

More from Team Finland Future Watch

More from Team Finland Future Watch (20)

Recently uploaded

Recently uploaded (20)

Team Finland Future Watch Report "Signals of online revolution for china"