In another sign of dwindling business confidence in the world's most populous country, companies in China are reducing their spending on digital advertising as the economy slows down and recurring outbreaks of COVID-19 weigh on consumption.
Why the Decrease in Ad Expenditure?
According to GlobalData, China has the world's second-largest Digital Marketing Industry, valued at $97.86 billion in 2022, after the US. Chinese internet behemoths that run most of the country's largest online advertising platforms recently warned of low advertising spending by their customers in the second quarter of 2022. Some speculated that it could take a while for recovery, with pessimism about the broader economic outlook. Companies typically spend money on advertising to increase sales, but if their revenue declines and the demand is weak, many will cut down such spending to save money. Many businesses are also dealing with the increase in commodity prices and higher input costs as a result of the Russia-Ukraine conflict, and marketing expenses are one of the easiest to cut.
China Still Recuperating from the COVID-19 Setback
Following a jump in COVID-19 cases in China in early 2020, which triggered lockdowns in many cities, advertisers cut spending in the first half of that year. After Chinese authorities contained the outbreak, the economy recovered in the second half, and consumers and businesses resumed spending. This time, however, the Chinese internet companies issued cautious forecasts for the coming months. The unemployment rate in China is at its highest in years, and the country's property market is in a deep slump—major dampeners on consumer confidence that were not present two years ago.
The Chinese Government Making It No Easier
In 2021, the Chinese government enacted two landmark laws governing the country's digital economy: the Data Security Law (DSL) and the Personal Information Protection Law (PIPL). Both laws impose new restrictions on the collection, storage, and use of personal data. The regulations posed significant challenges to adtech service providers and digital ad publishers as the standard data collection and ad targeting practices that existed previously became illegal. To complicate matters, China's anti-monopoly market regulator is developing new guidelines to govern digital advertisements. Although the Measures for the Administration of Internet Advertising legislation are not yet fully implemented, this law is expected to limit the operational flexibility of China's largest digital ad publishers.
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