Allen T. Cheng in Beijing

Foreign brands once dominated the market but made-in-China marques are taking over

Domestic brands have come from behind to take the lead in most sectors of the mainland market, and trends show that foreign investors increasingly will face an uphill battle as they fight off aggressive domestic entrepreneurs.

'Of China's 3,000 registered brands, about 80 per cent today are domestic brands,' said Wang Yao, the vice-director of the China National Commercial Information Centre. 'In the past, foreign brands used to dominate almost every sector in China, but that increasingly is no longer true.'

Mr Wang spoke last week at the National Retail Industry Economic Conference in Beijing, attended byrepresentatives from 120 of China's top-brand manufacturers.

At the conference, the government announced that retail industry sales surged 29.2 per cent in 2002, to 290 billion yuan (HK$272 billion), led by rapid growth in domestic product sales.

Domestic brands now dominate the markets for home appliances, fashion and apparel, personal computers, shoes, food and beverages, restaurants and in most other areas. The only exceptions are in cars, luxury goods such as cosmetics and fashion, and personal-care products like shampoo or toothpastes.

'However, even many of the foreign brands are made by domestic joint ventures,' said Mr Wang. 'So, they are in fact made in China.'

Until about the mid 1990s, foreign brands dominated the mainland. For instance, IBM was number one in personal computers until Beijing-based Legend passed it in 1996. Japanese brands dominated home appliances until Qingdao-based Haier and Sichuan-based Changhong overtook them in the late 1990s.

Even in beverages, local brands are taking back market share. Take for instance Danon of France, which dominated the bottled water sector until a private firm from Hangzhou came along in 1997.

In a matter of two years, through aggressive and smart marketing, Nongfu Shangquan spring water - or Farmer's Mountain - swept to the top position and has since kept its seat, outpacing every foreign or domestic rival.

'Our advantage is we sell only water,' Zheng Bo, a deputy chief executive officer, said on the side of the retail conference. 'We look for the best water in China and we set up bottling plants there.' Nongfu has three plants - two on the edge of Zhejiang's famous Qiangdao Lake and one near the bottom of Jilin's famous Changbai Mountain, which sits near the North Korean border. 'In the future, whenever we find a good spring, we'll build a plant there,' said Mr Zheng, whose Nongfu was named by US market research firm AC Nielsen as one of the top six brands on the Mainland, on the same scale as Nokia or Taiwan's Master Kang instant noodles.

'Chinese people love China and they love to buy good Chinese brands. They buy us because we are good, not because we are a Chinese brand, but the fact that we are a domestic company makes a difference.'

Hu Biliang, a senior economist with the Chinese Academy of Social Sciences, said foreign brands still carried prestige. However, he said, most mainland consumers now sought value.

'Today, if you buy a Japanese refrigerator, people think you're stupid,' said Mr Hu. 'The after-sales service isn't good. The parts are expensive and aren't always available. Now if you buy Chinese, you're seen today as smart. The products are cheap and work well.'

Even in China's mobile phone market, domestic brands are surging and beginning to catch up with market leaders Motorola and Nokia. Local brands launched by Changhong, Haier and Nanjing Panda Electronics, are quickly catching up.

'In the early days, foreign brands dominated China because state-owned enterprises weren't competitive and the government didn't allow private entrepreneurs to get into the game,' said Mr Hu. 'All that changed in the past six years. Today, entrepreneurs have entered most market segments.

'Chinese entrepreneurs can best manage Chinese workers and they are now catching up on quality as well as winning the branding game.'

Take spring-water bottler Nongfu, for instance. Its owner is Zhong Xiaoxiao, a 49-year-old entrepreneur from Hangzhou, who today heads a group with annual sales of HK$2.3 billion and 2,000 employees.

'We're in no hurry to go global,' said deputy CEO Zheng. 'China's bottled-water market is growing at 31 per cent a year. We won't export Nongfu for a few more years because we want to make sure we're number one for a long time. However, if and when we go global, we'll acquire companies all over the world just like our rivals from France and America do today.'

Foreign brand managers should not give up just yet. In fact, China's wealthy almost exclusively prefer imports, said Qi Yangzhong, the chief executive officer of Beijing Sci-Tech Group, which runs Sci-Tech, one of the city's most expensive department stores.

'When we first opened in 1992, many local newspapers criticised us for having high prices,' said Mr Qi. 'At first, we imported almost all of our products, but over the years we imported slightly less. But still, imports are still what we specialise in, especially the luxury brands. You can buy a handbag for 50 to 90 yuan on the street. So why would you come to Sci-Tech and spend 10 times that amount? It is because rich consumers want to buy something expensive. It satisfies their ego.'

Mr Wang said the rich wanted to buy expensive imports as a status symbol. 'But it depends on your product,' he said. 'If you have a big foreign name, a name of luxury ... consumers are willing to spend. But if it were an everyday item, consumers would prefer to buy a local brand, especially if it is cheaper.'