I will be participating in a panel talking about advertising trends and standards in China and Asia, and how they are developing. The moderator of the panel will be David Ketchum. The panel will start at 4:45PM.

If you are in Hong Kong and can make it to the event, please stop by and say hello to me. I look forward to seeing you.

With all the chaos on world’s markets, it is easy to overlook developments in China. The biggest piece of Chinese domestic news is the decision to give limited rights to land use to China’s farmers. This decision came out of the Third Plenary Session of the 17th Party Congress of the Chinese Communist Party (三中全会), which is now convening in Beijing.

The overall thrust of this meeting is to focus on the development of rural China, which has not fared so well as the east coast cities. If the cities continue to develop, and the countryside continues to stay poor, you have the recipe for social unrest on a large scale.

The salient points about China’s development are that China has about 1/3 the arable land of the developed economies for farming, and about 500M live in cities, while 800M continue to be rural Chinese. National development plans (many of which were formulated under Jiang Zemin, who came from Shanghai) called for the urbanization of China.

China’s first 30 years of reforms required the development of the eastern coast to attract foreign capital, and to make the companies and the westerners who came to China feel comfortable. Only when they had reached some level of comfort, and were attracted by the market potential would the capital follow. They became comfortable and the capital and trade followed.

And now the westerners living in Beijing, Shanghai and the west expect the Chinese with their nearly US2T in foreign reserves to bail out the western economies? Let me tell you why it won’t happen.

• Successive Chinese regimes have always lost power when they coddled the urban elite and ignored the needs of the countryside. This was how Mao rallied the Communists, surrounded the cities (the strategy was called “using the villages to surround the cities” or “乡村包围城市”), then threw out Chiang Kai-shek in 1949. Hu Jintao and Wen Jiabao know this, and know that they need to swivel around and develop the countryside so that the wealth gap can be narrowed.
• The Chinese government will focus on developing a new size of town, which in Chinese is called the 城镇 or village town. This will be mainly a distribution, education and trading center for farmers and their families in the immediate vicinity. Population will be 250-500K.
• For the next 15-30 years, the cities will stagnate in growth. People will not lose their homes the way they do in the US since China does not have foreclosure laws, but their salaries will not go up. Many of the wishes new university grads entering the workforce hoped they had will just become dreams. Somehow they will have to learn to live in this new drastically changed environment.
• The Chinese government is already talking about the development of rural infrastructure including rural insurance, microlending, etc.
• Many young Chinese who would have scoffed at the idea of working in the countryside will now go there, simply because job opportunities in the east coast cities will be limited. This, in turn, will help to clean out the party apparatus in the countryside, which has been seen as generally corrupt.
• Western companies will not benefit too much from this next stage of development because they do not, for the most part, understand how to sell to the bottom 2/3 of the Chinese pyramid. Most only know how to sell to the top 1/3 in the cities. Companies which will prosper are those who sell to the “local local economy”, or bottom 2/3, as Jack Perkowski calls it, as opposed to the “local foreign economy”. The local foreign economy is city-based on China’s east coast; the local local economy is mainly rural and inland.
• The companies which will survive and prosper are the swift pivoters who can quickly learn how to sell to the “local local economy”. This means that they made some money in export manufacturing, but now switch to sell domestically to Chinese consumers in the new inland towns and cities. Not many companies can do this, but those that do will do well. Most will be entirely new businesses, and local Chinese brands will have an advantage.
• This next stage of development will require a lot of money. Those foreign exchange reserves of US2T will be needed by China. Now, if you ruled China and you had the choice of 1) lending the money to the west, which has just acted about as irresponsibly as anyone can imagine or 2) investing the money in China to narrow the wealth gap between rich and poor, city and countryside and keeping your regime in power for more than a half century, what would you do? I think that it’s a pretty easy choice.

China may now have the world’s largest foreign exchange reserves, but that is not what makes a country a superpower. The recent tainted milk scandal has shown that it is still lacking controls in many key areas, and it is far short of being a developed nation. Instead, China is a developing nation with rich reserves it needs for its own development.

In order to become a developed nation with a developed economy, it needs to spend that money on building its own infrastructure and narrowing the wealth gap between the developed cities on China’s east coast and the inland countryside. Any Chinese regime which acts otherwise would be making a very risky decision, and would be putting the future of its own rule in jeopardy.

China can manage without export markets, but it cannot survive if its own countryside is in turmoil.

Although it is a well-known fact that local management teams need to be empowered to compete successfully in the Chinese market, western tech companies continue to make the same mistakes over and over again. I believe that the reasons for this are:

• While there is much talk about diversity, there is the firm belief that “brands” must be protected with a unified set of features and look all over the world;
• Most VPs of marketing are not fluent in other languages and cultures, and try to dictate from headquarters. When they visit the local office, they appear sympathetic, but when they return to HQ, everything learned from visits to local subsidiaries is quickly forgotten;
• Local Chinese competitors are unrestricted by these considerations; they just do what they need in order to win users. There is very little if any discussion of “brand” and “look and feel”. These are the horses VCs like to bet on;

When you come right down to it, there is little a global brand can bring to the table in China. Most add a burden of a faraway headquarters without empowering the local management team to be more competitive. This is not a problem which is unique to China, it is also happening in the social networking market in Japan.

My conclusion: The problem does not lie with China, but instead lies with the reluctance of western social networking sites to empower their local management to do whatever they need to win users and market share. By trying to force common features, standards and branding too early from their headquarters way before the market is mature, they cripple their local companies’ chances of success, and cede the market to the local competitors.

That is why the successful local competitors get such high valuations; they make ideal acquisition candidates and give their founders a good exit strategy.

Ask Meg Whitman, former CEO of eBay.

In the article he talks about how even some VCs in China still rely on Alexa for very basic measurement stats, when in fact, Alexa is not considered reliable.

Many American service providers do not measure audiences from Internet cafes, which as I have pointed out, are a major source of traffic from China. Since American software companies are not familiar with the audience profiles of what is now the largest national audience in the world, they do not break out Internet cafes into a separate category, which underlines how American software providers are out of touch with this very important market. (This Internet cafe trend may change as broadband becomes more available in households, but it definitely should be counted as a major separate category in any report which claims to cover the Chinese market.)

The situation is not helped by government-supported “big picture” reports by CNNIC which give too broad numbers on a national basis and support a government agenda, but do not provide any business insights. They are great grist for press releases and the politically-charged Chinese and western media, but that is about the only value they have.

What Victor Koo does not mention is that the lack of reliable independent statistics has a very real debilitating effect on the healthy growth of the Internet as a sector in China, and the revenue outlook for Internet startups. This is because independent metrics, statistics, standards and definitions are requirements for the global media business. In order for media buyers to make good media buys for their advertising clients, they need standard definitions and metrics on the quantitative side so that they can make better overall qualitative recommendations and decisions.

It’s a testament to the robustness and attraction of China’s economy that the Internet has been able to grow as fast and as far as it has without these independent numbers and stats, but it is also a tragedy that many dollars have not made it to China because of the comparative opacity of the market.

If this systemic bottleneck problem can be addressed, the volume of ad money which would go to Chinese online publishers would go up dramatically.

The CNNIC is the main official source of information for the state of the Internet in China, and is the most frequently quoted report on China Internet statistics. For more detailed information, especially ecommerce numbers, etc., there are a number of market research firms in China which provide services, including custom reports for paying clients.

I would like see some changes and improvement to the CNNIC report. Here are some of them:

1. Outline the methodology used. Explain how the data is collected and by what authorities. Also explain how the audience is chosen. Make the whole process transparent as possible.
2. Show the questionnaire used, and let people provide feedback about what questions are used so that they can be improved in future versions of the report.
3. Use the same questionnaire nationwide so that there is a level basis for comparison.
4. Current data is weighed too much towards national and tier one cities in China. This information is too broad and not granular enough. Break out the information by province.
5. Provide the names of the government officials who collect the data on the national, municipal and provincial levels along with their email contact information so that we know who is responsible for collecting what data on what level.
6. Provide a forum so that these same people can answer questions about the CNNIC report and reply to suggestions. Engage the audience in a continuous dialogue to improve the CNNIC report.
7. Keep the primary data in a data warehouse, and consider making it accessible to researchers so that they can write their own queries and generate reports for a one-time fee or on a long-term basis for a subscription fee.

a neologism for formal public relations campaigns in politics and advertising which seek to create the impression of being spontaneous, grassroots behavior, hence the reference to the artificial grass AstroTurf.

The goal of such a campaign is to disguise the efforts of a political or commercial entity as an independent public reaction to some political entity—a politician, political group, product, service or event. Astroturfers attempt to orchestrate the actions of apparently diverse and geographically distributed individuals, by both overt (“outreach”, “awareness”, etc.) and covert (disinformation) means. Astroturfing may be undertaken by anything from an individual pushing one’s own personal agenda through to highly organized professional groups with financial backing from large corporations, non-profits, or activist organizations.

As a business and marketing consultant who spends considerable time in China, I get upset when I see marketing and PR terms not used the right way. One thing which is done very frequently in China, but whose terminology is not used correctly, is astroturfing. As a matter of fact, I have not even heard of a Chinese term for astroturfing, even though I have seen it in many forms all the time. In fact, a good deal of what the Internet is used for in China in the BBSes in China, is astroturfing in different forms.

I was upset when I saw the term astroturfing mixed up with censorship in this video interview with reference to censorship in China. My definition of censorship is when I have to use a VPN tunnel to get to content I cannot view in China, or because I cannot get my Feedburner RSS feeds because they are blocked by the GFW, or as Jeremy Goldkorn, publisher of Danwei chooses to call it, the Net Nanny.

The biggest difference between astroturfing and censorship: astroturfing is a PR term and censorship is a political term. Astroturfing is a PR tactic which can be used for either political or commercial ends; censorship is always used for political ends. Using censorship with reference to China is a politically charged term because many critics of Chinese government policy like to use it to satisfy their own political agendas. Other people are entitled to their own political views re Chinese government policy, just as I’m entitled to mine. Everybody has a right to their own opinions. What I do criticize is abuse of terminology in order to score political points when in fact what is being used is a PR tactic.

Paying bloggers and users of Twitter to shape public opinion about China is an astroturfing tactic. Let’s call it astroturfing and not call it censorship. Admittedly, the Chinese government has used astroturfing in a very clumsy fashion by paying bloggers directly for their blog posts and tweets. Rule No. 1 of astroturfing is “Don’t get caught doing it”. This means you should set up front organizations to do the work so that the important guys/government have plausible deniability. These front organizations have to be run by eloquent, expensive and intelligent opinion leaders who know what they are doing and what the whole objective is. The people they work with, and contract with, do not have to know.

Sure, it adds to your costs, but some things are more important than costs. That’s why this whole payoff of bloggers and tweets is so silly and let’s say it, downright stupid.

The real masters at the right way to do astroturfing are the Americans and American PR and lobbying firms. They set up enough “independent” organizations so that the astroturfing movements cannot be traced back to the government, the original sponsor. After all, that is the whole point of it. Government ministries, organizations and parties should never be directly involved in it.

These “independent” organizations, usually think tanks, then contract with the PR firms and coordinate very complex and expensive PR campaigns which are, well, astroturfing. The whole objective is to make it look independent for most people. These people are the audience, the people whose opinion you want to shape.

Astroturfing was used extensively in the aftermath of the revelations of torture re Abu Ghraib and Guantanamo in the US. Many Americans were sincerely shocked that the US military would use such interrogation techniques. In order to shape US public opinion, the Pentagon provided leading US media companies hired retired generals as “consultants” to talk on TV about the situation, and mitigate the political damage to the Bush administration. These consultants were paid for by the Pentagon. How it was done was revealed in an article on the New York Times.

If the Chinese government wants to be truly effective at winning the PR war with the western media, it has to allow different voices to speak up about China, and get past the very worn-out charges of “interfering in China’s internal affairs” or “hurting the feelings of the Chinese people”, which may have some appeal to not very bright people, but really turn off intelligent people. Part of the price of being considered a developed nation is to allow different discourse and opinions on an intelligent level. Moreover, this gives the Chinese leadership a better selection of policies to choose from. After all, that’s whole point of the exercise.

So let’s stop paying off bloggers and tweeters 50 Chinese yuancents or fen to shape public opinion. That’s the cheap and dumb way.

The Chinese government needs to stop thinking small and start thinking big in how it shapes not just Chinese public opinion, but western public opinion. Spend money and do it the right way with the right people.

Anything else is just an embarrassment.

The article specifically highlighted a company called Daqi.com (in Chinese the name means “Big Flag” which has a certain nationalistic appeal), and cited a case in which it helped Toyota satisfy a customer who had not received his car after three months. According to the company’s CEO, her company, an Internet online reputation management company, helps its customers, mostly western multinationals, to monitor their online reputations and help put out fires with users in China.

Out of curiosity, I then entered Daqi.com into my browser address bar so that I could visit the site and learn more about the company and what they do.

What I found, and what I did not find, were very interesting.

First of all, I thought I was going to find an online reputation management company, or public relations company, or whatever buzzwords they are using now to lure in corporate business.

But I found nothing of the kind. Instead, I was confronted with what I would call a typical Chinese portal website, complete with channels for “Homepage”, “Society”, “Military”, “Strange and Curious”, “Autos”, “Digital”, “Women’s Makeup”, “Pictures”, and “Reputations” (in beta).

(I have uploaded the screenshots of the pages mentioned below to Picasa and you can access them here.)

Aha, I thought to myself, I’ll click on “Reputations” and see what I find. When I went there, I found that it was full of forums divided into the categories “Cars”, “Cameras”, “Notebooks”, “Digital Cameras”, “MP3″, and “MP4″. The page is very long, and like most Chinese pages, scrolls on quite a distance with recommended products in each product category. This page, like the rest of the website, was designed very much to lure Chinese visitors. To visit the page, you can go to http://exp.daqi.com/

My next question was whether they took advertising? The only banner advertising I saw was for Dell, which ran on the two pages I visited. But it would be foolish to think that their only revenue came from banner advertising. Looking at how the page was designed, and the way some of the products were given larger photos and highlighted, it was easy to see that some makers were paying for higher rankings for higher visibility.

But nowhere did I see anything about their online reputation management services. So I thought to myself, “Surely the person who wrote the Business Week story, Dexter Roberts, could point to a website where Daqi offered their online reputation management services, in either Chinese or English.”

I could find nothing of the kind.

Daqi claims that it regularly searches 500,000 forums daily for its corporate clients. I’m sure that it works on many sites which are not related to Daqi. However, it also raises the very uncomfortable possibility that it may actually manipulate online reputations by starting flame wars over product reputation, then charging their corporate clients money to put them out. (I’m not claiming that Daqi does, but the very fact that they run their own portal under their own company name and URI means that they have very little respect for their non-Chinese corporate clients and western journalists’ capability to conduct online research in Chinese.)

The clash of interests which arises from revenue from makers for higher rankings on their own portal site, and then revenue from non-Chinese corporate clients for “research insights” and “firefighting services” into Chinese online behavior is obvious to anyone. The temptation to use their own forums to “seed” opinions must be very great. These seeded opinions would then quickly proliferate to other sites.

There is a simple way to find out, and that is to check timestamps of postings. All forum software includes a posting timestamp, and it’s easy to check the timestamps on a subject to push it back in time to where and when a rumor started. What is harder to find out is the identity of the poster, but this can sometimes be done by checking the IP address of the poster if IP cloaking is not used. Different online identities sharing the same IP would most likely be the same poster.

I wonder how many corporate clients do this kind of checking?

I find the whole practice of hiring Chinese and paying them to post favorable comments on a per posting basis to be an unethical PR practice. According to the BW article, this is a common practice. A Beijing-based PR professional, William Moss, talks about this in more detail.

Online public relations firms will have to draw up and aggressively publicize clear guidelines on what they do, and what they don’t do when it comes to monitoring online behavior in China. Playing multiple roles as player and referee doesn’t make it in my book. I have talked about some of the skills needed in a previous posting.

This is part of the problem which actually slows down Internet growth in China. In spite of it all, there are healthy groups for product discussions.

Of course, each corporate client will have to make its own call as to what it is most comfortable with. And so will their VC backers. (I wonder if they read Chinese?)

But if someone does do an article on a Chinese company, at the very least, the URI mentioned should include, in either Chinese or English, the business they are in which is mentioned in the article.

Nobody likes bait and switch tactics, and I’m no exception.

Is that too much to ask for?

In China, the leading search engine company is Baidu, which started in the US, but came to China, and is now the most popular search engine among Chinese Internet users. It has been financially successful, and is listed on the US’s Nasdaq under the symbol BIDU

There are several reasons for Google Adword’s success, and the most important are two: PageRank, which measures the popularity of a web page by measuring inbound links which for the most part, are selected by humans and not computer algorithms, and introducing relevance into the keywords auction model. Under the Google model, paying the highest price for a keyword is not enough to insure clickthrus (for the most part, Google charges advertisers per click, or pay-per-click PPC), but it must be relevant. The more relevant it is, the more clickthrus it will get, and the less an advertiser will have to pay for a higher ranking.

As this excellent article makes clear, Google did not invent the keyword auction model, but it did perfect it. By perfecting the Google Adwords model, Google has become the hugely profitable online media machine it is.

As China becomes more important as a market, more advertisers are looking to sell directly into the Chinese market using Google and Baidu, the two leading search engine firms in the Chinese market. Baidu operates under a very different business model from Google, one which it has adapted to suit the Chinese market.

My understanding is that Baidu does not figure relevancy into its advertising fee structure, Chinese advertisers only pay for higher ranking. As far as I know, Baidu does not have anything like PageRank inbound linking algorithm to count inbound links either. Without these two elements, Baidu’s ad search looks a lot like the GoTo.com ad model. This makes it fundamentally different from the Google Adwords model.

I’m digging deeper into the search engine marketing business in China, and want to hear what you would like to know about. If you have questions, please post them in English or Chinese in the comments below.

There is a very simple answer to all this: a large part of the organization is done on the Internet in China, specifically on BBSes. While the BBS (bulletin board system) is something outdated and antiquated in the US Internet, it has been a very important part of the Chinese Internet, and I would argue, it is growing and becoming more influential. For the Chinese government, it is a headache because in spite of Chinese government regulations, it is largely unregulated. For western corporations it is a good place to gather information but is useless for advertising, but for many Chinese it is the most important part of the Internet (along with online gaming and their IM client, which is most likely to be QQ or MSN Instant Messenger depending on their age and demographics).

Don’t believe me? Go to your nearest Chinese Internet cafe and watch what people are doing.

Most westerners who come into the China Internet market have no idea of its power and influence, and instead think that the Chinese Internet is largely the same as the US market, but it isn’t. The Chinese government doesn’t really like BBSes because it really is free (as in free speech), and is the breeding ground for all kinds of weird stuff. And while it is important for gathering buzz on products (as CIC, based in Shanghai, does) for corporations, nobody has really been able to monetize it. And, western journalists fail to monitor it, which is why they miss on so many big stories, and end up giving credit to some sinister Chinese government policies. ( I guess it’s kind of flattering for the Chinese government to be given credit for something when most Chinese know that it isn’t that powerful.)

Isn’t it amazing that such a huge and important part of free speech in China has been entirely missed? Fortunately, Tom Melcher’s new blog Live from Beijing! has a very good introductory article to BBSes (h/t to Andrew Lih). I got something of an introduction to the BBS in 1998, shortly after Sina was formed from the merger of SRS and Sinanet. One of the first web applications created by Wang Zhidong was a simple BBS which he demoed to me in the summer of that year. It really took off in popularity with the US’s accidental bombing of the Chinese embassy in Belgrade in April 1999 when millions of angry Chinese hit the Sina news forum. Please don’t think of the Strong Nation forum on the People’s Daily site as being at all representative of Chinese BBSes; it is official and closely monitored for content. The interesting BBSes are all unofficial or semi-official.

Most of the angry Chinese in China, or fenqing, are organized on the BBSes, where they gather and shoot the breeze. These people have time on their hands, and play games, spend time in QQ, and gossip on the BBSes of their choice at the moment. They spend almost no time on what we would call the official Internet, except going to get news on Sina, Sohu and Netease. It is very hard to reach them with advertising.

Now, let’s talk about their persona. For the most part, they:

• They distrust the official media and do not buy magazines, and get as much information as they can from unofficial sources, such as BBSes. They only go to the official media for some sports information and major news information.
• They trust unofficial news more than news which comes from official sources.
• They are the perfect audience for spreading rumors, because they can be quickly organized by anonymous leaders, or “honeybees” as Tom Melcher calls them in his article.
• When organized, they can be huge, in the millions, and they can move like a swarm.

In simple terms, the characteristics of this unofficial crowd are:

• Chinese official government influence is very limited
• They are mostly self-organized
• The numbers are in the millions
• They move extremely fast
• They disappear just as fast as they appeared
• They are almost always anonymous and do not use their real names, preferring instead to use their own handles

In simple terms, they are an issue-focused flash mob. For corporations, they are:

• Not susceptible to traditional PR methods since you are dealing with an anonymous group
• Very tightly focused around one issue
• Move much faster than corporations and their decision-making apparatus is diversified,
• Do not trust/ believe in information from any government, including Chinese

My estimate is that more than 60% of non-IM traffic in China is to these unofficial BBSes, and that number is growing.

When it comes to advertising, most adspend hits that remaining 40% of the official and semi-official Internet, without reaching where many people are. CIC acts as the eyes and ears of corporations, but corporations have not been able to do anything yet with that information and are still reliant on mainstream advertising approaches for both online and offline which are largely out of date. This is the background for my article on why agencies need a new approach to online marketing in China.

So, BBSes are the real social media marketing tool, and as usual, the Chinese are ahead of everyone else, but just haven’t figured out that part themselves. While the west talks about social media and Web 2.0, China has had a version of it for the past ten years. It may not be pretty, but it works.

It’s just that vast majority of outsiders haven’t figured it out yet.

Technically speaking, there is not a whole lot of difference between Twitter and many other IM clients, including Tencent’s QQ, the immensely popular Chinese IM client. If there is any difference, it is that Twitter makes it possible for dispersed communities to keep track of each others’ activities. In contrast, the IM clients are mainly Web 1.0 tools which enable people to find and contact each other to meet offline. QQ, for instance, is a great enabler for that popular activity which we shall call “dating” in China.

The difference between Twitter and the Web 1.0 IM clients is not so much in the technology, as in the way people handle relationships. Put simply, the lines between offline and online relationships are blurring, and in many cases, more people spend more time online than they do offline. For this reason, their online communities are gaining value, and in a few cases, are assuming primary value, while their offline relationships become secondary.

This was not the case for most of the Web 1.0 IM clients.

From the business perspective, this means that businesses will have to pay even more attention to what is going on online, as I have mentioned in my previous post.

In China, many people do not have email addresses, instead they rely on QQ ID numbers to identify each other. Walk into any Chinese working area (including Starbucks and any other area which provides free Wifi) and chances are you will see that almost every screen has a QQ or Windows IM client window open.

And they are using it for business, not just personal gossip.

So, the ultimate test of whether Twitter becomes the American QQ is whether American’s use it for business, not just social chatting.

If that happens, the American Internet will suddenly look a lot more like the Chinese Internet.