Meta, the parent company of Facebook and Instagram, told analysts China-based advertisers accounted for 10 per cent of its revenue. Photo / Getty Images
The trade relationship between China and the United States has plenty of friction. But at least one area is booming: Chinese start-ups looking to establish a presence in the West are spending billions of dollars for advertisements on services owned by some of Silicon Valley’s biggest technology companies.
Temu, the international arm of Chinese e-commerce giant Pinduoduo, is flooding Google with ads for absurdly inexpensive goods. With an initial public offering looming, fast-fashion merchant Shein is inundating Instagram with ads for clothes and accessories at rock-bottom prices. Developers of China’s video streaming and gaming apps are dumping marketing dollars into Facebook, X and YouTube to entice potential users.
Meta, the parent company of Facebook and Instagram, said on a call with analysts that Chinese-based advertisers accounted for 10 per cent of its revenue, almost double over two years ago. In the past year, Temu has placed about 1.4 million ads globally across Google services, and at least 26,000 versions of ads on Meta, according to Meta’s Ad Library.
“What companies like Temu have done is really just open a fire hose of money that it is pouring into ads,” said Sky Canaves, senior analyst for retail at eMarketer. “You can’t escape their ads across Facebook, Instagram and Google Search.”
The surge in spending shows how interconnected China and the US remain, despite vigorous efforts by each country to be more self-reliant. The Chinese companies are gaining access to vast audiences of consumers, and the Silicon Valley companies are making money off a market they are otherwise not doing business in.
The marketing blitz is fuelled by the global ambitions of Chinese start-ups. At home, the economy is no longer growing by leaps and bounds as it had for years, and companies are subject to a thicket of government rules that have quashed their growth.
The crackdown on firms like e-commerce giant Alibaba and the once-high-flying ride-share provider Didi underscored the message that a company, no matter how successful, can be brought to its knees if it runs afoul of the Chinese Communist Party and its leader, Xi Jinping.
“There’s a limit on the degree that a company can grow in China,” said Andrew Collier, founder of Orient Capital, an economic research firm in Hong Kong. “Xi Jinping is perfectly happy for Chinese companies to make money overseas as long as they toe the line within China.”
But going global comes at a cost. It’s hard to garner significant amounts of digital attention without paying Google’s parent company, Alphabet, and Meta. Together, the two companies sell most internet advertising, largely through their online properties including Google Search, YouTube, the Google Play app store, Facebook, Instagram, WhatsApp and Messenger.
For the most part, Alphabet and Meta’s products are not available in China. Efforts to offer their services in China meant abiding by Chinese government censors, leading to employee protests at both companies. Alphabet and Meta have such significant reach in the rest of the world that Chinese firms are now going to them.
The rush of spending by Temu and Shein has “single-handedly” driven up the cost of digital advertising, Josh Silverman, chief executive of Etsy, said in November.
Discount Chinese e-commerce companies have grabbed increasing attention in the US over the past few years, tempting buyers with low-cost goods when inflation was driving up prices.
Temu opened its US site in September 2022. It sold things such as a garlic press for US$2 ($3.20) or a cotton swab dispenser for US$1.50. Temu is now available in 50 countries.
With the slogan Shop Like a Billionaire, Temu has been a voracious buyer of all forms of advertising, from low-cost Facebook ads to pricey spots during the Super Bowl. Temu has the deep pockets of PDD Holdings, which operates Pinduoduo.
Bernstein Research estimates Temu spent US$3 billion ($4.8b) on marketing last year. In a lawsuit filed against Shein in December, Temu said it served about 30 million daily users in the US. Temu’s app is the most downloaded on both Apple and Google’s app stores, according to Sensor Tower, an app analytics firm.
Shein, which entered the US market about seven years ago, is also continuing to spend aggressively on marketing. It does not sell products in China, although it was founded in Nanjing and relies heavily on Chinese sellers and the country’s supply chain.
It has run about 80,000 ads across Google in the past year alone, including product advertisements that appear next to search results. On Meta, Shein has more than 7000 advertisements active, according to Meta’s Ad Library.
For Temu and Shein, spending heavily on Facebook will not guarantee success. Nearly a decade ago, Wish, another buzzy e-commerce app focused on low-cost goods sourced from China, spent hundreds of millions of dollars on Facebook ads. But the retail app failed to sustain the interest of shoppers. Last month, Wish was sold to Singapore’s Qoo10, an e-commerce platform, for US$173 million, a hundredth of its IPO valuation in 2020.
Shein and Temu allow third-party sellers to upload product images directly to Meta’s advertising systems, and feature those products inside their ads on Instagram and Facebook. Those ads, which are targeted to users’ interests based on Meta’s vast troves of data, are generally more effective at luring shoppers.
The ad spending is not limited to retailers. In recent months, Instagram has become inundated with previews of short addictive dramas — soap operas for users with limited attention spans. Each episode is usually a minute long, with the series running about 80 to 100 episodes.
The shows tend to be overly dramatic, with grabby titles like The Double Life of My Billionaire Husband or 30 Days Till I Marry My Husband’s Nemesis.
These short dramas are popular in China, and a handful of companies — apps like Reelshort, DramaBox and FlexTV — are competing to export this form of entertainment. Instead of selling monthly subscriptions — like, say, Netflix — the short-content apps use a model similar to online games, requiring users to purchase what are known as coins that can be used to pay for episodes. A viewer can also earn coins by watching commercials.
Similar to games, these apps require a steady stream of users to get hooked on samples of the programmes and feel compelled to keep spending to see how the show ends. On Meta, DramaBox is running more than 1000 active ads, according to Meta’s Ad Library, while Reelshort and Flex TV are running hundreds of ads.
Another major Chinese advertiser on Meta is a Hong Kong-based game developer called First Fun. The developer seems to be blanketing Facebook, Instagram and even X with ads to promote its flagship game, Last War: Survival, with hundreds of paid previews.
The previews have enticed players to download the app. It is the fifth most-downloaded app on Google Play and 12th on Apple’s App Store. Sensor Tower estimated the game generated US$22 million in revenue last month.
Marketing on platforms like Meta has given the game developers a lifeline to customers outside the country as the Chinese government has made it harder to do business. The most recent example was in December when Chinese regulators announced plans to limit how much money people could spend on online video games. The agency drafting the plans backed off its initial proposals in the face of protests, but Beijing has been adopting an increasingly tougher stance against the game industry.
The message has not been lost on game developers. On its website, Beijing Yuanqu Entertainment, First Fun’s parent company, said it was focused purely on overseas markets because it “firmly believes that China’s internet industry will continue to internationalise”.
Written by: Daisuke Wakabayashi in Seol and Mike Isaac in the Bay Area in California.
© 2024 THE NEW YORK TIMES
The council has also been served with judicial review proceedings.