U.S. Fears Mass Boycott as Chinese Turn to Homegrown Brands

The proposal got a hard pass.

“They looked at that and said, ‘We’ve got lots of Chinese investors. It’s too risky for us to invest in Captain America during this trade war,’ ” says Michael MacRitchie, founder of Sydney-based MGI Entertainment. The carmaker plans to go with a Chinese celebrity, he says, declining to name the company because deliberations are private.

Even before Chinese retailers stripped NBA merchandise from their shelves in retaliation for a league executive’s public support of pro-democracy protesters in Hong Kong, a yearlong trade war has stoked a surge in Chinese nationalism and anti-American sentiment that’s increasingly bleeding into marketing decisions and consumer buying habits. Companies such as Apple Inc. have seen market share in the country dwindle. And American brands including Coach and Calvin Klein have rushed to issue public apologies after some of their products ran afoul of Beijing’s political sensitivities. Even if a trade truce is reached, marketing executives say that lasting brand damage has been done.

Patriotism has long been employed as a marketing pitch around the world, including in the U.S., where companies such as Walmart, American Apparel, and New Balance used “Made in America” labels as symbols of quality. And China famously froze out American tech and financial companies for years to nurture homegrown brands. Yet Western fashion, car, beauty, food, and other consumer brands were mostly exempted from restrictions on selling on the mainland and were seen by many of China’s elite as status symbols.

That’s changing for consumers such as Ziyu Sun, a 23-year-old engineer in China’s eastern city of Qingdao. He says patriotism was a big reason behind his buying a Huawei phone, adding that he’s read many online articles on Alibaba’s Taobao marketplace and Twitter-like Weibo promoting support for domestic brands. “But the quality of Huawei phones is also very good,” he says. Same goes for Yongming Su, a high school teacher in Beijing who points to his Chinese-made Vivo phone as an example that, all things being equal, he would “support and buy domestic brands over foreign ones.”

Such thinking could pose a major challenge for American businesses in 2020. The U.S. sold almost $120 billion in goods to China in 2018, making it the country’s third-largest export market after Canada and Mexico, according to the US-China Business Council. Many American brands such as Nike, Apple, and General Motors have staked their growth prospects on the promise of attracting shoppers in the world’s most populous country. GM, America’s oldest automaker, sells more cars in China now than in the U.S. “Consumer sentiment is something we’re obviously keeping a close eye on,” says GM China President Matt Tsien.

Some American companies now worry that a preference for buying Chinese could morph into an all-out boycott of U.S. goods, as happened when Beijing banned consumers from buying South Korea’s goods in retaliation for its government saying in 2016 it would let the U.S. build a missile defense system in the country. The results of that action: Korean companies lost an estimated $15.6 billion in revenue, hitting giants such as supermarket operator Lotte Shopping Co. and Hyundai Motor Co. particularly hard, according to the Hyundai Research Institute.

Many Chinese brands, particularly makers of electronics such as Huawei Technologies Co. and Xiaomi Corp., now perform at the same level as their Western counterparts. The quality gains and increased advertising budgets have led shoppers to recognize them as household names. But amplified national pride is also playing a role in their growth. “Local heroes are fueling Chinese consumers’ growing confidence,” according to a recent report on China’s most popular brands by consulting firm Prophet.

In 2019, Chinese companies such as Huawei and drone maker SZ DJI Technology Co. edged out once-untouchable American companies like Apple and Nike from the list of China’s 10 most favorite brands, according to Prophet’s annual survey of 13,500 consumers. Local names made up half of the top 50 brands in 2019, compared with just 18 three years earlier, with Alipay, Alibaba Group Holding Ltd.’s payment service, and Huawei taking the top two spots.

The money has followed the brand awareness. Huawei is now the largest smartphone seller in China, commanding 37% of the market, according to consulting firm IDC. Apple has about 7%, down from 11% in 2012, when Huawei was only the fifth-largest smartphone seller in China.

Although authorities recently banned Kweichow Moutai Co., a maker of grain alcohol baiju, from calling itself China’s “national liquor” brand, the company’s shares have almost doubled in the past year. And the stock price of Chinese coatmaker Bosideng International Holdings Ltd. surged more than 200% in the past year as consumers bypassed rival Canada Goose Holdings Inc. after Canada’s detention of Huawei Chief Financial Officer Meng Wanzhou.

Alibaba’s popular shopping site Tmall says it saw a jump in sales of domestic brands around China’s National Day, thanks to what it called “a wave of patriotism” tied to the 70th anniversary of the founding of the People’s Republic of China. The retail site says 8 of its 10 highest-grossing beauty brands came from China, and a video game called Homeland Dream, developed by Tencent Holdings Ltd., shot to the top of the most-downloaded charts.

China’s celebration of self is also manifesting in so-called red tourism and red culture, where Chinese film, hip-hop, and even science fiction seem to be having a moment. State officials say that half a billion people in 2018 visited patriotic sites such as Beijing’s Tiananmen Square and Military Museum and that authorities plan to spend 2.64 billion yuan ($373 million) to develop attractions through 2020.

Sensing a business opportunity, China’s social media stars are embracing their love of country. Many are also scared of running afoul of Beijing’s strict rules on what can be said on the internet, which puts the onus on online account holders to temper their own posts, as well as fans’ replies and comments in groups they moderate.

These social media influencers—who have a big impact on the $413 billion worth of goods expected to be sold through social e-commerce in China by 2022—routinely get calls or messages from account managers with advice on what’s politically sensitive. And when brands they’re working with get on Beijing’s bad side, as happened recently when products made by Givenchy, Coach, and Versace listed Hong Kong as a separate country, social media ambassadors quickly sever ties.

One Shanghai-based blogger with more than 300,000 fans on Instagram and Weibo used to stick to photos and videos of Christian Louboutin heels and Gucci gowns. But for the 70th anniversary celebration she decided to post something a little different: an old photo of a Chinese model in a red silk dress posing in front of Tiananmen Square for Vogue China. The caption read: “China, red hot.” In June she also posted a photo of herself in a billowing pink dress holding a flower over her left eye with the caption “Calling for peace, #hongkong #China,” a reference to protests in the semi­autonomous city.

She says the shift in Chinese nationalism has caused her to rethink whom she works for, and even which fashion-week runway shows to see. “I avoided Coach, Versace, and Givenchy because as a public figure I think it’s extra-sensitive what your stance is,” she says. “I don’t think I would openly support any brands that publicly disagree with the political beliefs of the majority of the Chinese people.”

The same goes for beauty blogger Melilim Fu, who has started her own line of skin-care and beauty products emblazoned with “Made in China” labeling. “All these shoppers know everything is made in China anyway, so there’s an opportunity for products with good prices and quality to capture that sense of national pride,” says Elijah Whaley, who co-manages the brand.

Across all categories on Tmall, three-quarters of brands incorporated the phrase “Made in China” on their product pages, up from less than half in 2017, according to research firm Gartner L2. Another study from researcher Nielsen in August showed that 68% of Chinese consumers preferred homegrown brands.

MacRitchie, of the Australian talent agency, has learned that to appease his Chinese clients he has to stay away from American spokespeople: For a recent ad campaign for a Chinese sportswear brand, he chose European supermodel Karolina Kurkova instead. His client is a Chinese national with Chinese investors, “so they don’t want to invest in American celebrities because it seems ideologically at a crossroads with where we are right now.” —With Qian Ye, Bruce Einhorn, and Zoe Ma

©2019 Bloomberg L.P.