The information provided in this section is derived from various private and/or government publications. This information has not been prepared in independently verified by the Company, the Sponsor, the Underwriters or any of their respective advisers. The PRC economy and advertising The PRC is one of the fastest growing economies in the world. According to the statistics compiled by National Bureau of Statistics of China, the PRC s GDP grew from approximately RMB2.2 trillion in 1991 to approximately RMB9.6 trillion in 2001, which represented a CAGR of approximately 16.1%. During the same period, household consumption grew at a CAGR of approximately 16.5% from approximately RMB1.0 trillion to approximately RMB4.6 trillion. The PRC s total advertising spending increased from approximately RMB3.5 billion in 1991 to approximately RMB79.5 billion in 2001, at a CAGR of approximately 36.7%. During the period from 1997 to 2001, growth in advertising spending has consistently exceeded the growth in both GDP and household spending. Annual advertising expenditure as a percentage of GDP has grown from approximately 0.16% in 1991 to approximately 0.83% in 2001. Despite the strong growth over the period, the percentage is still considered low when compared with other major countries in the world. This suggests that there could be a considerable growth potential for the PRC advertising industry. Country Advertising spending as a percentage of GDP (for 2000) U.S.A. 1.33% United Kingdom 1.32% Mexico 1.15% Taiwan 1.05% Germany 0.99% Brazil 0.88% Japan 0.81% Canada 0.77% France 0.71% China 0.44% Source: China Advertising Association The PRC outdoor advertising The PRC advertising media industry is generally divided into five categories: television, newspapers, outdoor, radio and magazines according to the distribution of advertising expenditure. 49
According to the information provided by State Administration of Industry and Commerce, the PRC s total advertising expenditure increased from approximately RMB2.8 billion in 1991 to approximately RMB39.4 billion in 2000, at a CAGR of approximately 30.2%. The PRC s outdoor advertising expenditure grew from approximately RMB0.6 billion in 1991 to approximately RMB6.2 billion in 2000 at a CAGR of approximately 26.2%. Over the past five years, advertising expenditure on outdoor advertising has recorded the highest growth rate. From 1996 to 2000, outdoor advertising expenditure grew at a CAGR of 23.3%, outpacing the CAGR of advertising expenditure on television (18.8%) and on magazines (17.7%). In 2000, outdoor advertising has captured approximately 15.9% market share of the total PRC advertising expenditure, which makes it the third largest advertising medium in the PRC. The following charts illustrate the distribution of advertising expenditure by medium for 1996 and 2000. Outdoor 12.9% Magazines 2.7% Outdoor 15.9% Magazines 2.7% Radio 4.2% Newspapers 37.0% Radio 3.0% Newspapers 32.5% Television 43.3% Television 45.9% 1996 2000 Sources: State Administration of Industry and Commerce The following table sets out the empirical data of major advertising media in the PRC in 1999 and 2000. Number of media 1999 2000 Television stations 357 354 Newspapers published 2,038 2,007 Magazines published 8,187 8,725 Broadcast stations 296 304 Total 10,878 11,390 Source: China Statistical Yearbook 2001 50
The increase in total numbers of advertising media has made it increasingly difficult for advertisers to conduct a cost-effective advertising campaign with mass audience reach. However, the Directors believe that the following characteristics of outdoor advertising have made it increasingly popular as an advertising medium: Longer publication time with lower cost outdoor advertisements are generally displayed in a much longer duration (e.g. a few months to a few years) than other advertising media (e.g. television or radio advertisings). In general, the cost of outdoor advertising, in terms of fee-per-thousand view, are only approximately one-seventh of those of television advertising. The cost effectiveness of outdoor advertising enables the outdoor advertising to attract a wider customer base which includes small or medium sized enterprises. Compulsive viewing outdoor advertisements are erected in the public domain for 24 hours a day and on a non-stop basis. They cannot be switched off (like radios or televisions) or thrown away (like newspapers or magazines). Repetitive broadcasting outdoor advertisements work on the advertising principle of frequency. Since most outdoor advertisements stay in the same place for a period of time, people who drive by or walk past see the same advertisements a number of times. Visual stimulation the use of colours, characters, graphics and innovative multi-media systems (audio, visual and other electronics systems (LCD or LED displays)) may be more effective in brand communication with audience. Particular locations can be acquired for certain purposes. Categories of outdoor advertising Outdoor advertising media can generally be categorised into three major categories: transit, street furniture and billboards. Transit Transit related outdoor advertising encompasses advertisement displays on buses, metro system, airports and train stations. According to the China Advertising Statistical Yearbook 2002, there were more than 190,000 transits in the PRC in 2001. Billboards Billboards are standalone sites, usually large in size and erected along highways or key road arteries. They include neon signs, wall signs, roof-top signs, unipoles, etc. According to the China Advertising Statistical Yearbook 2002, there were more than 330,000 billboard sites in the PRC in 2001. 51
Street furniture Street furniture is a fixture in a public area on the street or in a mall for some other purpose which could also be utilised as an outdoor advertising medium. They include bus stops, pikes, stands, light boxes, light bridges and car parks, etc. The outdoor advertising poster printing market in the PRC According to the research report (Analysis of the Current Market Situation and Development Trend of the PRC Poster Printing Industry) conducted by (Advertiser), a PRC advertising magazine, published on (China Advertising Web, www.a.com.cn) in June 2003, total sales from outdoor advertising poster printing grew from approximately RMB0.3 billion in 1996 to approximately RMB1.2 billion in 2002, which represented a CAGR of approximately 26%. The following graph shows the estimated total revenue of the outdoor advertising poster printing market in the PRC from 1996 to 2002: 1.4 1.2 1 Revenue (RMB billion) 0.8 0.6 0.4 0.2 0 1996 1997 1998 1999 2000 2001 2002 Year Source: (Analysis of the Current Market Situation and Development Trend of the PRC Poster Printing Industry) by (Advertiser) published on (China Advertising Web, www.a.com.cn) in June 2003 According to the research report, development of the outdoor advertising poster printing market and the outdoor advertising market as a whole was closely related which could be due to the reason that there has not yet been developed any technology that can produce colour images in the form of outdoor advertisements of size larger than 1 sq. m. which is as cost efficient as the technology of poster printing. It is therefore expected, in the next few years, the technology of poster printing will still remain as the major production method for producing outdoor advertisements and the business of outdoor advertising poster printing will grow with the outdoor advertising market in the PRC. 52
Competition in the PRC outdoor advertising poster printing market In the beginning of 1990s, when poster printing technology was first introduced into the PRC, as the quantity of equipment introduced was limited, production cost of poster printing was very expensive (more than RMB1,000 per sq. m). At that time, poster printing business was a business with high profit margins. In recent years, as the quality of PRC-produced printers and printing materials improved, poster printing cost decreased greatly and the number of companies engaged in the poster printing business increased accordingly. Such increase in the number of competitors has greatly intensified the competition among the PRC poster printing industry which led to a dramatic decrease in the poster printing price over the past few years as illustrated in the following table: Year Estimated quantity of large poster printing equipment in the PRC Estimated poster printing price per sq. m. (RMB) 1997 20 around 250 1998 60 around 200 1999 116 around 150 2000 230 around 100 2001 450 around 50 2002 1,000 around 30 Source: (Analysis of the Current Market Situation and Development Trend of the PRC Poster Printing Industry) by (Advertiser) published on (China Advertising Web, www.a.com.cn) in June 2003 The significant increase in number of competitors in the market and the decrease in unit selling price largely decreased the profit margin of the poster printing business in the PRC. Under the pressure of lower prices and profit margins, the core competitiveness of companies will change from production capacity to management, operation scale, brand and services. It is believed that high quality of management and efficiency of operation scale will reduce the operation costs of related enterprises, allowing the companies to survive in the market, while the brand and quality of services will enable them to use the tactics of differentiation to improve their profit margins. As the customers choose the suitable poster printing companies, the brand and the quality of service will become the major factors for consideration. Therefore, companies with no brand-name or only equipped with comparatively outdated poster printing facilities will be positioned in an unfavourable situation and even have to exit from the market. It is expected that further industry consolidation is inevitable. According to the research report by (Advertiser), approximately 500 sets of large poster printing machines in the PRC located at 30 major municipalities and cities in the PRC. The information suggests that the PRC outdoor advertising poster printing market is a localised market. Such characteristic may be due to the timeliness nature of advertising campaigns, where advertisers usually place orders with poster printers within the same region in order to avoid unnecessary delay in delivery. 53
According to the research report by (Advertiser), there could be up to a few hundred of companies in the PRC possessing poster printing equipment, and most of them only have 1 to 2 sets of equipment, representing an insignificant market share. The larger companies among them are the Company, (Shenyang Baiyuan Computer Printing Co., Ltd.), (Shenyang Richuang Computer Printing Advertising Co., Ltd.), (Guangzhou Huawang Silk-printing Advertising Production Co., Ltd.). Currently, the Company has about 40 sets of large poster printing machines, with its 24 branch offices in the territory, basically covers the entire PRC market. It is estimated that Shenyang Baiyuan Computer Printing Co., Ltd. has approximately over 10 sets of large poster printing machines, and its major markets are located in Hubei, Dongbei and Huabei. Shenyang Richuang Computer Printing Advertising Co., Ltd. has approximately over 10 sets of poster printing machines, and its major markets are located in Dongbei. It is estimated that Guangzhou Huawang Silk-printing Advertising Production Co., Ltd has no more than 10 sets of poster printing machines, and its major markets are located in Huanan and Xinan. The Directors believe that some overseas-listed advertising operators are also engaged in the provision of a wide range of outdoor advertising services including the design, printing and production and dissemination of outdoor advertisements in the PRC. 54