There are many frictions in the trade relationship between China and the United States. But at least one area is booming. Chinese startups looking to establish a presence in the West are spending billions of dollars advertising 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 outrageously cheap products. With an initial public offering looming, fast-fashion retailer Shayne is flooding Instagram with ads selling clothing and accessories at the lowest prices. Chinese video streaming and gaming app developers are spending marketing dollars on Facebook, X and YouTube to attract potential users.
Meta, the parent company of Facebook and Instagram, said on a conference call with analysts that China-based advertisers now account for 10% of its revenue, nearly double what it was two years ago. According to Meta's ad library, Temu ran about 1.4 million ads across his Google services around the world last year, and he ran at least 26,000 different versions of his ads on Meta.
“What companies like Temu have done is just open up the fire hose of the money they're putting into advertising,” said Skye Kanabeth, senior retail analyst at eMarketer. “You can’t escape their ads across Facebook, Instagram, and Google Search.”
The surge in spending shows how interconnected China and the United States remain despite each country's strenuous efforts to become more self-reliant. Chinese companies are gaining access to vast swathes of consumers, and Silicon Valley companies are profiting from markets they otherwise wouldn't operate in.
The marketing onslaught is being fueled by the global ambitions of Chinese startups. Domestically, the economy is no longer growing by leaps and bounds as it has for years, and businesses are bound by government regulations that hinder their growth.
The crackdown on companies such as e-commerce giant Alibaba and once-celebrated ride-hailing provider Didi Chuxing will succumb to companies, no matter how successful, if they run afoul of the Chinese Communist Party's relationship with the Chinese Communist Party. He emphasized the message that it is possible. Leader, Xi Jinping.
“There are limits to how much companies can grow in China,” said Andrew Collier, founder of Hong Kong economic research firm Orient Capital. “Xi Jinping is perfectly happy for Chinese companies to make profits overseas as long as they toe the line within China.”
However, globalization comes at a cost. It's hard to get big digital attention without paying Google's parent companies, Alphabet and Meta. The companies sell the majority of all Internet advertising primarily through online properties such as Google Search, YouTube, Google Play App Store, Facebook, Instagram, WhatsApp, and Messenger.
In most cases, Alphabet and Meta products are not available in China. Providing services in China requires compliance with Chinese government censorship, leading to employee protests at both companies.
Alphabet and Meta have so much influence in other countries around the world that Chinese companies are now moving into them.
Etsy Chief Executive Josh Silverman said on a conference call with analysts in November that the spike in spending by Mr. Tem and Mr. Shein was “singularly” driving up the cost of digital advertising.
Chinese low-cost e-commerce companies have gained increasing attention in the United States in recent years, luring buyers with low-priced goods at a time when inflation was pushing up prices.
Temu opened its US site in September 2022, selling garlic presses for $2 and cotton swab dispensers for $1.50. Temu is currently available in 50 countries.
Mr. Tem, whose mantra is “Shop like a millionaire,” has voraciously bought all forms of advertising, from low-cost Facebook ads to expensive spots during the Super Bowl. Temu has deep pockets from PDD Holdings, which operates Pinduoduo.
Bernstein Research estimates that TEM spent $3 billion on marketing last year. In a lawsuit filed against Shein in December, Temu said it serves approximately 30 million daily users in the United States. According to app analytics firm Sensor Tower, Temu's app is the most downloaded app in both Apple and Google's app stores.
Shein, which entered the U.S. market about seven years ago, also continues to invest aggressively in marketing. The company was founded in Nanjing and relies heavily on Chinese distributors and the country's supply chain, but it does not sell its products in China.
In the past year alone, we've placed approximately 80,000 ads across Google, including product ads that appear next to search results. According to Meta's ad library, Shein has over 7,000 ads active on Meta.
For Tem and Shein, spending a lot of money on Facebook doesn't guarantee success. Nearly a decade ago, Wish, another popular e-commerce app focused on low-priced goods from China, spent hundreds of millions of dollars on Facebook ads. However, this retail app failed to maintain shopper interest. Last month, Wish was sold to another e-commerce platform, Singapore's Qoo10, for $173 million, one-hundredth of its 2020 public offering valuation.
Shein and Temu will enable third-party sellers to upload product images directly to Meta's advertising system and feature those products within ads on Instagram and Facebook. These ads are targeted to users' interests based on Meta's vast amount of data and are generally more effective in attracting shoppers.
Advertising costs are not limited to retailers. In recent months, Instagram has been flooded with previews of addictive short dramas, melodramas aimed at people with limited attention spans. Each episode is typically one minute long, and the series consists of approximately 80 to 100 episodes.
The shows tend to be overly dramatic, with catchy titles like “The Double Life of a Billionaire Husband'' and “30 Days to Marrying My Husband's Nemesis.''
These short dramas are popular in China, where a handful of companies are competing to export this form of entertainment, including apps like Reelshort, DramaBox, and FlexTV. For example, instead of selling monthly subscriptions like Netflix, short content apps use a model similar to online games, requiring users to purchase something called coins that can be used to pay for episodes. Viewers can also earn coins by watching commercials.
Similar to games, these apps require a steady stream of users to get hooked on the program's samples and feel compelled to keep spending to see how the show ends. In Meta, DramaBox has over 1,000 active ads for him, and Reelshort and Flex TV have hundreds of ads, according to Meta's ad library.
Another major Chinese advertiser on Meta is a Hong Kong-based game developer called First.Fun. The developer appears to be covering Facebook, Instagram, and even his X with ads, promoting his flagship game, Last War: Survival, with hundreds of paid previews.
The preview prompted players to download the app. It is the 5th most downloaded app on Google Play and the 12th most downloaded app on Apple's App Store.
Sensor Tower estimates that the game generated $22 million in revenue last month.
As the Chinese government makes it harder to do business, marketing on platforms like Meta has become a lifeline for game developers to customers outside the country. The most recent example was in December when Chinese regulators announced plans to limit the amount of money people can spend on online video games. The government agency that drafted the plan withdrew its original proposal in the face of protests, but the Chinese government has taken an increasingly hard line against the gaming industry.
The message is not lost on game developers. First.Fun's parent company, Beijing Yuanqu Entertainment, said on its website that it is focusing purely on overseas markets because it “firmly believes that China's Internet industry will continue to internationalize.”
claire fu Contributed to the report.
