China's Most Valuable Brand Is a Bank You've Never Heard Of: And That's a Problem

'Most Valuable Brands' are usually consumer products.

They have breadth, advertising and their products are easily accessible to the mass of citizenry so their scale reinforces the power of their reach. Food, cars and soft drinks come to mind.

Now this may well be a warning to foreign financial institutions that China is on its way to dominating yet another sector of the global economy. But we dont think that is what this means.

That China's most valuable brand this year is a bank rings a number of alarm bells. The first one is that there have been persistent reports about China's overheated banking sector and the questionable quality of its loan portfolio. The banks, and ICBC specifically, are heavily dependent on Chinese real estate. We all know where that tends to lead. Secondly, when a bank becomes a valuable brand it can signify weakness rather than strength. Banks' operations tend to be rather opaque to most casual observers. If a bank has become famous outside of its everyday purview, it may well be because it and the market it serves are overextended. In effect, a most valuable brand designation could be a leading indicator of future problems, not a sign of greater things to come. So congratulations, ICBC. Enjoy it while you can - and double check those loan reserves. JL

Normandy Madden reports in Advertising Age:

China's most valuable brand is a bank most foreigners have never heard of, highlighting both the enormous size and strength of China's domestic market as well as the challenges facing Chinese companies as they try to go international.

The Industrial and Commercial Bank of China, better known as ICBC, just toppled China Mobile as the most valuable brand in China, according to the new annual ranking of China's 100 most valuable domestic brands by the Hurun Report. ICBC's brand is worth $43.6 billion.
China Mobile held the top spot for five years "so this is quite a big day for ICBC," said Rupert Hoogewerf, Hurun's chairman and chief researcher, who appeared on this week's episode of "Thoughtful China," an online marketing affairs talk show produced in Shanghai.

Hurun's ranking is based on a combination of research into consumers' brand preferences, carried out by international market research firm GMI, brand analysis and economic data. Then a dollar value is assigned to each brand. Only direct-to-consumer brands created in mainland China were evaluated. Business-to-business brands such as Huawei, an increasingly international giant that provides IT and communications services to other companies, were not assessed.

China Mobile, the largest telecommunications company in the world with over 600 million cellphone subscribers in China, dropped to second place at $42.2 billion, followed by China Construction Bank ($35.9 billion), search giant Baidu ($24.4 billion) and Bank of China ($22.4 billion). Baidu, the highest-ranking privately-owned brand, benefited from Google pulling out of mainland China's search market last year and increased its own share of China's search market to almost 70%.

"The big surprise from my point of view was seeing the top [internet] companies come shooting up," Mr. Hoogewerf said. "Baidu has broken into the top-five most valuable brands in China today. That's a phenomenal achievement."

China now has nine brands worth more than $10 billion. After the top 5, they are: China Life ($15.6 billion), Tencent's QQ instant messaging service ($11.8 billion), Agricultural Bank of China ($11.6 billion) and insurance company PingAn ($11 billion). Real estate, financial services, apparel and internet brands showed the most significant growth over the past year.

While the top tier of Chinese companies has become adept at building brands at home, very few are able to take those brands overseas, despite a strong desire and government support to do so. Many Western consumers would find it difficult to name a Chinese brand beyond Tsingtao, a local beer sold at Chinese restaurants worldwide.

While privately-owned companies "move faster and focus a lot on cost savings, compared to government-owned companies," said Elan Shou, Ruder Finn's senior VP and managing director, China, state-run enterprises tend to move faster abroad.

"It's a government initiative, [China's leaders] want Chinese companies to go overseas," Ms. Shou said. But China's most successful local companies were built through strong domestic distribution networks, savvy understanding of local consumers and low costs--advantages that local companies lose when they leave China.

China's domestic market "does a terrible job of preparing brands for the outside world. [Almost all] brands from China working overseas are selling based on value, and are very early stage at brand-building," said P.T. Black, Thoughtful China's senior creative director in Shanghai.

There's another challenge, said Jonathan Chajet, Interbrand's Shanghai-based executive strategy director, Asia-Pacific. "Local companies haven't figured out the difference between low price and value, and there is a big difference. A brand like Toyota is low-priced but it's low price plus reliability. Dell is low price plus personalization. Chinese companies haven't been able to figure out what is their plus in that equation. That's a big mind shift for those companies."

So will China produce any world-class brands in the near future? Most likely yes. Sportswear marketer Li Ning, white-goods maker Haier and Air China "have made fantastic progress," said Tim Schlick, DDB Group's head of strategic planning, Greater China.

And for innovation and product development, Mr. Black singled out beverage-maker Wahaha, the Midea white goods company, and apparel retailer Metersbonwe.

Automotive brands like Chery, Geely and BYD, an electric car company in which Warren Buffet has a stake, "are likely to do well overseas over time. They'll be able to change the value equation, similar to the way electronics companies from Japan and South Korea did it many years ago," Mr. Chajet said.