• by Gavin O'Malley  @mp_gavin, August 12, 2008

Thanks to the Beijing Olympics and the growing strength of Chinese consumers, ad spending in China is expected to grow more than 20% this year to $35 billion, according to a new study from GroupM.

The Internet--which is expected to command 7.3% of ad investment this year, and 8.5% next year--is China's fastest-growing medium, and is on track to become the second-largest ad medium after TV within a few years, according to the study.

"China has the world's largest Internet community, with more than 250 million users," said GroupM Futures Director Adam Smith. "That's an increase of more than 90 million from June of last year, representing a year-to-year growth of more than 55%."

Next year, ad spending in China is expected to grow 19.5% to $42 billion, which actually represents a decline from the explosive 29% annual compound average growth of 2001-2007.

The report "This Year, Next Year: China" is part of GroupM's media and marketing forecasting series, drawn from data supplied by holding company WPP Group's global resources in advertising, public relations, market research, and specialist communications.

This year, the report identified the Beijing Olympics as a key component in accelerating media investment growth in China.

"Growth in 2007 was relatively restrained, but we predict many marketers are conserving funds for the anticipated Olympic bonanza this year," said Smith.

Looking forward, Smith added: "We're confident of strong media investment growth extending to 2009 as demand in China becomes an increasingly important source of growth for global marketers as well as Chinese companies focusing on brand-building.

In global terms, China is expected to supply 23% of an anticipated 5.8% growth in global ad spending in 2008, and 30% of an expected 4.5% global growth in 2009.

Last year, China overtook Germany to become the world's third-largest ad market behind the U.S. and Japan.

Next year, China is expected to fall within 10% of Japan--which should be an easy gap for China to close in 2010, given Japan's economic downturn, according to GroupM.

Of particular note, online gaming is beginning to play a vital role in Internet advertising in China. In 2007, 120 million online gamers helped to bring about tremendous growth in embedded advertising in online games.

E-commerce is also growing despite low credit-card penetration, with 46 million consumers shopping online in 2007. By 2010, an estimated 100 million-plus Chinese consumers are expected to shop online.

Not surprisingly, the report identified television and the Internet as the primary engines of ad growth in China--especially this year, with the Olympics generating an estimated $400 million in spending on CCTV, China's national television network and the exclusive Olympics broadcaster.

Rising incomes and consumer price inflation are expected to fuel consumer expenditures, translating into increased sales for marketers, according to GroupM.

Specifically, per capita disposable income in China grew 120% in urban areas between 2000 and 2007, from $816 to $1812.

Retail sales tripled--at current prices--between 2000 and 2007, a development that contributed significantly to the report's growth forecast.

Beyond 2008, retail distribution will extend to all 600 smaller cities throughout China as marketers will spend more money developing new consumers to balance with more developed markets like Shanghai and Beijing.