Mapping Chinese Consumer Demand from Ankang to Zunyi

As growth slows and markets evolve, new opportunities are emerging for multinational companies operating in China--if they know where to look

17 Nov, 2015, 12:00 ET from The Conference Board from ,The Demand Institute

NEW YORK, Nov. 17, 2015 /PRNewswire/ -- Chinese consumption is poised to surge from $3.7 trillion in 2014 to $6.4 trillion in 2025, resulting in $56 trillion of cumulative spending over the next decade, according to a new report from The Demand Institute, a think tank jointly operated by The Conference Board and Nielsen. But the growth will be highly uneven, putting the onus on business leaders to knowledgeably navigate and prioritize between hundreds of distinct urban markets—at a time when China's traditional five-tier system for classifying cities is no longer adequate to the challenge. No More Tiers: Navigating the Future of Consumer Demand across China's Cities introduces a much more sophisticated, demand-centric approach. Based on analyses of some 200 key factors, this City Strata framework classifies 286 prefecture-level cities—home to over 90 percent of Chinese consumers, or 1.3 billion people—into eleven coherent strata.

"Companies are being told they need to be everywhere to compete in China, and that the future lies in expanding to 'Tier 3' and 'Tier 4' cities in the five-tier system," said Louise Keely, president of The Demand Institute, senior vice president at Nielsen, and a co-author of the report. "Both are myths. The current city classification scheme captures long-standing administrative and logistical relationships with the central government in Beijing; in the lower tiers, however, they say as little about future capacity for growth as a system that lumps Boston with Helena, Montana. Now more than ever, a selective city-level strategy is vital, given the profound challenges China faces in transitioning out of the state-driven boom economy of the last 20 years into a more sustainable consumer-led growth model."

"Since October 2014, we've foreseen a longer slowdown in the overall Chinese economy than most analysts," said Andrew Polk, senior economist at The Conference Board China Center and a co-author of the report. "Beijing's attempts to engineer a soft landing have thus far avoided market-based reforms and moved in the opposite direction, threatening further misallocation of capital. Meanwhile, the market challenge has changed from capacity-building for growth to fighting and capturing market share. In this environment, more precisely identifying consumption growth opportunities will depend on recent, reliable, and rigorous knowledge of local conditions. By defining and describing eleven city strata as an alternative to the traditional five-tier system, we provide business and government leaders a contemporary roadmap for steering investments to the most promising growth opportunities." 

Finding the places—and people—who will write China's next chapter

No More Tiers replaces the crude five-tier classification of Chinese cities with eleven strata of urban centers united around shared characteristics and prospects for consumption growth. Of the 286 prefecture-level cities analyzed, the Top 40 Cities are identified as the most promising for consumer sector companies. Alongside this City Strata framework, the report introduces a framework for identifying Connected Spenders—the 27 percent of the population expected to account for 80 percent of Chinese consumption growth over the next decade.

The eleven strata as laid out in the report:

  1. Super cities: The most developed, competitive, and highly penetrated markets, including Beijing, Shanghai, and Shenzhen.
  2. Affluent cities: The "sweet spot" of demand and competition for companies looking to tap into China's growing consumption.
  3. Satellite cities: Smaller cities within an hour's drive of affluent or super cities that offer significant opportunities for expansion.
  4. Regional international cities: Gateways to peripheral regions in China with high cultural and economic interaction with nearby foreign markets.
  5. Integrated industrial cities: Cities that continue to rely on a few heavy industries and thus vulnerable to weak demand and overcapacity.
  6. Inland core cities: Representing the average urban dweller and by far the most populated of the top six strata, opportunities in these cities will be limited to low-cost mass-market products. 
  7. Resource-exhausted cities: Small, struggling cities heavily dependent on extractive industries.
  8. Tourism cities: Remotes cities defined by their proximity to a site of natural beauty.
  9. Modern agricultural cities: Richer and more modernized than other farming cities, rewards remain low for multinationals considering entering.
  10. Frontier cities: With just half the income and consumption of the top strata, these cities seek high growth from a very low base.
  11. Traditional agricultural cities: Hardly cities at all, the state drives most non-agricultural development in these areas.

For full report: No More Tiers: Navigating the Future of Consumer Demand across China's Cities
demandinstitute.org/no-more-tiers

About The Demand Institute

The Demand Institute illuminates how consumer demand is evolving around the world. We help government and business leaders align investments to where consumer demand is headed across industries, countries and markets. A non-advocacy, non-profit organization and a division of The Conference Board, The Demand Institute holds 501(c)(3) tax-exempt status in the United States and is jointly operated by The Conference Board and Nielsen. For more information, please visit demandinstitute.org.

About The Conference Board

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c)(3) tax-exempt status in the United States. For more information, visit conference-board.org.

About Nielsen

Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York City and Diemen, the Netherlands. For more information, visit nielsen.com.

SOURCE The Conference Board; The Demand Institute



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