• Doris Li

Understand China’s city tier system and various markets

Updated: Feb 14

If you'd like to learn in a more engaging format, please click the image below and watch our Youtube video.

When you think of China, do you think of panda bears, temples and dumplings? These things aren’t really representative of China - just like not every Aussie rides a kangaroo to school.

One other thing that isn’t really representative of China is to think of every Chinese consumer as the same. One common mistake that I see many Western brands make when doing marketing in China is to treat the country as a single and unified market. But in reality, China is a vast country with diversified consumer behaviour in different regions and cities.

For foreign businesses looking at entering China, a “one-for-all” marketing approach is simply not feasible, as each city differs greatly in population size, economic development and infrastructure, thus the consumers in each city have significantly different income levels, purchase powers and expectations in products and services.

So how does China classify its markets, and where should you start?

City tier classification system

A general method to understand China’s different markets and different groups of consumers is through the Chinese city tier classification system. This tier system is not officially recognised by the government, but it provides good guidance to the sectors such as marketing, commerce, education, tourism, etc., to understand business opportunities, consumer behaviours, income level and purchase power of each Chinese city.

The cities in each tier may differ according to which source has developed the list, but the ones in the "higher tiers" are quite similar on all these lists. They’re categories based on facts including commercial capability, lifestyle and future potential.

Beijing, Shanghai, Shenzhou and Guangzhou are the four “first-tier” cities, without questions. They represent the most developed areas of China with the most affluent and sophisticated consumers. These four cities are large and densely populated with huge influence in the country’s economy, culture and politics.

Besides these four cities, there are a number of upcoming cities to watch. They’re developing rapidly in recent years and are recognized as “new first-tier” cities, including Chengdu, Chongqing, Hangzhou, Wuhan, Xi’an, Zhengzhou, Qingdao, Changsha, Tianjing, Suzhou, Nanjing, Dongguan, Shenyang, Hefei and Foshan.

So far, the top-tier cities have always been the favourites of international brands, especially Beijing and Shanghai. But this also means the competitions in these cities are fierce.

Opportunities in lower tier cities

As the urban-rural income gap decreases, and the market in higher-tier cities tends to be saturated, we have seen increasing opportunities in China’s lower-tier cities in recent years. Take the Food & Beverage sector for example, lower-tier cities are contributing more to the overall growth in recent years than higher-tier cities.

It is worth noting that people living in second-tier cities are under less pressure for basic living costs such as housing, therefore, with the increase of incomes, they have become strong markets for imported goods.

Another important fact is the development of e-commerce channels, which leads to the penetration of foreign goods in lower-tier cities, especially among the group of young consumers who is called “Small-Town Youth” (小镇青年).

Small-Town Youth refers to people aged 20-35 living in third and fourth-tier cities. The population size of this group is over 220 million. And the pursuit of higher quality life has become the main drive for them to purchase foreign goods to upgrade their lifestyle. According to a government report last year, the ratio of the population of “Small-Town Youth” to the “Urban Youth” is 4:1, so it’s obvious that the potential with this group of audience is huge for brands.

So remember, China is a huge country and finding the right place to start could make or break your business.

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