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Chinese consumption to surge to $6.4 trillion in 2025

Staff writer ▼ | November 19, 2015
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.
Chinese street store
Think tank   According to a new report from The Demand Institute:
This is 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."