The urbanisation rate in the Chinese mainland is now approaching 44% and is still growing fast. In particular, some costal provinces and cities are undergoing the urbanisation process at the same high speed as megalopolises such as Beijing, Shanghai and Guangzhou in the past. The growth in urban population has created a huge consumer demand, turning more and more cities once neglected into key targets for market development.

Today, both foreign and Hong Kong companies making an inroad into the mainland market are increasingly expanding from Beijing, Shanghai and Guangzhou to other cities. The degree of penetration into other large and medium-sized cities varies with individual manufacturer's resources and strategies. While some only move into larger provincial capitals or sub-provincial cities, others have already penetrated into a great number of medium-sized cities in various regions and opened thousands of retail outlets in the form of franchising. As a matter of fact, some large and medium-sized cities on the mainland have considerable consumption power comparable to that of Beijing, Shanghai and Guangzhou. Besides, the spending power in many large and medium-sized mainland cities is witnessing the peak of their growth. Some cities with favourable conditions, such as Hangzhou, Suzhou and Ningbo, can be expected to reach the present consumption level of the megalopolises within one to two years.

The Hong Kong Trade Development Council (TDC), by using a set of clear and scientific criteria, has selected 30 cities with the most developed consumer market. All in all, these cities have the largest consumer market size, highest consumption power, most developed hinterlands, and most extensive coverage of neighbouring cities. The TDC has further classified the top 30 cities into six "AAA", 10 "AA" and 14 "A" cities for Hong Kong companies' easy reference.

The method of selection is as follows: First, 50 cities with the largest market size, per-capita consumption, income and wealth of residents are identified from 287 large and medium-size cities across the country. Then, among these 50 cities, 30 top performers are selected according to a number of indicators including the population, market size and economic strength of the city's economic hinterland within a 200-km radius. These top 30 cities are presented in this report as the prime choices for Hong Kong companies wishing to make an inroad into the mainland consumer market.

Geographically, in southern China, six Pearl River Delta (PRD) cities and Xiamen of Fujian province are selected. Since the PRD is a highly developed industrial base, Hong Kong companies venturing into the PRD market will inevitably face greater competition from local enterprises. However, consumers in the PRD have more knowledge about Hong Kong and have a good impression of Hong Kong brands. Moreover, as prices in Guangdong are higher, consumers there are more likely to find the pricing of Hong Kong products acceptable.

The thriving private and foreign-invested enterprises in the Yangtze River Delta (YRD) have created a great number of big spenders in the region. A total of 12 cities in the YRD are selected. Apart from the chosen ones, neighbouring cities such as Wenzhou and Nantong which are not selected are also highly mature markets. The busy people and cargo flows within the YRD have made it much easier for brands to penetrate into the whole region. Many international brands have already established a foothold in YRD cities, supported by an extensive network of distribution channels.

In Beijing, Tianjin, Shandong and Liaoning in the Bohai-Rim region, a total of seven cities are selected. Among them, Beijing and Tianjin are advanced metropolises attracting consumers from all over the country. Following the growth of the economy in Shandong and Liaoning, many cities in these two provinces have emerged as regional shopping centres, attracting consumers from within the province as well as business visitors from Japan (who are residing in northeastern China) and Korea (there are about 70,000 Koreans residing in Shandong).

In the open coastal region, where people have more access to information and there are more foreign companies, local consumers have more exposure to the outside world. They are familiar with international brands and do not perceive Hong Kong brands as on a par with upmarket foreign brands. Hong Kong companies should therefore have a clear positioning. While mainland consumers may or may not have a good knowledge about Hong Kong (the degree of knowledge varies from place to place), they still favour Hong Kong brands for their trendy designs and reasonable prices despite the fact that a host of Korean and Taiwanese rival brands have emerged. Hence, Hong Kong brands are still very competitive in the mid-to-high-end market. In developing the mainland market, Hong Kong companies must carry out more advertising and promotional activities and adopt the right positioning and pricing strategies.

In the PRD and YRD, regions which Hong Kong companies are more familiar with, there is a high concentration of affluent cities, county-level cities and consumers in a relatively small geographical coverage. As such, the cost effectiveness in product distribution and brand promotion is greater in both regions, which warrants the attention of Hong Kong companies wishing to expand their business. In particular, key cities in the PRD and YRD can draw large numbers of consumers to come and buy various kinds of non-necessities, thanks to their excellent commercial facilities, wide range of products and great variety of brands.

In the central and western regions, four cities are selected. Coincidentally, all of them are provincial capitals. As a matter of fact, since the economy in the central and western regions is relatively backward, very often only the capital city of a more developed province can grow to become the consumption centre and regional distribution centre of the province. Such capital city usually far exceeds other cities in the province in terms of spending power and commercial development and can attract consumers from other parts of the province as well as consumers from other provinces.

In general, the consumption power in the central and western regions is lower than that in the costal region. Moreover, since not many international brands have made an entry into the central and western regions, the local consumers do not have much knowledge about foreign brands and they still have a good impression of Hong Kong brands. Against this backdrop, it should be relatively easy for Hong Kong companies to break into the consumer market in the central and western regions provided that they make more efforts in market expansion, advertising and formulating reasonable pricing strategies.

This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.