The rapid urbanisation of the Chinese mainland has induced brand companies to expand their business into large and medium-sized cities across the country in a bid to develop their regional or national sales networks. Among the numerous cities on the mainland, HKTDC has, based on a set of scientific criteria, selected 30 that offer the most promising consumer markets for Hong Kong companies' easy reference in identifying mainland cities for business expansion.

Overall speaking, these cities have the largest consumer market size, highest consumption power, most developed hinterlands and most extensive coverage of neighbouring cities. The 30 cities selected are: Shanghai, Beijing, Guangzhou, Shenzhen, Tianjin, Wuhan, Nanjing, Chengdu, Hangzhou, Suzhou, Shenyang, Qingdao, Wuxi, Jinan, Changsha, Ningbo, Dalian, Zhengzhou, Foshan, Chongqing, Dongguan, Changzhou, Zibo, Jinhua, Shaoxing, Jiaxing, Zhongshan, Xiamen, Zhenjiang and Zhuhai.

These cities are mainly located at the three major economic regions, namely the Pearl River Delta (PRD), the Yangtze River Delta (YRD) and the Bohai Rim. Both the PRD and YRD are now home to a large number of affluent cities within a relatively small area, with busy flows of people, goods and information exchange. Retail channels and supporting facilities have been healthily established, facilitating the development of new markets. Shopping centres that offer a full range of commodities have also come into being, attracting consumers on a regular basis. All these have provided them with a cutting edge.

Consumers of the coastal areas are more knowledgeable about international brands. They regard Hong Kong brands as advanced but inferior to international brands. As compared with Korean, Taiwanese and indigenous mainland brands, Hong Kong brands are still more attractive to the majority of mainland consumers. Thus, despite keen competition of the market, Hong Kong brands still have a good chance to stand out provided appropriate positioning is adopted, unique product features are highlighted and marketing efforts are stepped up.

As for central and western China, since their economies have picked up at a later date, only those capital cities of the more affluent provinces are better developed. The provincial capitals of central and western China that have been selected are usually the most mature markets of the province, outshining other cities of the same province in terms of consumption power and commercial development. The coverage of these provincial capitals is thus very strong and can attract consumers from their own provinces as well as other provinces, creating a kind of cluster effect.

Consumers of central and western China are less acquainted with Hong Kong. Yet they still have a good impression of Hong Kong brands, the pricing of which are more on par with their consumption level. Hong Kong products with novel and fashionable design and a relatively higher performance to price ratio have therefore become their shopping preference.

1. Urbanisation and Consumer Market Development

China has witnessed rapid urban development in the past two decades, with the rate of urbanisation (i.e. the share of urban population in total population) increasing from about 20% in the early days of reform and opening-up to nearly 45% at the end of 2007. As China's urbanisation gathers pace, the number of large and medium-sized cities (prefectural-level cities¹) in the country also increased from 236 in 1999 to 287 in 2007. The high population density in cities brings about a concentration of demands. In terms of location of sales units, the share of cities in China's total consumer goods retail sales had increased from 66% in 2003 to 68% in 2008.

Urbanisation drives the development of the consumer market. With urbanisation gathering speed in the mainland, companies targeting the China market are planning to expand from megalopolises such as Beijing, Shanghai and Guangzhou to other cities in order to establish regional or national sales networks. In recent years, many Hong Kong and foreign retailers and manufacturers developing the mainland market have made plans to venture into other large and medium-sized cities apart from the megalopolises. Although only a few large and medium-sized cities can rival the spending power of sub-provincial cities/provincial capitals/autonomous region capitals, many of them can afford medium-range consumer goods. Hong Kong's well-designed and high-quality branded goods are immensely popular with residents in these cities. In addition to running their own stores, Hong Kong brands can also build extensive sales networks by establishing hundreds or even thousands of outlets in the form of franchising. Famous foreign brands such as Mercedes-Benz and BMW (cars), Nokia (mobile phone), Apple (computer), Shiseido and L'Oreal (cosmetics) have already established a strong presence in large and medium-sized cities. This shows that consumers in many general prefectural-level cities can now afford higher quality consumer goods which are popular abroad.

2. Top 30 Cities with the Largest Market Potential

While the overall market size of a city is proportional to its population, its consumption level depends on the income and wealth of its residents. According to statistics, the per-capita retail sales in a city are closely related to the local per-capita GDP and per-capita residents' savings deposits. Figures 1 and 2 below show that per-capita retail sales are highly correlated to per-capita GDP and per-capita savings deposits.

According to the above analyses, a city that achieves high levels in all four indicators (i.e. total retail sales of consumer goods, per-capita retail sales, per-capita GDP and per-capita savings deposits) can be regarded as having a relatively mature consumer market with a considerable demand for most commodities and great growth potential. It can be classified as a target city for development. However, as consumer demand for certain higher-grade branded products and consumer durables is smaller than that for mass merchandise, the sale of such products has to be supported by the purchasing power of a larger region. Hence, the target city must have a clustering effect, drawing together the purchasing power of its neighbouring regions.

Therefore, to identify the top 30 cities on the mainland with the greatest market development potential, two steps are required. First, 50 cities with the highest retail sales and consumption level are chosen. Specifically, all cities on the mainland are ranked according to the four indicators, namely total retail sales of consumer goods, per-capita retail sales, per-capita GDP, and per-capita savings deposits. The higher the rank of a city, the higher is its score. Then the 50 cities with the highest total scores are selected.

Second, a comparison of the capability of these 50 cities in drawing the purchasing power of their neighbouring regions is made. The purchasing power of the neighbouring regions is based on the economic strength and market demand of the neighbouring cities. Meanwhile, the accessibility of a city can determine whether the city is a hub with busy people flow and whether residents in other places would go there for consumption. If the city is a provincial-level political and economic centre or transportation hub, it can normally attract more consumers and draw in more consumption power from neighbouring regions. Some large cities or cities which are tourist destinations can even attract visitors from all over the country and from overseas. The accessibility of a city can be reflected by its passenger throughput.

The 50 cities are then ranked according to four indicators, namely GDP, total retail sales of consumer goods, population and passenger throughput (including all cities at the same level or a lower level within a 200-km radius). Again, the higher the rank, the higher is the score of a city. Finally, by adding the total scores obtained in the first and second steps, the top 30 cities with the highest scores are selected.

Based on 2007 figures, 30 cities with the largest consumer market and highest spending power are chosen. These cities are: Shanghai, Beijing, Guangzhou, Shenzhen, Tianjin, Wuhan, Nanjing, Chengdu, Hangzhou, Suzhou, Shenyang, Qingdao, Wuxi, Jinan, Changsha, Ningbo, Dalian, Zhengzhou, Foshan, Chongqing, Dongguan, Changzhou, Zibo, Jinhua, Shaoxing, Jiaxing, Zhongshan, Xiamen, Zhenjiang and Zhuhai.

While these 30 cities together account for 40% of the consumer market on the mainland, the differences between each and every one of them are significant. Among these cities, there are megalopolises such as Shanghai, Beijing and Guangzhou. In terms of administrative level, there are four municipalities directly under the central government, 14 provincial capitals or sub-provincial cities, and 12 general prefectural-level cities. Geographically, apart from Beijing, Tianjin, Shanghai and Chongqing, there are six cities in the PRD, 10 in Jiangsu and Zhejiang, three in Shandong, one in Fujian, two in the three northeastern provinces, three in the six central China provinces, and one in the 12 western region provinces.

Economic Indicators of the Top 30 Consumer Markets (2007)

3. Comparison of 30 Cities by Market Potential

The 30 cities selected by HKTDC are cities with the largest consumer market and highest spending power. To prioritise the cities for development, the market size (total retail sales of consumer goods) and spending power (per-capita retail sales) of each city are compared. According to the results of the comparison, Beijing, Shanghai, Guangzhou and Shenzhen are the markets with both market size and per-capita retail sales above the national mean + 3 SDs (standard deviations)². Cities such as Nanjing, Wuhan, Hangzhou and Shenyang have both market size and per-capita retail sales above the national mean + 2 SDs, while others including Tianjin, Suzhou, Qingdao, Wuxi, Jinan, Changsha, Ningbo, Dalian, Zhengzhou, Foshan, Chongqing and Chengdu have both market size and per-capita retail sales above the national mean + 1 SD.

It can be seen from the above figure that Shanghai, Beijing and Guangzhou are megalopolises leading far ahead of other cities in market size and spending power. Beijing, Shanghai and Guangzhou together account for 12% of China's consumer market, and they have always been considered as the entry points for breaking into the domestic market. The consumer market of these three cities is characterised by large urban population and high urbanisation rate (over 80% to 90% on average). As their residents' disposable income leads the country, their consumer market is large and their spending power is strong.

Beijing, Shanghai and Guangzhou are not only national business and shopping centres attracting consumers from all over the country, but also cities with the highest concentration of middle-class consumers. Guangdong, Shanghai and Beijing are home to the greatest number of private enterprises and foreign-invested enterprises in the country.³ This, coupled with a well-developed modern services sector, has created a huge high-income group. Beijing, Shanghai and Guangzhou are centres of foreign investment, cities with the largest number of overseas returnees, overseas Chinese and foreigners, as well as popular destinations of foreign visitors. Thus, the lifestyle of the people in these cities is the most modern and westernised. Residents there have more exposure to foreign brands, media, movies and trends and are more receptive to new ideas.

Megalopolises such as Beijing, Shanghai and Guangzhou can be divided into a number of commercial belts with distinct grades. Hence, consumer goods with different positioning can all find their way into the right commercial districts. For instance, in Shanghai, there are high-end commercial districts like Nanjing Road West and Huaihai Road Central, followed by mid-range Xujiahui Commercial Center and Nanjing Road East, and lower-end Yuyuan Tourist Mart and Sichuan Road North.

Although Shenzhen lags behind Beijing, Shanghai and Guangzhou in retail market size and per-capita retail sales, it leads far ahead of other cities. Shenzhen is an important research and production centre for high-tech industries with a large number of high-income corporate executives and professional technical personnel. The per-capita disposable income in Shenzhen ranks high among mainland cities and its spending power is therefore strong. However, Shenzhen's close proximity to Hong Kong is the one factor that restrains its consumer market growth as it is easy for people in Shenzhen to travel to Hong Kong to shop. In particular, following the implementation of the Individual Visit Scheme, more Shenzhen residents are attracted to go to Hong Kong to shop, especially for higher-end branded consumer goods.

4. Regions with the Most Developed Consumer Market

As shown in Figure 3 above, the geographical distribution of the top 30 cities is concentrated in the YRD and PRD regions but more dispersed in other regions. The geographical distribution of cities, be it concentrated or dispersed, is of great significance to the establishment of sales networks, arrangement of logistics and penetration/influence of brands. Therefore, Hong Kong companies planning to devote their resources to the development of one region first can give priority to the YRD or PRD region.

4.1 PRD Cities (Guangzhou, Shenzhen, Foshan, Dongguan, Zhongshan, Zhuhai)

For years, the PRD has been home to Hong Kong, Taiwan and foreign companies, with Shenzhen being the forerunner in reform and liberalisation. After years of development, many cities in the PRD have become rich and have changed from production bases to major consumer markets. However, some of them are immigrant cities where many residents are migrant workers from other regions. Therefore, both high-end and low-price products have their market in the PRD. Among all PRD cities, Guangzhou, Shenzhen, Foshan, Dongguan, Zhongshan and Zhuhai are the top choices for market development.

Guangzhou and Shenzhen are the political and financial centres of Guangdong province. They are also major consumption hubs of the province. Guangzhou is undoubtedly a megalopolis. With a great number of famous foreign brands and mid-to-high-end local brands, it can largely satisfy its residents' consumption needs.

Shenzhen, with its market size and per-capita retail sales far exceeding the national mean + 3 SDs (standard deviations), is geographically close to Hong Kong. Like Guangzhou, the product variety and styles in Shenzhen are substantially richer than those in other PRD cities. There is a high concentration of big spenders such as private enterprise operators, foreign company employees, Hong Kong people, foreign business travellers and local golden-collar workers in Guangzhou and Shenzhen. Consumers who work and live in Foshan and Dongguan would go shopping in Guangzhou during weekends. As the income of local residents increases, their consumption is also going upmarket.

Guangzhou and Shenzhen are more than commercial centres. The vast number of shopping malls, pedestrian streets, restaurants and entertainment facilities in the two cities, served by convenient transportation networks, also attract consumers from other cities. For instance, the Teemall, Friendship Store, La Perle Mall and Grandview Mall in Guangzhou, and Luohu, Dongmen and Huaqiang Road North in Shenzhen are the trendiest shopping malls/commercial districts in Guangdong province. Many international top-notch luxury goods brands have also established a presence in Guangzhou and Shenzhen instead of other cities in the province. The concentration of high-end retailers in Guangzhou and Shenzhen has in turn reinforced the two cities' position as consumption centres.

In Foshan, Dongguan, Zhuhai and Zhongshan, the income of the people is also quite high. However, their population and market size are not comparable to those of Guangzhou and Shenzhen. Moreover, since industry plays a dominant role in these cities, their retail and catering sectors are less developed than those in Guangzhou and Shenzhen. As such, these cities can only meet the basic daily needs of the local consumers and do not offer many high-end brands. However, they can attract visitors from other cities in the province to come for short or weekend trips.

The retail sector in the four cities of Foshan, Dongguan, Zhuhai and Zhongshan is quite established and Hong Kong brands have opened shops in these cities. This indicates that local consumers are already able to afford mid-to-high-end products. Besides, the distribution channels in these cities have developed considerably. For example, Tour Mall, Galaxy Mall, Sunlink Plaza and Baihua Plaza in Foshan; South China Mall, Global Plaza and Douhui Plaza in Dongguan; Gongxiao Group Zhuhai Commercial Building, Zhuhai City Department Store and Qianshan Baihuo Plaza in Zhuhai; and Yihua Plaza in Zhongshan are all trendy consumption spots.

With the close geographical, language and cultural affinity between the PRD and Hong Kong, the movement of people between the two places is frequent. As a matter of fact, PRD residents have a lot of opportunities to travel to Hong Kong for pleasure or on business. Some of them may have relatives in Hong Kong and to them Hong Kong is an ideal place for shopping. In general, PRD consumers are familiar with Hong Kong products and have a great preference for them.

It is worth noting that the PRD is a light industrial base with a large number of factories producing textiles, shoes and headgear, electronics, furniture, home appliances, household goods, stationery and toys, and watches and clocks. Many of them are competitive private enterprises. In fact, Guangdong province is one of the regions with the greatest number of private enterprises in China. After years of growth, many of these mainland manufacturers have developed high quality products and famous brands. For example, electronics and technology in Shenzhen, electronics and textiles in Dongguan, and household appliances in Foshan are household names. In particular, some mainland brands which have achieved "well-known brand" status are perceived as mid-to-high-end products by PRD consumers. In view of this, Hong Kong companies wishing to break into the PRD market must enhance the quality and characteristics of their products.

4.2 YRD Cities (Shanghai, Nanjing, Hangzhou, Suzhou, Wuxi, Ningbo, Changzhou, Jinhua, Shaoxing, Jiaxing, Zhenjiang)

Although the market size and depth of Nanjing, Hangzhou, Suzhou and Wuxi are still lagging behind those of Beijing, Shanghai and Guangzhou, growth has been rapid and their per-capita consumer spending is among the highest in the country. After years of wealth accumulation and economic development, there is a high concentration of affluent cities in the YRD, with a number of them emerging as important consumption centres.

Transportation and people flow between the cities in the YRD region are busy and retail channels and infrastructure are well-developed. Hence, once a product has established a foothold in a city, it can easily break into the whole regional market. In the case of Hangzhou, since it is the provincial capital and commercial centre of Zhejiang, it has attracted many private enterprise bosses from other cities in the province to go there and splurge. Hence, Hangzhou, with its huge demand for high-end products and large number of renowned international brand stores, has become the battleground for upmarket brands.

As the YRD is more liberalised and more free from the burden of planned economy, private economy embracing private enterprises and foreign-invested enterprises is vibrant. According to statistics, Jiangsu and Zhejiang are the two provinces with the highest concentration of foreign and private enterprises on the mainland. The thriving private economy has contributed to the high employment rate and strong economic growth in the YRD cities. Also, private enterprise operators and foreign company employees usually have greater spending power.

The distribution channels in the YRD cities have been developing in leaps and bounds in recent years. Apart from large local malls and supermarkets, foreign-invested and domestic national retail groups are also actively setting up sales outlets in general prefectural-level cities. For example, a number of foreign-invested retail chains have already started business in some YRD cities. They include hypermarkets/large supermarkets such as Carrefour, Metro, Wal-Mart and Trust-Mart, as well as department stores such as New World Department Store and Parkson. Domestic retail chain giants such as Gome, Suning and Lianhua Supermarket have also established a presence there. The expansion of retail channels provides more convenience and choices to Hong Kong companies making inroads into the YRD cities. There are now a host of upscale shopping malls and department stores in many cities. Hong Kong companies can consider making their entry in the form of setting up "store-in-store" or special counters.

Nanjing and Suzhou are the most developed cities in Jiangsu province, so are Hangzhou and Ningbo in Zhejiang province. Department stores, shopping centres, and suburban brand discount stores in these cities all have their clear positioning. These cities can attract YRD consumers to go there during weekends or holidays. As for "late starters" in the region, such as Wuxi, Changzhou, Zhenjiang, Jinhua, Jiaxing and Shaoxing, although their market size is relatively small, their affluence cannot be underestimated. Apart from foreign retailers which enter the YRD cities in a big way, leading luxury brands are also finding their way into cities like Hangzhou, Suzhou and Nanjing. This shows that a high-end consumer market is taking shape. As for Hong Kong brands, since their prices are lower, they are affordable by more mainland consumers. As a result, a number of Hong Kong clothing, footwear and jewellery brands have already penetrated into various YRD cities. However, due to the longer distance between the YRD and Hong Kong and the strong presence of international brands in the region, YRD consumers are less familiar with Hong Kong brands. They know foreign brands better as heavy advertising and image promotion campaigns are carried out by these brands.

4.3 Bohai Rim Cities (Beijing, Tianjin, Shenyang, Qingdao, Jinan, Dalian, Zibo)

The Bohai Rim region encompasses provinces and cities including Beijing, Liaoning, Hebei, Shandong and Tianjin. Despite the relatively late start of this economic region, the spending power of its residents cannot be overlooked. Beijing has several commercial belts dotted with modern shopping malls and department stores. The supporting facilities in Beijing, such as catering and entertainment establishments, are also upscale and comprehensive. Tianjin is a fairly developed commercial and shopping centre. Although Tianjin has been developing at a rapid pace, it still lags behind Beijing in terms of international brands, product variety and the maturity of shopping malls.

The central government has designated Tianjin as the economic centre of northern China (while Beijing is the state capital, an international metropolis, a famous cultural city and an ideal city for living). Tianjin is the largest freight centre in northern China, and the Tianjin port is one of key ports in the country. Many imported products destined for inland cities enter the country through Tianjin. Interactions between Beijing and Tianjin, both municipalities directly under the central government, are close. Since many people live in one of these two cities and go to work in the other, inter-city shopping activities are frequent. While Beijing residents travel to Tianjin to shop for its lower prices and excellent seafood, people in Tianjin visit Beijing for its greater variety of higher-end products. Also, the large number of people from adjacent provinces (e.g. Hebei) and other parts of China working in Beijing and tourists from all over the world visiting this traditional political and cultural centre are potential consumers. As for Tianjin, the number of consumers from outside the city is smaller.

Consumers in major cities like Beijing and Tianjin no longer blindly go after Hong Kong brands. Since there are a great variety of famous brands available in Beijing, consumers can compare Hong Kong brands with foreign ones. While Hong Kong brands may still have an edge over Korean and Taiwanese brands, their grade is obviously lower than that of European and American brands. Besides, the younger and wealthier new generation is increasingly going after foreign brands. Therefore, Hong Kong brands must have a clear positioning and the right market strategies.

Hong Kong brands should carry out more advertising, exhibition and promotional activities in Beijing and Tianjin. Otherwise, consumers may rather choose to pay more for well-known foreign brands than to buy expensive but lesser-known Hong Kong brands. However, more consumers from major cities now choose to go to Hong Kong for shopping. They reckon that the lifestyle and services in Hong Kong are more civilised and advanced, and often keep an eye on Hong Kong's fashion trends. By buying and bringing back various Hong Kong brands, they have helped promote Hong Kong brands.

In leading cities like Beijing and Tianjin, Hong Kong brands face keen competition. Apart from an array of international brands, there are also a great number of quality domestic brands. As consumers in these cities have strong spending power and favour foreign brands, they regard Hong Kong brands as mass market brands. This is particularly the case in Beijing. But looking at this from a positive angle, it can be said that most consumers in these cities find Hong Kong brands affordable.

Shenyang and Dalian are the consumption centres in the three northeastern provinces of China. Shenyang, the provincial capital of Liaoning, is a city which absorbs the most foreign capital in the province and has a well-developed heavy industry. As a transportation hub, Shenyang has an extensive coverage in northeastern China. In addition to attracting consumers from other parts of Liaoning and adjacent regions such as Jilin, Heilongjiang and Inner Mongolia, it is also a regional distribution centre where many mid- and low-end clothing and daily goods are wholesaled. Meanwhile, Dalian is the financial, logistics and convention and exhibition centre of Liaoning province with a high degree of openness. Geographically, Dalian has the advantages of a coastal city, attracting a great number of foreign traders (especially Japanese traders) and visitors. With a well-developed information network, its residents are widely exposed to the outside world, open-minded and tasteful, and are regarded pioneers of fashion trends. Many international brands have thus chosen Dalian as the entry point to the northeastern China market.

Since Shenyang and Dalian are regional consumption centres, the shopping malls and department stores in the two cities exceed those in adjacent cities both in terms of grade and number. Although cities like Changchun and Harbin are fast catching up, the styles and brands offered in Shenyang and Dalian are still unmatchable by neighbouring cities. Therefore, consumers from neighbouring cities would drive to Shenyang after work or during weekends to shop. People with high consumption power in the province, including private enterprise operators, foreigners, high-level white collars and government officials, are all drawn to Shenyang.

To consumers in northeastern China, although Hong Kong brands (mostly mid- to high-end) are not comparable to renowned European and American brands, they still have an edge over mainland brands.

In Shandong province, a number of cities have emerged such as Yantai, Weifang and Weihai. Although these are not among HKTDC's top 30 cities, they have strong economic strength and industrial development. Jinan and Qingdao are the consumption centres in Shandong. While Jinan, as the provincial capital and a transportation hub, attracts consumers from within the province, Qingdao, as a port city, draws both domestic and foreign visitors (e.g. Korean visitors). The consumption venues, grades, brands and variety of products in these two cities are superior to those in neighbouring cities. During holidays, many wealthy consumers from the neighbouring regions will go to Jinan and Qingdao to shop for various kinds of products such as handbags, jewellery and computers. As for other cities in the province, they mainly offer products satisfying the daily needs of local consumers.

Shandong consumers have a great variety of brands to choose from. Most of the international brands have already found their way into Jinan and Qingdao. As consumers in Shandong have more opportunity to go abroad, they have quite a good knowledge of international brand names. Shandong consumers are less exposed to Hong Kong brands and product information, mainly because not many Hong Kong brands have made an entry into this market. While local consumers do recognise Hong Kong brands, they rate them lower than international brands but in the same rank as Korean and Taiwanese brands. As such, Hong Kong brands are affordable by many middle-income consumers.

4.4 Central Region Cities (Wuhan, Changsha, Zhengzhou)

In 2007, the market size of the six central provinces⁴ totalled over RMB 1,800 billion, with the three provincial capitals of Wuhan, Changsha and Zhengzhou accounting for 20%. In terms of industrial structure, these cities are key cities where the service sector and heavy industry are well-developed.

Wuhan is the most affluent provincial capital in the six central provinces, as well as a service centre and transportation hub in central China. As regards industry, the city has well-developed automobile, equipment manufacturing and high-tech industries. In recent years, the concept of forming the "Wuhan Metropolitan Area" was put forward to reinforce cooperation on all fronts with eight neighbouring cities, namely Huangshi, Xiaogan, Huanggang, Ezhou, Xianning, Xiantao, Qianjiang and Tianmen. Meanwhile, Zhengzhou, as the capital of Henan (a major agricultural province with abundant resources), is the second largest city in the central region. Located at the heart of China, Zhengzhou is a logistics transit centre. As for Changsha, product sales are strong as local consumers are willing to spend despite their lower income levels.

Compared with the coastal region, the economy of the six provinces in the central region relies less on export and more on domestic consumption. The central government's policy of bolstering the development of the central region gives a further boost to the spending power in the region. While there are big spenders in Wuhan, Zhengzhou and Changsha, the average spending power in these cities has not peaked yet. This, coupled with the fact that the economy in the neighbouring cities is less developed, has resulted in the dominance of mid-range domestic brands in these cities. This also explains why not many luxury brands have set up specialty stores in the central region cities. Currently, the central region is still not a market coveted by industry players. As regards the distribution of leading brands in the region, there are more high-end foreign brands in Wuhan, followed by Zhengzhou and Changsha. In fact, some affluent consumers prefer to shop in big cities like Shanghai and Hong Kong.

A number of foreign-invested retail groups have made inroads into these three central cities. These foreign retailers are as sophisticated as those in the megalopolises on the mainland, offering a comprehensive variety of brands and styles, excellent shopping environments and comprehensive supporting facilities. Since these shopping centres in the three cities are far better than those in other central region cities, they tend to attract shoppers driving in from other cities on a shopping spree on weekdays or during weekends.

In the central provinces, provincial capitals are often the only major consumption centres in the province, accounting for a much larger share of the provincial consumer market than other cities in the same province. In fact, the provincial capitals are the hearts of their respective provinces, leading ahead of other cities in various aspects of economic development (e.g. fixed asset investment, imports and exports, foreign capital utilisation, and industrial and commercial development, etc).

As regional commercial centres, the tertiary industry of these provincial capitals is more developed than general prefectural-level cities. In addition to having a mature consumer market on the back of economic development, Wuhan, Zhengzhou and Changsha are also regional distribution centres. They do not only serve as the platform to the whole province or region, they are also home to a number of large-scale commodity markets. And as regional distribution centres, products can be distributed from these three cities to as far as Anhui, Jiangxi and Henan.

While consumers in central China are aware that Hong Kong is a modern city, they have little knowledge about Hong Kong since they do not have much exposure to Hong Kong. Although they may have heard of some Hong Kong brands, they have difficulty recognising those Hong Kong brands that are lesser-known or new, or distinguishing mainland brands claimed to be Hong Kong brands. In this connection, Hong Kong companies should step up their advertising and education efforts. Also, since consumers in the central region are less familiar with international brands, they tend to be more receptive to Hong Kong brands. They regard Hong Kong brands as higher-end which are better than the mainland upscale brands they usually buy. Hong Kong branded products with unique design and reasonable pricing are attractive to them.

As consumers in the central region have a lower income level than their counterparts in the coastal region, they are more price-sensitive. As a matter of fact, prices in the central region are generally lower. Hong Kong suppliers should therefore take the purchasing power of the local consumers into consideration when fixing product prices. Normally, consumers find Hong Kong products more appealing during sales period.

4.5 Western Region (Chengdu, Chongqing)

Sichuan is economically the most vibrant province in the western region. Its provincial capital Chengdu is the most dynamic economy in the region. It also has one of the most advanced land and air transportation networks in the region. Thanks to its large market size, Chengdu is the city that attracts the most foreign investment in the western region. Even on the national level, Chengdu is leading the country in terms of economic aggregate. Its major industries include machinery, metallurgy, agricultural by-products processing, pharmaceuticals, electronics and automobile. As for service industries, Chengdu has a flourishing tourism sector (Sichuan is one of the most popular tourist destinations in the country), which drives the development of the wholesale and retail, convention and exhibition, hotel and catering sectors.

The economy of the majority of the provinces and cities in the western region is not yet mature. As a regional shopping centre, Chengdu attracts affluent consumers even from neighbouring provinces (e.g. Guangxi and Tibet where shopping is not convenient). Residents in other cities in Sichuan do not only go to Chengdu for shopping during weekends but also on weekdays. The things they buy in Chengdu range from daily necessities to luxury goods. Chengdu has many large-scale shopping malls ranging from low end to high end and providing all kinds of goods. As a city where the purchasing power of the western region concentrates, Chengdu has attracted many top international brands to open their flagship stores.

With its good consumption atmosphere, Chengdu has become an attractive shopping centre. Although the average income of residents in Sichuan and the western region is relatively low, they are more willing to spend because of their carefree character. For instance, someone who earns RMB 1,000 may spend all the RMB 1,000 on shopping. Thus, Chengdu's spending power is in no way weaker than that of the coastal cities. For the well-heeled consumers, price is not the primary consideration in buying high-end products. However, consumers remain price-sensitive when purchasing medium-range and low-end products.

Consumers in Chengdu and Sichuan attach more importance to brands, which means that as long as the brand is good, product quality is secondary. Consumers in Chengdu (and nearby cities) seem to have a better impression of Hong Kong brands. They trust Hong Kong brands and particularly go after popular or saleable brands in Hong Kong.

Since its establishment as a municipality directly under the central government, Chongqing's economy has been developing steadily where people's income is growing with a gradual boost in consumption power. In 2007, the Ministry of Commerce gave its approval for Chongqing to become the country's only "pilot zone for coordinated and balanced commercial development between urban and rural areas" with a view to developing and upgrading the municipality as a major consumer market of western China.

The prime shopping district of Chongqing is made up of the five clusters centred around the People's Liberation Monument, Guanyin Bridge, Nanping, Yangjiaping and the Three Gorges Plaza respectively. Famous brands and major business groups, both domestic and foreign ones, are brought in to expand its retail network. During festive seasons such as the Lantern Festival, golden weeks and Christmas, special decorations are put up and activities held at major shopping malls of Chongqing (such as Metropolitan Plaza and Maison Mode Times Department Store) to stimulate consumption. Theme-based activities such as make-up workshops, fashion shows and specific showcases are also held from time to time to draw traffic.

Although the young consumers of Chongqing do not have a high income, they do have a liking for products with exceptional and avant-garde designs. They also find Hong Kong products very impressive. As for the consumer groups of high-to-medium range products, they generally prefer branded products and attach great importance to quality. While well-heeled consumers are more attracted to European brands, the majority of Chongqing consumers have a good impression of Hong Kong brands.