Income and Expenditure China: Understanding Regional Disparities to Unleash Market Potential
Businesses attracted to the substantial size and rapid growth of the consumer market in China have often overlooked significant regional disparities in economic development, market infrastructure and consumer purchasing power. In recent years, although income inequality in China has somewhat declined owing to the government’s social welfare reforms, the country continues to see large income gaps between urban, coastal cities and rural, interior areas, which lead to different consumption patterns but also create diverse opportunities across China. Understanding the regional disparities is vital for businesses to devise effective marketing strategies to successfully penetrate the Chinese consumer market.
China’s Consumer Expenditure by Region: 2013
Source: Euromonitor International from national statistics/UN/OECD
Higher Spending Power in Coastal Areas
At a household level, consumer purchasing power differs significantly across regions:
- Households in the Shanghai region enjoyed the highest per household consumer expenditure, at US$ 16,605 in 2013. Being home to most international companies, the coastal city of Shanghai is also China’s financial and commercial centre. The region with the second highest per household consumer expenditure was the capital city Beijing with US$13,857 in 2013;
- Meanwhile, the Guizhou region had the smallest per household consumer expenditure in 2013 at US$ 5,434. Guizhou has been one of China’s poorest provinces, as its economy relies on agriculture, and the lack of infrastructure has limited the development of a manufacturing industry.
In aggregate terms, the Guangdong region – China’s most populous province and one of the country’s economic powerhouses – had the highest total consumer expenditure, at US$408 billion or 12.0% of the country’s total consumer expenditure in 2013. Consumer expenditure in the Guangdong region has increased rapidly since 2008, driven by the region’s economic boom, especially in Guangzhou and Shenzhen.
Significant Differences in the Spending Patterns Across China
- Households in poorer regions typically devote a larger proportion of their spending on non-discretionary items of food, non-alcoholic beverages and housing. In 2013, households in Guangxi devoted on average 42.2% of their total expenditure towards non-discretionary items, compared to only 26.4% by households in Beijing;
- Households in urban, richer regions, on the other hand, are able to spend a larger share of their expenditure on discretionary items, such as communications, transport, leisure and recreation and hotels and catering. In 2013, households in Shanghai spent on average US$1,263 on transport, significantly higher than US$243 spent by households in Gansu. In the same year, households in Guangdong spent on average US$ 1,428 on hotels and catering, compared to US$ 437 made by households in the Hebei region.
Despite Lagging Behind, Interior Regions can Offer Many Opportunities
- Marketers will find wide-ranging opportunities in China. The demand for discretionary spending – everything beyond food, non-alcoholic drinks and housing – will continue to grow strongly in large cities and urban regions, supported by a continuing rural-urban migration and strong economic growth;
- Meanwhile, consumers in rural regions represent large opportunities for budget, basic products and services. However, companies must be aware of such obstacles as high operational costs due to lack of infrastructure, low demand due to lower incomes when penetrating China’s hinterland. Yet, businesses that fully understand China’s fragmented market will be prepared with the right products and effective marketing strategies to successfully venture beyond the major coastal cities.