When people talk about the emerging Chinese markets, they typically associate them with the gleaming skyscrapers springing up in Shenzhen, the new bustling Pudong area of Shanghai, and the ever expanding concentric rings of modern highways in Beijing. These are things Chinese that people nowadays are very familiar with. You may not realize that there is indeed much more beyond this preconceived notion of the Chinese emerging markets.

• On top of the 25 leading major cities in China such as Beijing and Shanghai, there are 305 cities with vast untapped market potential that collectively account for 43% of the country's GDP and 39% of its urban population.
  
  
• Scattered across central and eastern China, the majority of these cities are located on the periphery of the more well-known major cities, with which some of them are so tightly connected that they altogether constitute separate spheres of economic influence and activity.
  
  
• "Hidden" within the 305 emerging cities are candidates for those with the highest GDP growth and the highest per capita GDP in China. They are not from the incumbent league of 25.

China is indisputably one of the world's most exciting emerging markets. With its remarkable economic development and social reform during the past two-odd decades, the markets of large coastal cities that were the earliest to boom are becoming increasingly saturated with overwhelming competition. Many companies have come to realize the strategic importance of expanding and diversifying their presence into those untapped sectors of the Chinese market. This entails not only market expansion but transformation of the corporates themselves. Despite their awareness of this, the majority of them, particularly the MNCs that have been well entrenched in the coastal cities, seem to have limited knowledge and experience of those emerging and untapped markets.

By way of quantitative and qualitative analysis, IBV China has conducted an exploratory study of 654 cities in China based on published statistics from relevant government departments and research institutes. By classifying Chinese cities into six tiers and analyzing them statistically, IBV China has found that unlike the increasingly saturated and competitive Tier 1&2 cities, those in the third to fifth tiers have the potential to create more consumer demands and to have faster market growth. To expand into those Tier 3-5 consumer markets, companies would have to make their assessment according to their own and industry-specific requirements, and to pursue a localized, proven approach to strategic planning that covers products, channels and business models.

This white paper was published in May 2007.

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