Apr 16, 2009
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Smaller Chinese cities 'key for luxury brands'

Apr 16, 2009

SHANGHAI (AFP) - Foreign luxury brands looking to win in China need to reach into cities that are barely known to the rest of the world but are home to startling and fast-growing wealth, a series of studies shows.

People are seen standing beside a giant billboard for a luxury watch in Beijing. (Photo: AFP)

The majority of China's rich now live outside of the mega-cities such as Beijing , Shanghai and Guangzhou , said a study published this week by the Hurun Report.

About 825,000 people in China have net personal wealth of more than 10 million yuan (1.47 million dollars), according to the magazine, which tracks China's wealthiest.

But about 52 percent live outside the three biggest traditional centres for wealth -- Beijing , Shanghai and southern Guangdong province, which includes Guangzhou and Shenzhen .

"People are always shocked when they go to the sticks -- to the secondary, the third tier cities -- and they realise 'My goodness these places are booming like nobody's business'," Hurun's publisher Rupert Hoogewerf said.

"We're seeing very clearly there's a trend of the luxury brands moving into the secondary cities."

Management consultants McKinsey also warned in a separate report published this month of the dangers companies face in focusing on Beijing and Shanghai while underestimating the importance of China's smaller cities.

"In Beijing , the biggest brand names often have several retail outlets, but many go unrepresented in Chengdu or Wenzhou, even though Chengdu has more wealthy households than Detroit, and Wenzhou as many as Atlanta," McKinsey said.

The southwestern city of Chengdu, with a population of 10 million, and eastern Wenzhou, with 7.9 million residents, are only two examples of dozens of fast-developing cities with populations of more than five million.

The number of households with annual incomes of more than 250,000 yuan (36,765 dollars) hit 1.6 million last year and is expected to rise to more than four million by 2015, McKinsey said.

Three quarters of the growth in China's wealthy consumer segment will come from people who currently live outside Beijing , Shanghai and Guangdong, McKinsey said.

Another recent wealth study by China Merchants Bank and consultants Bain and Company reported similar findings.

More than 20,000 people who held more than 10 million yuan each in private equity were in the eastern provinces of Jiangsu and Zhejiang alone, it said.

Bain's banking study said 320,000 people across China would have more than 100,000 yuan in investable assets by the end of this year, representing a pool of nine trillion yuan in assets.

Meanwhile, consumer confidence remains unusually high among the country's rich, with 80 percent of Chinese millionaires saying the economic crisis had not hurt their lifestyle, Hurun said, citing 67 interviews done in February.

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