22 Chinas

From the WSJ:

Photo: The Frame

One China? One dream?

Not so, say McKinsey & Co. analysts. The firm counts 22 Chinas, each of them with different aspirations.

Of course, the consulting firm isn’t being “splittist” — the term Beijing uses to deride anyone seen to challenge its sovereignty.

Instead, McKinsey’s count is the latest attempt to give its clients insight into what it finds are deep differences in consumer patterns throughout the world’s most populous nation.

“China is a complicated place,” says McKinsey analyst Max Magni. “It is a continent, not a country.”

For their latest survey, McKinsey researchers studied 815 Chinese cities along lines including industry composition, government policy, demographic characteristics and consumer preferences. The 22 city clusters – population areas anchored by a city – it identified in the 2009 Annual Chinese Consumer Study are meant to underscore how the nation has many markets.

Its findings are based on face-to-face interviews with 15,000 consumers in 58 cities between last December and March 2009.

The firm last month published another large report on consumerism in China that concluded that it could become the third largest consumer market by 2020, but that private consumption expenditure remains only 36% of gross domestic product, the lowest of any large country.

For its “cluster” report, McKinsey Insights China says the global financial crisis has affected different cities in different ways, and that companies hoping to tap into the Chinese consumer should understand both where and how to play. The firm says marketers would do better to build a defensibly large market position in one city, rather than small positions over a wide area.

Driving the differentiation between markets within China is its urbanization, with 350 million people likely to move to urban areas over the coming 15 years. “There’s a magnitude of complexity (in China) we’ve never seen in the world,” says Mr. Magni.

Consumption patterns can vary widely. McKinsey analysts found consumers in the relatively well-off and largely Cantonese city of Guangzhou, for instance, to be far more loyal to certain brands than those who live just a few hours drive across the same province in the national melting pot city of Shenzhen.

Media also help drive decision making. About 62% of those in Shanghai say they are influenced more by local television channels than national ones, while 80% of those in Kunming say national broadcasters hold their attention.

Guangzhou is one of the 49 cities among the biggest 100 that McKinsey determined are likely to lag behind the average GDP and consumption growth through 2015. Shanghai will about match averages, and Beijing could exceed them, possibly seeing its levels of consumption doubling between 2008 and 2015.

The breakdown could be important.

The financial crisis, McKinsey analysts said, has made many companies keen to tap China for profits immediately, rather than set down strategic stakes that may or may not immediately make money.

One of the firm’s analysts quoted a client as saying, “the best way to be profitable in the long term is to be profitable in the short term.”