4. Key Markets

§ Beijing and Shanghai remain China’s leading retail centres, a product not only of the government’s favourable policies towards foreign retailers in these cities, but also due to their population size and position as existing commercial trade centres.

§ Although China’s retail market was previously officially limited to 11 coastal cities, in reality foreign investment has been operating in non-designated areas for several years now. Reforms to the retail sector and efforts by the government to encourage development in the western regions has resulted in numerous foreign retailers opening shop in cities like Fuzhou, Nanjing, Wuhan, Chongqing, Tianjin, Jinan, Shenyang and Hangzhou.

§ Chengdu is beginning to emerge as one of the leading commercial centres in southwest China. With a population of 10 million, the city is served by 216,000 commercial outlets. Per capita income reached RMB 8,337 in 2000, while total retail sales amounted to RMB 57.6 billion. Chengdu currently has 15 foreign-invested retail outlets, mainly Asian in origin, but Metro and Wal-Mart are sizing up the city’s market, and that of neighbouring Chongqing.

Key Highlights from China’s “Big Three”

4.a Shanghai

§ In 2001, per capita GDP in Shanghai grew to c.RMB 37,350 (c.GB£ 3,214 per head), a year-on-year increase of 7.8%. Per capita disposable income grew by 9.9%, and retail sales grew by 8.1%. Shanghai’s retail volume is predicted to grow 7-8% in 2002, topping RMB 200 billion (GB£ 16.93 billion).

§ Despite the fact that Shanghai is now outstripped by Guangzhou in terms of per capita GDP, the city remains China’s leading finance and retail centre. Of the top 100 retailers in China, 12 are located in Shanghai, and 25.9% of retail sales are accounted for in the city. This may reflect the fact that although Guangzhou residents have more per capita disposable income, that of Shanghai residents is growing at a faster rate.

§ Competition amongst Shanghai’s hypermarkets is arguably the fiercest of all China’s key markets, with 43 hypermarkets already battling for space. In addition to Carrefour and Wal-Mart, foreign retailers Metro and Makro also operate stores in Shanghai.

§ The Shanghai government has indicated that it is not interested in encouraging further foreign investment in the retail sector (particularly hypermarkets), which it believes to be saturated. However, these “rules” are strictly informal, and have not been codified. In consequence, there is still room for manoeuvre, a point made recently by the city’s new Mayor when he said that the municipality was interested in working with “flagship” foreign firms in the retail and distribution sector.

4.b Guangzhou

§ Guangzhou is the political capital and economic centre of Guangdong Province – China’s commercial powerhouse. Guangzhou’s economy grew 12.7% during 2001, reaching RMB 268.5 billion (GB£ 22.6 billion). Although overall growth rate was down 0.9% on 2000, it was still higher than either Beijing or Shanghai. Per capita GDP rose 10.5% y.o.y. to RMB 38,000 (c.GB£ 3,276) per head in 2001. Over the same period, retail sales rose 11.0%, and per capita disposable income 5.8%. Per capita, Guangzhou is now China’s richest city (Shenzhen, though richer, is counted as a Special Economic Zone).

§ Guangzhou has been the pioneer of retail industry reform in China. A series of preferential trading policies for foreign investors were introduced in the early 1980s, encouraging growth in the sector. There are now more than 100 joint retail ventures in the city. Most of these ventures are Hong Kong investments in medium size retail outlets, with European, American and Japanese investors currently focusing on hypermarkets and large scale shopping malls.

§ Of the 100 biggest retail companies in China, 12 are located in Guangzhou, with 10.99% of their sales recorded there. The total retail sales of these 12 companies reached RMB 25.739 billion (GB£ 2.2 billion) in 2001.

§ The Guangzhou Municipal Government is consolidating state-owned retailers into two groups. This is the standard Chinese response to the threat of increasing foreign competition following WTO accession, with national and local government scrambling to create enterprises large enough to face down foreign multinationals in all industry sectors. The two groups will be the Guangzhou Department Store Enterprises Group Co. Ltd., and the Guangzhou Friendship Store Stock Co. Ltd. The former will be Guangzhou’s second largest retailer, the latter its third largest. The Guangzhou Department Store Enterprise Group Co. Ltd. will become one of China’s 10 largest retailers, with a total revenue of over RMB 5 billion (GB£ 423 million).

§ Foreign retailers Trust-mart, Jusco, Chai Tai Makro, Parkson, 7-11, Carrefour, and Wal-Mart all have a presence in the Guangzhou market. Of these, Wal-Mart, Guangdong’s third largest retailer, intends opening new locations in Guangzhou in the near future. Tesco is currently researching the viability of market entry in Guangzhou and Shenzhen.

4.c Beijing

§ Per capita GDP in the capital rose 10.2% year-on-year to RMB 25,300 (c.GB£ 2,162) in 2001. Per capita disposable income rose 11.9%, and retail sales 10.4%.

§ Although the city lags behind both Shanghai and Guangzhou in absolute terms, disposable income in Beijing is rising faster than in either. As a result, it is increasingly becoming a target for foreign retailers entering the Chinese market. Fourteen Sino-foreign joint ventures opened a total of 25 stores in Beijing by the end of September 2001. They generated RMB 5.4 billion (GB£ 457 million) in sales in the first nine months of 2001, increasing 17% over the same period in 2000.

§ The Beijing Municipal Commission of Commerce recently declared that in the next 10 years, strict controls will be exercised over the construction of department stores and supermarkets larger than 10,000 m2 within the city’s Second Ring Road. The policy is aimed at limiting large-scale shops in the already oversupplied downtown area. Instead, plans are afoot to build major commercial facilities on the outskirts of the Fourth Ring Road, where Beijing residents are increasingly being relocated.