Usable Statistics - The Chinese Market for Foreign Companies

The National Bureau of Statistics released new information regarding the real urban disposable income per capita. The figures given were as follows:

Real disposable income per capita of China's urban and rural residents in 2008 rose 8.4 pct and 8.0 pct, respectively.

The growth was slower than 2007 levels of 12.2 pct and 9.5 pct.

NBS also said per-capita disposable income of urban residents was 15,781 yuan while that of rural residents was 4,761 yuan.

I'll help you a little further and give you the urban population stat, it's over 577 million (sorry for the 2006 figure, but somewhere under 600 million is about right I believe.)

What this means is that foreign companies eyeing China as a market do not have 1.3 billion potential customers. They don't even have have 600 million potential customers if their product is too expensive.

The richer potential customer who lives in a city has a rough 1300 RMB a month to spend. For reference, that's about 190 USD. But that doesn't really matter, the exchange rate doesn't come in to play when you have a certain amount of available money and shops offer certain products. What matters is that people take a long, long time to purchase items which cost more than they have available in a month. It's a simple thought, of course, but it means the people focus on purchasing things which cost single digit percentages of their available money, as well as low double-digits more seldom.

Now consider entering the Chinese market. You have 600 million customers who are willing to spend 1% - 25% of their available money on a purchase. This is not a real statistic but the point is valid. The money spent is around 13 RMB to 325 RMB. This is what a foreign company will have to consider as their more affluent customer. Suddenly it isn't a very welcoming market with 1.3 potential customers, is it?

Now consider there already exist a Chinese alternative for most of the goods foreigners would import. Anything from electronics to clothing to food can be made differently enough to be unique and brought here, but there will be a domestic good that is at least somewhat similar and cheaper.

Recall the first statistic the next time you see a movie studio or a software producer complain about piracy in China. It's not that the Chinese love copies for the sake of copying, it's because the legal alternative is priced way out of their range. Want to sell Windows Vista here and price it at 140 dollars? Well don't be surprised at the huge backlash when your anti-piracy tool blacks out thousands of computer screens and the people are angry at your software. But that's just one example showing how difficult a market China is for foreign companies. And this comes up before you even think of the trouble localizing your product.

OP Out.