Understanding China’s tiered city system

It is simply not feasible to approach China as one market. China’s extraordinary economic development over the last 30 years has not been spread equally across the country and this has led to more than 600 cities each at different stages of development. Understanding the ‘tier’ system of ranking mainland China’s cities can help wine exporters succeed in this diverse and complex market.

There is no official definition for the tiers and different organisations define tiers using different factors, but generally mainland Chinese cities[1] are classified into one of the four tiers based on GDP, politics and population. Cities in the same tier are likely to have similarities in consumer behaviour, income level and local trends.

In summary; tier 1 cities have a GDP over US$300 billion, are directly controlled by central government and have a population of more than 15 million. Tiers 2–4 have progressively smaller GDP values and populations, while government administration becomes more provincial/local.

Tier 1 cities are generally accepted to be: Beijing, Tianjin, Shanghai, Chongqing and Guangzhou. Many also place Shenzhen in this tier, while others place Chongqing in tier 2.

Tier two cities include Chengdu, Wuhan, Hangzhou, Harbin, Shenyang, Nanjing, Jinan, Changsha, Zhengzhou, and another 20 cities.

First-tier cities represent the most developed areas of mainland China. They offer the largest consumer base for imported wine, boasting the most mature on-trade and off-trade environment in China. Compared to lower-tier cities, distribution players in higher-tier cities are more professional. Imported wine is priced more reasonably than in lower-tier cities. However, there is more competition and markets are more saturated.

Second-tier cities have become increasingly attractive for investment as they represent some of the fastest growing areas. Consumer behaviour is evolving quickly in second-tier cities and, in general, trends are similar to first-tier trends. However, the market development is still at an earlier stage and pricing is less transparent than in higher-tier cities.

There are over 130 third-tier cities and they are generally behind first- and second-tier cities in terms of economic growth and development, although many are still considered to be very significant economically and historically.

The 400+ cities in the fourth tier represent the majority of mainland China’s urban population and combined income. They have less disposable income, lower economic growth and development, but many are growing rapidly.

Wine Intelligence examined the differences between higher-tier and lower-tier city imported wine drinkers in terms of their wine consumption and purchase patterns. They found significant variation in consumer behaviour between city tiers. Consumers in lower-tier cities are often just starting out on the income ladder and they are at an earlier stage in wine consumption. Consumers in higher-tier cites are more likely to enjoy trying new and different wine styles on a regular basis. Consumers in lower-tier cities are more risk-averse than those in higher-tier cities and thus offering them the opportunity to try before buying may assist in helping their decision-making process.

A more detailed analysis of the tiers and related consumer behaviour can be found here.