NRI Papers
No. 153 April 1, 2010
  Japanese Companies' Strategies in Response to the Rise of Inland China's Economy  
Shingo KONOMOTO

Increased public spending has been very effective in turning around the Chinese economy, which has achieved a remarkable V-shaped recovery. In particular, in the inland areas where the effect of the global financial crisis that started in 2008 was negligible, a high-growth cycle has come to stay, with improved infrastructure and increasing urbanization, higher personal incomes, greater demand for homes and consumer goods and an inflow of capital invested by private-sector enterprises in pursuit of new business opportunities.

Purchases of homes and major durable consumer goods tend to begin when monthly household incomes exceed 5,000 yuan (renminbi) in the inland areas and 8,000 yuan in the coastal areas. While we refer to such consumers as the “next-rich” segment (those who have attained middle-class status), a survey conducted in September 2009 revealed that between 60 and 70 percent of this segment had purchased a car in the last three years. Even respondents who did not own a car stated that they intended to buy a car within the next two years.

This survey also revealed that about 30 percent of this next-rich segment have put past historical issues behind them, and currently have a positive image of Japan and Japanese people. The next-rich segment enjoys high incomes and high employment positions, and has a diverse sense of values. The outdated impression that Chinese people dislike Japan should be discarded.

From the perspective of Japanese companies, the inland Chinese market presents both opportunities and threats. The added value that comes with the positive reputation of Japanese products is offset by the need to have a system that can endure fierce competition in terms of cost performance. Specific measures to establish such a system would include selecting and limiting products to only necessary functions, locally procuring as many parts and components as possible and forming partnerships with Chinese counterparts.

Contents
I Inland Growth Driving the Chinese Economy
II Comparison of the Next-Rich Segment in the Inland and Coastal Areas
III Field Surveys Reveal Increasing Consumption in the Inland Areas
IV Chinese Enterprises Thriving in the Inland Markets
V Achieving Success in the Inland Next-Rich Markets

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