A large and growing proportion of Chinese consumers trust local brands over foreign ones, providing useful feedback to for foreign and domestic brands focused on tapping into the evolving consumer economy, according to the China unit of US management consultants McKinsey.

In a November 2006 report, McKinsey said that China has a reasonably large consumer market valued at $709 billion, putting it ahead of Italy. However China has 22 times Italy's population and on a per capita basis, it is still at a developing country level. In 2005, private consumption per capita was $542, comparable with Indonesia but far behind Mexico and Thailand. Chinese private household spending growth has slowed significantly in recent years, from 8.9% annually in the 1985-2000 period to 4.9% in the period 2000-2005. 

Based on a McKinsey survey, published on Monday, 52% of more than 5,500 respondents said they trusted Chinese brands exclusively, up from 46% in 2005. Five percent of respondents said they trusted foreign brands exclusively, it said. “This survey is a lesson for foreign marketers who still believe they can attract Chinese consumers by emphasising their product’s foreign country of origin,” said Andrew Grant, McKinsey’s head of Greater China.

Grant said the results indicated that multinationals that sought to make a virtue of the fact that their products come from a specific foreign country could struggle in the Chinese market.

“That model might have worked 10 years ago when companies were aiming at wealthy consumers in Shanghai,” he said. “But now that there is a broader affluent class, that strategy is much less effective.”

Chinese consumers’ low level of trust in foreign brands appeared to be consistent across different city tiers and income levels, said McKinsey. But Chinese firms needed to close the quality gap with foreign products to take advantage of the preference for locally made products, it said. “Chinese companies are leaving billions of dollars on the table by not closing the innovation and quality gap with their foreign competitors,” said Grant.

In recent months, food safety and toy recalls have raised questions about the standard of Chinese imports in the United States.

McKinsey interviewed more than 5,500 consumers in 28 cities and 6 county seats across China at the end of 2005 and 2006 for the survey, covering all city tiers and income levels. More than 70% of respondents said they preferred Chinese brands when buying household, pharmaceutical, healthcare, and beauty products.

The survey found Chinese consumers often did not know the origin of the leading foreign brands that they bought. For example, nearly 80% of respondents believed that a US brand of toothpaste was Chinese, while 85% of respondents thought a European brand of yoghurt was Chinese.

Only 11% of consumers said they had a “strong” or “moderate” preference for foreign brands – and nearly half of those people said they would shift to a domestic brand if offered a product of similar quality or price.

The only sectors where support for foreign brands matched or exceeded domestic products was in consumer electronics and cars – although in the latter category Chinese brands are rapidly becoming more popular.