As China's economy has soared at consistently astonishing rates, many global companies have focused on serving the country's most affluent urban customers. When these well-off urbanites were the only consumers with significant disposable income,¹ this strategy of skimming the cream from the top made sense. But new research by the McKinsey Global Institute (MGI) highlights the emergence of a far larger, more complex segment—the urban middle class, whose spending power² will soon redefine the Chinese market. While some companies are already focusing on the evolution of this new class, many others have yet to broaden their vision and thus risk missing a significant opportunity.

The lure of China's urban-affluent segment is easy to understand. These consumers earn more than 100,000 renminbi (about $12,500) a year³ and command 500 billion renminbi—nearly 10 percent of urban disposable income⁴—despite accounting for just 1 percent of the total population. They consume globally branded luxury goods voraciously, allowing many companies to succeed in China without significantly modifying their product offerings or the business systems behind them. And since this segment is currently concentrated in the biggest cities, it's easy to serve, both for companies now entering the Chinese market and for old hands seeking a steady revenue stream.

However, fixating on the urban-affluent consumer could mean that companies fail to capitalize on the dramatic changes that lie ahead as China's economic growth, barring unforeseen shocks, improves the livelihood of hundreds of millions of its citizens. Over the next 20 years more people will migrate to China's cities for higher-paying jobs. These working consumers, once the country's poorest, will steadily climb the income ladder, creating a new and massive middle class.

Although producers of luxury goods may continue to cater only to the wealthiest households, other companies—especially manufacturers of mass consumer goods—can win the bigger prize by broadening their focus to include the emerging middle class. Because tomorrow's middle-class consumers are today's urban workers (dispersed across many cities and still relatively poor), serving them will naturally require a company to change its strategy significantly. Early movers, such as Coca-Cola and P&G, have already begun creating models to target this segment profitably.