China Business

China’s 2nd Tier Cities for Business.

Qingdao China

A while back Patrick Chovanec did a post on China’s second tier cities, China Radio: China’s Nine Nations and 2nd-Tier Cities on how retailers like Wal-mart, Carrefour, Pizza Hut and KFC have been “among the most aggressive in reaching” beyond China’s first tier cities.

Chovanec then very briefly wrote on how what “really distinguishes 1st, 2nd, and 3rd-tier cities is the ability to attract international business and investment.” He then notes that China has many cities with more than a million inhabitants, including some provincial capitals, that “would not qualify as 2nd-tier cities.” Chovanec goes on to write about what distinguishes the second tier cities that have been best at puling in foreign investment from those cities that have not fared so well in that department:

It’s important to keep in mind the distinction between hard infrastructure — highways, airports, railroads — which many 2nd-tier cities have built, and the “soft” infrastructure — like foreign schools and hospitals — necessary to attract global executives and their families.

There’s a danger that officials in many 2nd-tier cities are simply trying to replicate the development path of 1st-tier cities like Beijing, Shanghai, and Shenzhen. What they need to be thinking about is how their city or region can carve out a unique niche in China’s national economy. Some cities that have started to think successfully along these lines include Dalian, Chongqing, and Hangzhou (as well as Nanning in SW China).

He is absolutely right. There are definitely some second tier cities in China that make it relatively easy for foreigners both because of their hard and their soft infrastructures and because of local governments that are open to and welcoming foreign business and there are others that are not. A list of the ten second tier cities where my law firm has done the most business (all of this having been driven by our clients), would consist of the following:

  • Chengdu
  • Chongqing
  • Dalian
  • Hangzhou
  • Nanjing
  • Qingdao
  • Tianjin
  • Wuhan
  • Xi’an
  • Xiamen

Are these the top ten second tier cities for foreign business? I think it probably is.

What do you think?

UPDATE: Mea culpa. I cannot even believe I left off Suzhou, which error I realized upon seeing the first comment. We get a ton of work involving Suzhou and I think the only reason I left it off is because I barely even think of it as a second tier city. One of the reasons I barely think of it as a second tier city is because it tends to have minimum capital requirements for WFOEs more in line with Beijing and Shanghai than with Qingdao or Xi’an.

11 responses to “China’s 2nd Tier Cities for Business.”

  1. As a foreign student currently in Suzhou, I’d say this city seems close to making the top 10. A very strong high-tech/manufacturing presence in the Singapore Investment Park area, mostly among Japanese and Korean firms, and the infrastructure in the city (including a subway line opening in 2011) is quite modern outside the tourism-focused old town centre. Being less than 30 minutes from Shanghai by fast train is an added advantage, and also negates the fact that Suzhou has no airport of its own. Dan, I wonder if your firm has seen much business heading here.

  2. As usual, you are right on. From our business (also a professional services firm working with U.S. and Chnese clients in the technology sector) perpective, we don’t see much from Xi’an but more from WenZhou.

  3. The list looks right for the most part, though from what I’ve seen, I’d take Xian off it and add Shenyang to the list. The government is welcoming and the growth over the past 5 years in the city is really amazing, though I still think most foreigners (which tend to be Asians and not westerners) looking at the region end up in Dalian.

  4. b.cheng,
    I thought about Shenyang, but truth be told, my firm has done very very little there. On the other hand, I hear from a friend of mine (who heads up U.S. operations for a large Japanese newspaper) that Shenyang has become a center for Japanese businesses. We get a ton of Dalian work (working on one right this minute, in fact) but not Shenyang so maybe it’s a U.S. thing or a West Coast thing.

  5. Excellent list. Location should not be selected from the perspective of the comforts of your foreign execs 😉 but focused on the business and the business opportunity. Each business will have very, very different considerations, operations and markets within China. Beyond the above, for business looking for lower cost start up opportunities, there are a huge number of other major cities in China that may be right for you and your business. If I was looking to get into mass (not premium) retail, I would look beyond the list above to another 50 cities where costs are far lower and opportunity perhaps greater. The cities on the list already relatively expensive in terms of retail rent and other costs. If I was looking to get into manufacturing, I’d look at the supply chain and identify some relatively undiscovered by within 100kms of major component suppliers. At the same time, I’d also keep in mind that major cities are looking to give many manufacturers of lower value products the boot within the not too distant future. Go somewhere where you’ll be valued long term and where costs are reasonable.
    When I look at my company’s customer lists, I am constantly surprised and amazed by the geographic spread. Opportunity abounds.

  6. Great list, especially now that you added Suzhou. I am a bit surprised by Wuhan as i have not heard of much foreign investment there and so if I were to remove one from the list (to fit Suzhou in), that would be the one.

  7. How about Guangzhou? Do you consider it a Tier-1 or Tier-2 city? There is a reasonable foreign presence here and the proximity to Hong Kong makes it an attractive option for expats.

  8. There are 3 or 4 tier one cities? Shanghai, Beijing, Shenzhen, and Guangzhou, is that it?
    Suzhou and Shanghai… will eventually become a longish suburban corridor, like DC and Baltimore. Interesting that Suzhou doesn’t have an airport but they have a subway line in the works. Lots of business, legal, human rights folks right about Shanghai, but I’d like to see more “trained” urban planners talk about China and it’s growth, and their ideas about city tiers.
    For example, who is the Jane Jacobs of China? Does any city in China have a mayor as visionary in urban planning as Daley the Younger, or quixotic and experimental as Anton Mockus? Given China’s rapid growth, I am suprised we don’t hear much, much more about the urban planners who guided the growth of gems like Suzhou.

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