China Business

The Talent Difference Between China’s Tier 1 and Tier 2 Cities

China real estate bubble

China Vortex did an intriguing post a couple of months ago on why China’s Tier 2 cities will always be second tier (and I just found this completed but unpublished post today). The post is entitled, China’s Biggest Challenge for Developing the West, [link no longer exists] and it essentially argues that the Tier 1 cities, essentially Shanghai and Beijing, draw the best human talent, will continue to draw the best human talent, and thus will remain as the only true Tier 1 cities. I seventy-five percent agree and twenty-five percent disagree.

CV’s post starts out talking about how Beijing has done a lot to encourage development in China’s west, particularly Sichuan province. It goes on to say that from “a business and consumers’ point of view, the region holds tremendous promise,” but this is not enough and it remains far behind China’s east coast.

CV sees human talent holding Sichuan back:

In two words, it’s human talent. “Interesting places attract interesting people” is one of my favorite mantras. When I go to a place, I like to find interesting people, regardless of their profession, and listen to what they have to say. I look for different angles and insights from individuals which I cannot easily find elsewhere. Most of the time, I think of these people as very smart generalists.

My experience is that Shanghai and Beijing are full of interesting intelligent and very talented people, which is why I’m attracted to these two cities in China. They are evolving rapidly, which means that these cities have not yet congealed around certain professions in the way American or European cities, or even Hong Kong, have. They are full of surprises, and most of the time, these are pleasant surprises.

My theory is that these two cities draw the best Chinese talent away from the rest of China, leaving the other cities to struggle with the people they can convince to stay there, who usually are not as smart and talented. So, when Chinese or expats talk about Tier 1 cities (Beijing and Shanghai), they could just as easily be talking about quality human talent.

CV goes on to say that even though Sichuan has consumers and can “have good manufacturing up to the middle of the value-added chain,” it “cannot catch up with Beijing and Shanghai at the top of the value chain.” CV is of the view that unless places like Sichuan can “figure out a way to keep the best human talent in Chongqing, the wealth and knowledge gap between the western part of China and the Tier 1 cities will continue to widen. Instead of climbing to the top, they will peak out around the middle and won’t make it into the ranks of world-class cities.” It takes more than buildings to make a city world class and only Beijing and Shanghai have world-class potential:

What the Chinese government, and most other governments, fail to understand is that it is not buildings, boulevards and museums which make cities world-class, it is very literally human talent. In spite of China’s huge population, I have only seen two cities, Beijing and Shanghai, which have the potential to make them world-class.

Lest the 1.2+ billion people in China living outside Shanghai and Beijing take offense at CV’s take on their cities, CV makes clear that most cities in the United States are not worth a world class glance either: Though some Chinese may take this as a slight, it’s worth remembering that the US, which has only 1/4 the population of China, but has a longer history as an economic superpower, has only three cities which can be classified as “Tier One”: New York, Los Angeles and Chicago.

CV makes some good points, makes some bad points, and is so vague at times as to be unclear. His good point is that right now Shanghai and Beijing are the only two cities in China that have the “certain je ne sais quoi” necessary to be considered either world-class now or with the potential to become world class later. Of course, what is meant by world-class? How is that defined? And once defined, is it necessary for a city to be world-class to achieve great success and wealth? I do not think so.

I do not know what constitutes world-class (one guy’s world class is another guy’s ….) so I will not even try on that one. But, I will note that the cities in the United States that have really thrived over the last ten to twenty years and will almost certainly continue to thrive over the next ten to twenty years are not the three “world class cities” CV lists above. Yes, Shanghai and Beijing are China’s two world class cities right now, but right now is not necessarily permanent.

What makes a world class cities and what cities are world class?

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