Second-tier cities: the new foundation of the Chinese economy

17/04/2018

In the not-so-distant future, more than half of the rich Chinese will be in second-tier cities

 

Having a scale of almost continental size, it’s difficult to talk about China without pointing out that the “real” China is much richer and heterogeneous than the Western traveler thinks. Government statistics have always been at the forefront of telling the story of China’s urban reality. It’s estimated that by 2022 there will be a 56% increase in consumption in urban areas and the middle class will constitute about 54% of the Chinese resident population in the cities.

But what is changing within the country? Historically, the central government has separated large cities into three categories according to GDP: first, second and third tier. Cities like Beijing, Shanghai or Hangzhou are first-tier metropolises. But nowadays, thanks to the new state incentives, the megacities of the other two categories are pushing the structural economic revolution. In which sectors does the Chinese consumer resident in second-tier and third-tier cities spend? Estimates are clear: clothing, food delivery, and education.

 

Cities like Chongqing and Suzhou are the new engine of the Chinese economy

 

In second-tier cities such as Chongqing and Suzhou, there’s a high consumption of goods and services, de facto representing the new engine of development for the Chinese economy. But the panorama we are facing is complex. The literature also stresses that second-tier cities represent the future of the Chinese market and at the same time a hope for the many foreign entrepreneurs who intend to break into virgin territory.

China has now become an important center of attraction for young foreign graduates and researchers who are interested in trying out a new experience, to see their skill set recognized, and to live in dynamic and developing environments. Second-tier cities are a great opportunity for professional and personal growth. For this reason cities like Xiamen in Fuijian Province, Chengdu in Sichuan Province, or the enchanting Shenyang in Liaoning are attractive options.

In a recent multimedia editorial, the South China Morning Post examined over six hundred Chinese cities, stating that they could be divided into four different levels, revolutionizing the tripartite division of the Central Government. This model is in fact often taken into consideration by the state economists themselves and sector experts to study the dynamics of development and growth of the cities of the People’s Republic. The system is also widely used among analysts to define consumer habits, income levels, policy and local trends to better adapt investment and research strategies to local conditions. The ranking drawn up by the Chinese newspaper takes into consideration three main categories of classification of “tier”: that of the city’s GDP, the administrative level, and the urban population. By compiling this data and evaluating the importance of an assortment of variables, we arrive at results of the aforementioned study.

 

A development linked to the history and geography of the Middle Country

 

It is interesting to note that the first-tier cities in the classification of the South China Morning Post are strategically distributed in a uniform way, corresponding to each crucial area of Chinese economic development. This should not surprise us – when China set out on its “new course” the Government first identified the strategic areas to develop and incentivize. Second-tier cities, however, are more concentrated along the Yangtze River, while the North and South of the country can only count on seven cities each. This signifies how the division of territory is completely heterogeneous, but the fact remains that Chongqing, Chengdu, Suzhou, and others are becoming the new pillar of Chinese consumption thanks to the Government’s commitment to promoting its infrastructure and urbanization.

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