Thanks to Lower-Tier Cities, Greater Bay Area will be Largest Bay Economy by 2020

17/09/2018

Not only Guangzhou or Shenzhen. The Guangdong-Hong Kong-Macao Greater Bay Area is expected to be the largest economy among global bay areas by 2020. The key point will be new first and second-tier cities such as Huizhou and Dongguan

 

Greater Bay Area has three growth poles, including Shenzhen, Guangzhou and Hong Kong, with advantages in scientific innovation, trade, logistics, finance and services, and it also covers cities with strong manufacturing power in the Pearl River Delta.

Last year, the economic aggregate of the Greater bay Area reached 1.83 trillion USD. The Greater Bay Area is accelerating its integration. As the development plan will be implemented, population inflow will increase, technology and industry will be upgraded and large-scale infrastructure investment will create new investment opportunities.

Zhongshan’s Cuiheng new area, Zhuhai’s Hongwan port and Jiangmen’s Heshan are expected to be new logistics hubs for import-esporport companies and more.

According to data, population un-bounded flows in the area will facilitate industrial property and shopping mall investment opportunities. As the high-speed train and inter-city rail start to run, more “one-hour working-living cycles” for commuters, such as Guangzhou-Foshan and Shenzhen-Dongguan, will be formed in the Greater Bay Area.

 

Among the eleven cities in China’s Greater Bay Area, Huizhou and Zhaoqing became the fastest growing cities in the past decade. How did this happen? 

 

The economic growth of Zhaoqing and Huizhou surpassed the other 9 cities in the Greater Bay Area, with GDP increased at a rate of 300% and 270% between 2006 and 2016 respectively.

The Huizhou Daya Bay Economic and Technological Development Zone – the only petrochemical base in the eastern side of the Pearl River Delta – was founded in the early 1990s. In 2013, the petrochemical sector generated RMB14.4 billion in tax revenue.

The secondary sector is the major driving force of Zhaoqing’s economy, accounting for 48.1% of total GDP in 2016, up from 29% in 2006. The land shortage could become a bottleneck in Huizhou’s economic growth. Thus developing high value-added industries and diversifying the supply chain are the focus of future development.

The shift from petrochemicals towards high value-added industries in Huizhou’s economic structure is a case in point, indicating that more demand for services and a growing service sector will be expected in some second or third-tier PRD cities.

 

What about Dongguan? This city in the heart of the Pearl River Delta economic zone, is transformed from “world’s factory” to high-tech laboratory and “city of theaters”.

 

From the mid-1980s, Dongguan was China’s leading export and manufacturing base, a hothouse for churning out cheap clothes, toys and shoes bearing the ubiquitous “Made in China” label.  Between 2003 and 2006, the city’s economy grew in excess of 19.5% annually, the fastest in the country. But  it suffered significant loss of economic activity from the impact of the 2008 financial crisis.

Today, with the help of economic input from various levels of government, it is transitioning into a smart manufacturing base focused on producing hi-tech robotics and automated equipment, in the hope that the boom times will return.

 

 

While the government tries to reinvent the city, factories continue to close, stirring discontent. In 2015, thousands of workers protested on the streets of Dongguan when Microsoft decided to close its old Nokia Factory.

But the city arises again as phoenix. Expert stated the city’s rise in rank is largely due to the city’s excellence in drawing investment: Last year, Chinese telecommunications giant Huawei moved its data center from Shenzhen to Dongguan, sparking rumors that the company is planning to relocate its headquarters there, too. Huawei already has a large office building spread over 1,900 acres that was constructed in 2012.

 

Plus Dongguan is re-discovering itself again.  In contrast to its industrial image, Dongguan was recognised by the United Nations Environment Programme as an “international garden city” with 10 forest parks, five natural reserves, 13 wetland parks, 1,071 parks and squares and 923.5km of greenways.

 

It’s fast developing as a city of sports, arts and culture too. Dongguan is considered China’s “national basketball city”, as the only prefecture-level city with three professional basketball clubs. Dongguan is also considered one of the homes of Cantonese culture, and particularly Cantonese opera.  

Dongguan boasts a number of different theatres, libraries and museums, making its cultural square in the city centre the most concentrated in all of China. The Dongguan Yulan theatre, a striking multipurpose venue shaped like an unfolding lotus petal, is one of its landmark performing arts centres. Transport is quickly improving too, with a high-speed rail link connecting to Hong Kong and other cities in the Pearl River Delta expected to open later this year.

 

In the not-so-distant future, more than half of the rich Chinese will be in cities we’ve never heard of, that’s why is important to understand which are the raising markets.

 

The Chinese government doesn’t have an official definition for the tiers and many businesses use slightly different methods for classification such as Gross Domestic Product (GDP), political administration, population size, development of services, infrastructure, cosmopolitan nature, retail sales etc.

It is simply not feasible to approach China as one market. One of the first decisions to make when devising a market strategy is to determine which regions and cities to target. One of the most effective ways is to segment China into local categories to understand consumer behaviour, income level and local trends. Many economists, consultants and businesses classify China based on a ‘tier’ system to rank cities.

However, it is generally considered that there are four tiers with different consumer behaviours, income levels and business opportunities. First-tier cities represent the most developed areas of the country with the most affluent and sophisticated consumers. They are large, densely populated urban metropolises that have huge economic, cultural and political influence in China.  

 

First-tier cities attracted great attention from foreign enterprises due to income levels that are much higher than the national average and a large number of middle class residents who have higher levels of imported goods consumption. But now the markes is already saturized.

 

The list of second-tier cities and new first tier cities includes Chengdu, Wuhan, Hangzhou, Harbin, Shenyang, Nanjing, Jinan, Changsha, Zhengzhou and another metropolis, mostly placed in the eastern part of the country. Second-tier cities have become increasingly attractive for investment. They are some of the fastest growing areas. Consumer behaviour is evolving quickly and, in general, trends are similar to first tier trends.

The second tier is generally made up of provincial capitals, sub-provincial cities, Special Economic Zones such as Guangdong Province, and other more developed cities with cultural and economic influence.

Over the past decade, lower-tier cities have received increased attention and investment from foreign companies due to lower labour costs, less competition, lower operating costs for retailers, and rapidly increasing consumer spending habits. Even within this tier there are substantial differences in the economic, population and consumer habits in each city.

Because they are attracting increased domestic and international investment, the economic growth of some of these cities is even higher than that in top-tier cities.

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