When it comes to China, the commonly used term “second-tier cities” is a misnomer, says Robert Lawrence Kuhn, an investment banker and author of How China’s Leaders Think. The so-called “second-tier” cities should actually be called “first-class opportunities,” given that these cities have been growth engines of the Chinese economy, boosted by huge amounts of investment, new infrastructure and an influx of new talent.
Roughly 170 Chinese cities have more than 1 million residents, but only 4 – Shanghai, Beijing, Guangzhou and Shenzhen – are considered “first-tier” in terms of size and per capita gross domestic product. “Some of these metropolises have populations that exceed that of many countries and are world-class in every way,” Kuhn says.
According to figures from the U.S. Commercial Service, 14 of China’s second-tier cities account for 54 percent of the total imports from the U.S. And many of these cities are quickly developing new industries and attention-getting enterprises.
Many of the second-tier cities, located primarily in central China, have been boosted by the Chinese stimulus package that provided better highways and faster trains to increase access to these areas, signifying their growing importance to the country as a whole. With burgeoning, new commerce centers across the mainland, Cathay Pacific and sister airline Dragonair have announced plans to add even more destinations to their current 18 cities across China.
Most of China’s new growth will come from second-tier cities (and Chinese growth represents 27% of all global growth this year), signifying the importance these cities represent in terms of potential.
Merchandise and apparel retailers should be specifically aware of the opportunities in lower-tier cities throughout China.
As first-tier cities become increasingly saturated, opportunities in lower-tier cities are more compelling.
Consumers in these cities are following suit to the trends that swept across first-tier cities. The rising middle class has become more sophisticated, and their demand for products/services is creating one of the largest retail opportunities in the world.