The second-tier cities in china
As the cost of doing business increases in China, many companies are looking to invest in second-tier cities, where they can take advantage of cheaper labour, rent and energy.
According to CBRE Research China, about 45 per cent of the real estate investment deals in the first half of last year was in China’s smaller cities.
Apart from lower costs, one of the major attractions of the smaller cities in China is a better lifestyle.
As I mentioned last year, in China there are many complaints about mega-cities such as high housing prices, traffic congestion, urban poverty, and inadequate schooling, health services and surveys – and this is encouraging people to move to smaller centres.
For businesses, there are naturally costs that would be incurred with moving to smaller centres.
For example, supply chains are less developed, the pool of qualified and educated employees is smaller and the cities are generally situated at a greater distance from air and sea ports, so freight and transport costs are higher.
For those wanting to invest in second-tier cities, there are many factors to take into account. These include growth rates, investment levels, infrastructure, the adequacy of supply chain resources and the size and quality of the available workforce.
Cities like Chengdu, Huangzhou, Tianjin, Wuhan, Chongqing and Ningbo all rate highly with regard to infrastructure and growth rates.
As for which city is best suited for investment, each has unique characteristics that will be attractive to different kinds of investors.
Qingdao would be a good choice for companies in hi-tech manufacturing, as it is home to many research, higher-education and management institutions, and it has a high level of scientifically- and technically-skilled personnel.
Chongqing, in southwest China, is positioning itself as the IT centre of China, and is building an international cloud-computing hub.
It has excellent infrastructure and transport links, and many leading global brands such as Foxconn, Cisco and Hewlett-Packard are already well entrenched there.
Food producers would likely be interested in Chengdu or Tianjin, which are centres for food and agricultural processing.
Meanwhile, companies engaged in producing green technology might want to look at Wuxi, which is positioning itself as a leader in this field.
Over the next 10-20 years there will inevitably be rapid growth in China’s second-tier cities, so costs will rise, cancelling out some of the benefits investors can enjoy today.
Some investors are therefore looking to leapfrog past the current second-tier cities, which tend to be provincial capitals in the East, and look at the upcoming third- and fourth-tier cities – mainly smaller cities in eastern provinces or provincial capitals in the West.
Given the importance of investment in fuelling economic growth, we are now seeing intense competition developing among the second-tier cities, and international advertising and public relations campaigns have been launched by Chengdu, Suzhou and Chongqing.
Chengdu is probably the most aggressive in its campaigning and is highlighting its technological prowess, its cuisine and its pandas.
Given these factors and scenic attractions such as mountains and historical sites, I am sure many Thai entrepreneurs will be keen to investigate.
