While looking at the opportunities in the Chinese markets, many companies and observers are lately focusing on the so called “second-tier cities” that offer huge business chances compared to the traditional urban centres that drove the development in the last decades.
2014 was a great year for the Chinese economy: a slower but solid 7.4% GDP growth outnumbered the average global 3.3% increase average, and the UNCTAD indicated China has taken place of the United States as the national destination receiving the largest amount of direct foreign investments (FDIs) last year.
The so-called “second-tier” cities should actually be called “first-class opportunities, according to many international observers, given that these cities have been growth engines of the Chinese economy, with a relevant volume of investments in infrastructures and business.
It could be considered a large pool or aggregation of Chinese municipalities (excluding Beijing and Shanghai): most provincial capitals and a number of developed coastal areas (Guangdong, Fujian, Jiangsu, Zheijiang, Shandong, Liaoning and Hebei) that record a relevant economic performance while hosting a large population (three million people or more) with an important level of administrative management.
Typical cities like Harbin, Shenyang, Dalian, Chengdu and many other in a 50 unit large pool are accounting for approximately 25% of the national GDP with an average personal income per capita that’s rapidly growing to the Shanghai levels (currently approximately 80% of Shanghai/Beijing average personal income).
It’s curious to notice how some of the tier 2 cities show a good exposure to a pool of renowned consumer brands very common in tier 1 municipalities. For example Chengdu is among the top five cities in a number of shops of global brands like H&M, Starbucks, Watson or Zara. Hangzhou is third overrall by number of BMW stores nationwide, and every city has at least 2-3 Wanda shopping malls, showing an interesting trend.
There’s a general increase of signals identifying maturing markets in these tier 2 cities: modern retail and service sectors are increasing their penetration in a less saturated area compared with the traditional target cities. A consumer market with vast opportunities of quick and short term financial returns for many leading brands, as well as emerging companies trying to spread their offer and communicate directly with a brand new consumer audience.
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