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China Radio: China’s Nine Nations and 2nd-Tier Cities

December 4, 2009

Wow, I know this is starting to sound repetitive, but I trotted back out to China Radio International yesterday, this time to talk about the development of China’s 2nd-tier cities.  Those who have been following my writings on The Nine Nations of China, and why they matter, will likely find the discussion quite interesting.  You can listen to it here (click on the first hour).

Some of the main points I raised on the show include:

  • What really distinguishes 1st, 2nd, and 3rd-tier cities is the ability to attract international business and investment.  China has many cities with over 1 million inhabitants, and even some provincial capitals, that would not qualify as 2nd-tier cities.
  • It’s important to keep in mind the distinction between hard infrastructure — highways, airports, railroads — which many 2nd-tier cities have built, and the “soft” infrastructure — like foreign schools and hospitals — necessary to attract global executives and their families.
  • There’s a danger that officials in many 2nd-tier cities are simply trying to replicate the development path of 1st-tier cities like Beijing, Shanghai, and Shenzhen.  What they need to be thinking about is how their city or region can carve out a unique niche in China’s national economy.  Some cities that have started to think successfully along these lines include Dalian, Chongqing, and Hangzhou (as well as Nanning in SW China).
  • 2nd-tier cities are attractive to foreign business because that is where the bulk of China’s consumer market is.  Retailers like Wal-mart and Carrefour have been among the most aggressive in reaching into these markets.  The most successful fast food chains in China, like KFC and Pizza Hut, have had to adapt their menus to appeal to local tastes.
  • There is a real danger of overbuilding, both in terms of infrastructure and residential.  The government should avoid the temptation to see the real estate sector a “driver” of economic growth.
  • Investors and business managers need to give serious thought to the competitive advantages — and disadvantages — of different regions of China.  The “Nine Nations” framework offers one way to do this.

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