economic reform ranged from the political relaxation of foreign direct
investments to the promotion of entrepreneurship, China has emerged as one
of the world’s top economies. As such, Beijing Olympics 2008 serves as a new
chapter milestone that signifies the beginning of China’s third wave of
economic growth – Industrial consolidation.
As such, it is a good time to examine how the Chinese cities have developed
according to the traditional tiered city system. If you highlight all the
first and second tiered cities in China, you will understand how the Chinese
government plans to develop China into the world’s largest economy.
In the 1980s, instead of opening up the whole of China, China, as part of an
economic risk reduction strategy decided to develop special economic zones
and open up cities near the coast for foreign investments. Coastal cities
aid imports and exports. In addition, agglomerating the “test” cities can
develop economies of scale relating to transportation infrastructure.
Furthermore, resources from western China were drawn and consolidated to
support these strategically positioned coastal cities prominently for
Beijing in the north, Shanghai in the midst, and Guangzhou in the south,
with Shenzhen acting as a gateway from Hong Kong.
As a result of shorter and improved transportation and communication
infrastructure, economic development proliferates to the nearby cities,
gradually moving westwards into China. Concurrently, the Chinese government
also developed pockets of economic drivers especially in different
provincial capitals in order to timely introduce economic growth at
different regions. As such, cities begin their economic reform at different
stages and thus with time, this became known as the Chinese tiered city
system with cities given the connotation as first, second, third or fourth
The Chinese tiered city system is characterized by the city economy scale
size with Shanghai topping the China’s city population chart at 14 million,
followed by Beijing and Guangzhou with 12 million and 8 million in 2007
respectively. These large cities, fuelled by own domestic demand and
consumption provided the platform for improved living standards, better
business and job opportunities and an international showcase to the rest of
the world. However, these cities now faced a population ceiling challenge
with stiff business competition which may reduce high exponential growth
that was seen in the past.
The third wave will see more of the second tier cities in action. With over
20 cities in this category, China is set to develop these cities as the
backbone of China’s future economy. It is important to note that China will
not remain as a low cost sweat shop and is definitely set to move up the
value chain, focusing its efforts on high end industries and at the same
time eliminating or pushing low-medium end industries into its lower tiered
cities particularly with the third and fourth tier cities.
Already armed with a relatively medium to high disposable incomes and an
average GDP per capita of RMB30000, these second tiered cities provide a
lucrative option for firms to apply blue ocean strategy on Chinese domestic
markets. Due to the Chinese emphasis on “Mian Zi” or “face” plus the lack of
variety for luxury and branded goods in their cities, the rich and affluent
from lower tiered cities often make short trips to Beijing and Shanghai for
their luxury shopping. Therefore, having your presence in the second tier
cities can provide greater proximity and convenience for these target
China in the past 20 years is akin to a baby dragon playing around its nest,
testing and trying out new ways of doing things, showing the world her head
and wings. Now it is ready to emerge more of her to the world – the backbone
akin the second tiered cities.