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China's 2nd Tier Cities For Business.

By Dan

A while back Patrick Chovanec did a post on China's second tier cities, entitled, "China Radio: China's Nine Nations and 2nd-Tier Cities." In that post he discussed his radio interview in which he had talked about how companies like Retailers like Wal-mart, Carrefour, Pizza Hut and KFC have been "among the most aggressive in reaching" beyond China's first tier cities.

Chovanec then writes very briefly on how what "really distinguishes 1st, 2nd, and 3rd-tier cities is the ability to attract international business and investment." He then notes that China has many cities with more than a million inhabitants, including some provincial capitals, that "would not qualify as 2nd-tier cities." Chovanec goes on to write about what distinguishes the second tier cities that have been best at puling in foreign investment from those cities that have not fared so well in that department:

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).

He is absolutely right. There are definitely some second tier cities in China that make it relatively easy for foreigners both because of their hard and their soft infrastructures and because of local governments that are open to and welcoming foreign business and there are others that are not. A list of the ten second tier cities where my law firm has done the most business (all of this having been driven by our clients), would consist of the following:

• Chengdu
• Chongqing
• Dalian
• Hangzhou
• Nanjing
• Qingdao
• Tianjin
• Wuhan
• Xi'an
• Xiamen

Are these the top ten second tier cities for foreign business? I think it probably is.

What do you think?

UPDATE: Mea culpa. I cannot even believe I left off Suzhou, which error I realized upon seeing the first comment. We get a ton of work involving Suzhou and I think the only reason I left it off is because I barely even think of it as a second tier city. One of the reasons I barely think of it as a second tier city is because it tends to have minimum capital requirements for WFOEs more in line with Beijing and Shanghai than with Qingdao or Xi'an.

Full post as published by China Law Blog on October 19, 2010 (boomark / email).