The Evolution of the 2nd & 3rd Tier Cities in China

What is the Chinese market? Many companies looking to enter China see the country as a whole – as one distinct market. However, this is a common mistake that foreign investors make when entering China for the first time.  China is a patchwork of regional markets at various stages of economic development. These markets are bound together as one nation and yet separated by differences in government, communication challenges, regional rivalries and poor infrastructure. This is the reality of the “Chinese market” and any company entering must be aware and prepared to deal with this reality if they want to be successful.

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According to a study, there are 35 regional cities in China which account for approximately 16 percent of China’s population and 36 percent of China’s Gross Domestic Product (GDP). The majority of regional cities are located on the east coast, particularly in the economically advanced regions of the Bohai Rim, the Yangtze River Delta and the Pearl River Delta, and a number of inter-connected ‘city clusters’. The remaining cities are more widely distributed through the country. Each one of these 35 featured cities offers foreign companies particular opportunities, as well as challenges, in a wide range of sectors. These regional cities are considered as the 2nd and 3rd tier cities of China. In general they have a population of more than 5 million people, have a provincial GDP of at least RMB 250 million and the key characteristics are rapid economic growth, lower input costs, large and developing consumer and industrial markets, strong local government support and policy momentum for regional economic development.

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