Years of 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 tier cities.
The Chinese tiered city system is characterized by the city's population size with Shanghai topping the China's city population chart at 20 million, followed by Beijing and Guangzhou with 17 million and 12 million 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 groups.
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.
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