Question

• Given the urban hierarchy that developed across the US, what can second or third tier cities do to promote growth? Can they ever advance?

Answer 1

Answer: Though Shanghai and Beijing tend to grab the headlines, the future of the country is in its smaller cities, experts say. They are its heartland and the likely source of its most rapid growth over the next few years.

“The China story is increasingly about Tier Three cities,” Andy Rothman, the China macro strategist for CLSA, said in forecasting 9.5 percent economic growth for China in the year ahead. “It’s where much of the growth is coming from, and where a lot of spending on public projects and low-income housing is going. And you’re seeing an increasing number of foreign and local companies expanding out there.”

More than 300 million people live in China’s smaller cities, roughly equal to the 310 million population of the United States. That’s both an enticing labor pool and an attractive customer base for many companies, which are starting a gradual shift from the developed eastern seaboard into the center and west of the country.China has 160 cities with populations of 1 million or more, out of around 655 cities in all. Looking at the centers of the megacities, 12 metro areas boast populations of more than 5 million.

There is no formal definition of what constitutes a “first-tier,” “second-tier” or “third-tier” city in China. But it’s commonly agreed that the top tier incorporates Shanghai and Beijing, as well as Guangzhou and Shenzhen, well-off cities just across the border from Hong Kong and at the heart of the industrial Pearl River Delta. That’s thanks not only to their large size but also the fact they have the highest incomes in the country.

But they account for only 9 percent of the country’s population. There are many more people living in the Tier Two cities, often defined as the provincial capitals and special administrative cities — 23 in all.

Any prefecture level or county-level capitals are generally classed in the third tier. But the breakdown between Tier Two and Tier Three is not precise. Property brokerage Knight Frank set the barrier for a second-tier city at a population of 3 million and a minimum per-capita GDPs of US$2,000 or more. Using that definition, there are some 60 cities that are “second tier.”

However you break them down, it’s clear the importance of second and third-tier cities is growing. Just as people are migrating from the countryside to the city in massive numbers, companies are migrating from the expensive coast to tap the interior.