Part 1 of 3
Beijing and Shanghai.
B.S. is the abbreviation for many common expressions, e.g., Bachelor of Science. Here it refers to Beijing and Shanghai.
Both cities are among the great metropolises of the world and, together with other Chinese first tier cities, Guangzhou and Shenzhen, have been the poster cities of China’s economic growth for the past couple decades. Modern and vibrant, with tremendous business activities in the past, passing, and to come. To many, tourists and business people alike, those cities are almost synonymous to “China”.
Why then suggest looking beyond China’s first tier cities for business opportunities?
Next Wave of Growth
China has been going through many transformations, and urbanization is one of them. Currently, the percentage of urban population in China is 47%. That number is projected to increase to 70% in only about 20 years. The Chinese Ministry of Housing and Urban-Rural Development estimated that from 2010 to 2025, p300 million Chinese now living in the countryside will move into the cities. That was echoed by other sources, including a recent McKinsey report, in which they forecasted an increase of urban population of 350 million by 2030.
Not all those folks can or will go to Beijing, Shanghai, Guangzhou and Shenzhen. In fact, only a small portion of them will. China's first tier cities are already over-crowded, and among the most densely populated regions in the world. This puts huge pressure on the infrastructure, with demands on water, energy, pollution control, emergency management, transportation, etc.
Beijing already has 5 “Ring Roads” (2nd – 6th “Rings”), or beltways, and it still has some of the very worst traffic in the world. Housing prices in all the first tier cities have been skyrocketing.
For entities doing business in China, the markets for many verticals in those 1st tier cities are intensely competitive. Major players, lured by the potentials, have been creating, cultivating, developing, and adjusting their positions for many years. As an example, a U.S. medical system supplier attempting to enter the Chinese market worked hard in Shanghai for several years without any success. It always lost to companies like GE Healthcare or Siemens, who have been in Chinese first tier cities for more than a decade. After establishing solid relationships in the second tier cities, and repositioning their offerings, this company is finally making progress.
If doing business in China for you includes outsourcing, then another arena in the first tier cities is also highly competitive: the competition for the high-end talent pool. The multinational giants, such as IBM, Microsoft, Intel, HP, all established R&D centers in those cities. Google, even with its self-imposed exit from the mainland market, still has a large R&D team there. Don’t be surprised when you lose your technical leads to those centers.
Many Chinese government initiatives are pointing beyond the 1st tier cities too.
- The majority of the $586 billion in stimulus they put together at the beginning of the world financial crisis was earmarked to places outside B.S.
- Early 2009, the Chinese government put together a separate 3 year $124 billion healthcare reform package as the first stage to turn healthcare into a universal service. The goal for this package is to cover 90% of the population by 2011, with a hospital in every county, and a clinic in every village. Thirty seven hundred community health centers and 11,000 community health stations are being set up or upgraded in cities.
- China is in the middle of a South–North Water Transfer Project, one of the largest engineering projects in the world. There are three routes moving water from the flood prone south to the arid north, cutting right through a large portion of China.
- China has become a leader in high-speed railway systems. Their goal is for travelers to be able get on a train and comfortably arrive at any provincial capital within a day. This build-up has long-lasting impact on local economies along the way. During this second half of the year, the planned investment from the Chinese Ministry of Railway is $446.82 million – per day.
So, why suggest looking beyond the first tier cities? The answer is to catch and ride the next wave of economic growth in China.
Part 2 and 3 are listed in the archived blog posts.
This white paper is based on the presentation by Dr. Jeff Wang, President of Poetica, at Colorado State University’s 2010 China Colloquium.
About POETICA:
POETICA provides market research and partnership management for companies doing business in China. We also work with Chinese investors, in selecting emerging technologies or products, for commercialization, and additional growth.
POETICA: www.poetica-llc.com
1067 S. Hover, Unit E, Suite 138
Longmont, CO 80503
Tel: 720-519-8887
Email: contact@poetica-llc.com
