My Passion to Second Tier Cities

In a private dinner at Goldman Sachs Internet and Technology Conference, I was asked to share a great idea with the accomplished investors, CEOs, and journalists. This is my idea:

Put all your money in the second tier cities in China! 10 cities in China is building their first metro system today, and they are connected by high-speed train system already. The Chinese version of Eisenhower national road system is also completed even before the economy stimulate plan, connecting these cities together. With the jump-start transportation system, talents, and capital will flow from first tier cities like Shanghai and Beijing to the second tier cities in the next 10 years. Think about what you can do in these booming cities: real estate, business, manufacture, outsourcing…

My passion and optimist for the second tier cities is real. The recent Hainan trip, and Wendy’s recent trip back to Henan all sent a clear message to me: the second tier cities are where the opportunity lies. Shanghai has became less and less competitive because of the expensive living cost, making it less attractive to talents.

When I met Yang Meng who just got back from his home town in Changsha in Palo Alto, he shared exactly the same thing with me. His high-school friends all went back to Changsha from big cities, to start their business there. He wrote a great blog about it: Golden Decade for Second Tier Cities (In Chinese).

Wendy and I went back to Nanyang years ago, and found out the highway with road plate G40 and G45 – one connect the city to Shanghai and Xi’an, and another connecting it to Guangzhou, and north China. All these roads were newly built. Wendy drove along the highway in the more recent trip, and reported back – there are no cars on it yet. When third cities like Nanyang gets connected to second tier cities, it makes the second tier cities more competitive with the vast supply of labor, resources, and market.

What do you think?

20 thoughts on “My Passion to Second Tier Cities

  1. zjemi

    Are Wuhan and Ningbo second tier? Both of them have superb Howard Johnson’s hotels in the best imaginable tourist locations (right next to the best parks). In the US Howard Johnson’s means mediocre, so we were surprised to find out how good the hotels were. Maybe Howard Johnson’s has great hotels in lots of second tier cities.

  2. ddjiii

    I agree at least partially, and other people have been saying the same thing, but it’s important to define terms. Everyone talks about “tiers” but it seems that no two people have the same idea about which cities are in which tiers. Most people seem to agree that first tier means only Beijing, Shanghai, Shenzhen and perhaps Guangzhou. After that it’s not so clear. For example, Changsha seems to me to be 3rd tier, not second, but there are no strict criteria. To me, second tier means cities which already are receiving a lot of foreign investment and are basically connected to the world economy, but which lack the national/international position of the 1st tier cities: Suzhou, Hangzhou, Tianjin, Dalian, Chengdu, etc. 3rd tier might be strong regional cities with national connections, like Changsha.

    Which cities are you thinking of?

  3. Jian Shuo Wang

    @ddjiii, very valid point. Let me explain my thoughts about second tier.

    For the first tier cities, the consensus is Beijing, Shanghai, Guangzhou, and Shenzhen.

    For the second tier, my general definition is the capital cities of each province. Of cause there are many cities like Lhasa or Yinchuan that is not as strong as others. More specifically, I am more focused on the 10 cities that has Metro under construction, AND those hub cities connected by national highway, and high speed trains (ideally, meet both criteria). That short list can be:

    Nanchang

    Jinan

    Wuhan

    Chengdu

    Harbin

    Hangzhou

    Shenyang

    Xi’an

    Zhengzhou

    Changsha

    Chongqing

    Dalian

    Changchun

    I pick metro construction as indicator, not only because metro can boost the local economy, but also because the construction itself indicate the needs for better transportation within the city.

    For the high-speed train hub, the reason is, that will continue to make the second tier city stand out from other cities (3 tier, which I define was the rest of the cities). Let’s take the Luoyang vs Zhengzhou as example. 20 years go, it is not easy to tell the difference between these two cities, and now, the gap has been big enough. It took about 16 hours to reach Luoyang even today with the high speed train, and for Zhengzhou, just 6 hours. Why? Zhengzhou is the hub, although these two cities are just 1 hour’s ride. The idea is to move people between the hub cities as quick as possible, and then move via “local” train. That can be great drag to the population, investment, and resources.

    Having said that, the choices are really blurred. No one assure the city on the list or whatever metrics you choose will develop as quick as you expect. That is more of an individual game.

    Oh. About Suzhou, and other cities already getting investment, it is a very developed city, but the reason I didn’t count it as tier two cities is because it is the side effect of the development of nearby cities like Shanghai. However, for cities like Zhengzhou, Changsha, Chengdu, and Changchun, they will be the driving force of the economy of that area.

  4. ecodelta

    It is also possible to go fractional.

    1.0 1.2, 1.5 1.7 Tier

    2.0 2.2 2.3 2.8 Tier

    ;-)

  5. ecodelta

    That is quite right, but people need a measurment system, no matter how rough it is.

    Like start system in hotel, which provides a rough idea of expected quality and comfort.

    Once a specific start level is selected, furhter analysis is to be applied to get a personal winner.

  6. Jian Shuo Wang

    Here is my rough classification:

    First tire: Beijing, Shanghai, Guangzhou

    Second Tier: Provincial capital

    Third Tier: Cities other than tier I and II

    Fourth Tier: The county under a city.

    The fourth tier is strange, since there are cities under the umbrella of cities in China. Take Luoyang as an example. Luoyang has too concept: the city of Luoyang (the urban area of the city of Luoyang), and the collective area of about 9 counties, AND the city of Luoyang. The 9 counties are actually of the same level of the urban Luoyang, although it is under the same name: Luoyang.

  7. YourBlogReader

    Are you planning to move back to your home province any time soon. It would be really persuasive if you would start moving your family to second tier cities.

  8. ddjiii

    Great response, very logical.

    I don’t think it’s critical that everyone agree on this. But I think it’s good to have an idea at least of what oneself means…

    For those who are interested in such things, the mapping company Rand McNally invented a system to rate (US) cities based on their economic function. This is from Wikipedia:

    http://en.wikipedia.org/wiki/Ranally_city_rating_system

    “The system consists of a number and a letter. The number reflects a city’s importance in the national hierarchy. Nationally important business centers are ranked 1. Regional business centers are ranked 2. Significant local business centers are ranked 3 and business centers whose importance is purely local are ranked 4. the letter reflects its importance in its own area. Doubled letters serve to distinguish centers within a class. The most important center in a market (trading area) is given some kind of A. Other business centers in the same market area will be given B or C depending on their importance. For example, Dallas is rated 1-AA (a nationally important business center) and Fort Worth is rated 2-BB. B cities constitute basic trading centers, while C cities do not.”

    I’m sure this could be used for Chinese cities. So Zhengzhou might be 2-AA, and Luoyang 3-B?

  9. Daniel

    Jian Shou, I came across your blog as I was researching for a blog on Hukou’s. You’re a smart guy, I enjoyed your writings.

    I’m an American, married to a Chinese woman and raising a family in ZhongShan, Guangdong province. We have a language center that focuses on English for kids. I agree with your concept of tier cities and how high speed rail boosts a city’s appeal and therefore increases it’s value. We’re nearly finished with a rail to link Shenzhen, Hong Kong,Guangzhou, Zhuhai and Macau and I am personally very excited about it. We plan on investing solely in ZhongShan properties and such for this very reason.

    I too have spent time in San Fransisco, the bay area, and my home state of California. I definitely miss it there. But, in all honesty, China is where I seem top have met my success, and it is in China where I will invest my future.

    Thanks for an interesting morning read, have a great day and if you ever come to Zhongshan, look me up.

    Daniel Stine

  10. Steve R

    I used to live in first-tier Shanghai for almost 4 years and moved into a ‘second tier’ city of Wuhan as of last year for similar reasons to pursue these upcoming economic opportunities. But unfortunately it has not been going very well, and I’m now giving up and moving back to Shanghai again. While the living costs are higher and it may be less competitive than the emerging cities, I tend to enjoy life better in the 1st tier cities because they are more developed all-around.

    In strictly economic terms, yes, these second-tier cities are where it’s at but there are other factors to consider such as quality of life issues. Wuhan, to put it simply, is a big mess of construction, traffic, noise, and pollution. It is not a very pleasant place to live at all. Despite how things will get better in 5 or 10 years from now, I am more interested in a pleasant life right now — which can be found in the first tier cities.

  11. Jian Shuo Wang

    @Steve R, thanks for sharing your perspective, and I can understand that. Just like the delimma many overseas Chinese faces these days about whether to return to China for the opportunity, but the life standard can be impacted. Opportunies and good life are rare to play together (with Silicon Valley as an exception).

  12. SINGAPOREAN FRIEND

    Dear Wang,

    I enjoyed reading your blog. I regret to tell you that your title is grammatically incorrect. I also found more than three grammatical errors in your text.

    I noticed that most readers only offer praise but very few offer constructive criticism. I hope you have the wisdom to realise that we can only improve by learning from our mistakes.

    I also noticed that almost all writers make at least three grammatical or spelling errors in their comments. If most parents and teachers make such errors daily, it will adversely affect the standard of English of their children and students.

    Yours sincerely,

    SINGAPOREAN FRIEND.

  13. Cleo

    I think the human element is the reason to reside in and invest in a city. I don’t feel affected by the international excited and overly positive press coverage of Shanghai but I think it would make it harder to know the local people. As a consequence, I feel rude for having unconvinced thoughts about the majesty of the current quality of life in Shanghai. I am in the US and from blogs, it doesn’t really jibe with the press coverage at all. I am not a snob about wealth and modern conveniences but cities need to saturate and need to be planned to become magnets for visitors. There aren’t that many cities worth visiting relative to the size of the US but the cities that do qualify are genuinely established. I think that the good things about Shanghai are overlooked in press coverage the things that are praised may not be ready for prime time creating a misunderstanding about the place. Oh, well. I think that the passion for a city also comes from ancestral connections and an awareness of what makes local cuisine, language and thought unique. I think second-tier doesn’t mean not as worthy of liking and sharing about – it’s just a term of art used by media.

  14. GS

    “I was asked to share a great idea with the accomplished investors, CEOs, and journalists….”

    So where is your great idea??

    “Put all your money in the second tier cities in China!” is ignorant and stupid.

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