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Construction of new buildings in Hangzhou
Construction of new buildings in Hangzhou

China's new boom towns Add to ...

Standing outside the freshly built "MixC" mall, retail executive Janet Qian points skyward to one of more than a dozen condominium towers sprouting in a sparsely populated section of this thriving metropolis on China's eastern coast.

"Some people will have views of the river and others will wake up each morning and see Louis Vuitton," she says, nodding toward the French fashion house's latest, and as yet unopened, retail location in China. The LV store serves as a velvet tent peg holding down a rear corner of the high-end shopping centre, which boasts a two-storey Imax cinema and an Olympic-sized ice skating rink.

In China, the boom that has spawned the well-known mega-cities of Shanghai, Beijing, Guangzhou and Shenzhen is on the move. As the world's second-largest economy enters its next phase of growth, the nation's so-called second-tier cities are expected to do the bulk of the heavy lifting.

Dubbed the "Long Tail" of the Chinese dragon, these mushrooming metropolises pack astounding heft. While a new skyscraper seems to bloom in Shanghai every other month, scores of other towers are popping up just as fast in places most Westerners never consider. Including Hong Kong and Taiwan, there are already 60 Chinese cities with populations greater than one million. By 2025, according to consulting firm McKinsey & Co., there will be more than 220 cities with more than a million people each.

In North America, investors worry about the possibility that Chinese growth might slow, bringing with it lower demand for commodities and other goods, but boom towns like Shijiazhuang, Baotou and Zibo provide evidence that a vast reservoir of opportunity remains to be tapped. These second- and third-tier cities will drive demand for raw materials from commodity-rich countries like Canada as China's expanding municipalities erect new buildings and build more bridges and railways.

Global retailers are already rushing to capitalize on the new affluence on display in China's emerging urban centres. It was, after all, the consumption habits of residents in scores of second- and third-tier cities with names like Kunming and Chongqing that pushed China to become the world's largest auto market this year.

With growing prosperity, though, comes anxieties about the corrosive effect of disparities in wealth. The runaway real estate markets that have elicited so much hand-wringing from Chinese government officials are not confined to Shanghai and Beijing. Potential real estate price bubbles are also forming in much smaller, lesser-known locales.

Take Hangzhou. With 6.7 million people, the Hangzhou district is already larger than Boston, Madrid, Sydney or Toronto. Its population outnumbers Alberta, Saskatchewan and Manitoba - combined.

"I can't afford an apartment," laments taxi driver Wu Liang Liang, who says the cheapest flat in Hangzhou now costs at least 200,000 Chinese yuan ($31,000). "If I go back to my hometown, I could create a valley with that much money."

Rife with social challenges and economic opportunity, second-tier cities like Hangzhou will define China's future. But for foreign companies looking to break into the Chinese market, these lesser-known urban centres already stand out as some of the country's most attractive markets.

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' More purchasing power'

When Intel broke ground on its first major manufacturing plant in China in 2007, it was in Dalian, a second-tier city in Liaoning province. The microchip behemoth's decision to locate there is just one indicator of how investment patterns are shifting in China.

For three decades, four mega-cities - Beijing, Shanghai, Guangzhou and Shenzhen - spearheaded the country's remarkable economic progress and attracted the bulk of foreign dollars. In the first half of this year, these first-tier cities continued to perform, expanding their local economies by an annualized average of 12 per cent.

Their double-digit growth, though, seems tame in comparison to the breakneck pace of activity in provincial capitals such as Changchun, Hefei and Yinchuan. Gross domestic product growth in these second-tier cities averaged 18.5 per cent during the same period. Rich in resources and with a more stable labour force than China's mega-cities, smaller municipalities like these have been the major beneficiaries of China's $585-billion (U.S.) stimulus package, designed to spur infrastructure building and economic development.

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