Smaller Cities Lure Foreign Investors

Greeting from China.

I’m Mike Bellamy from the CSIC and I’m back with a review of the headlines in the Chinese papers which are relevant for foreign buyers like us.

Smaller cities lure foreign investors

The China Daily describes how foreign and Chinese real estate investors are expanding into the 3rd and 4th tier cities to develop properties. While the article is not specifically about sourcing, foreign buyers would be wise to understand that quite often the opening up of the real estate sector in a given Chinese city is an indicator that some other things are probably happening in that city:

  1. City is now more efficiently linked to the developed parts of the coast via highway, bullet trains and air routes. This brings international trade to town.
  2. Growing middle class is there to support higher end real estate developments such as villa compounds and shopping malls. There are plenty of farmers turned factory worker in rural China. But when the 3rd and 4th tier cities start to attract or create an educated middle class, then the factories in that area are able to find mid-level engineers, technicians, administrators and other professionals that are often hard to find in low cost production areas outside of the coast. In theory, we would expect to see quality standards rise up in these 3rd and 4th tier cities, yet overall costs of production will remain lower than the coasts for the foreseeable future.

In Summary:
I heard that China has over 300 cities with a population of 1 million. That means there are a lot of far flung cities that may start to appear on your radar as sourcing destinations. 20 years ago you could wrap up your sourcing with a visit to HK or Taiwan for a few days. 10 years back, as production moved to the mainland and started to spread out along the coast, you could pretty much get your supplier selection visits done in about a week splitting your time between the Pearl River Delta production base in the South and the Yangtze River Delta production base outside of Shanghai in the East. With 3rd and 4th tier cities coming online, expect to go further into the heart of darkness of the beaten path into the interior of China if you want to stay ahead of the cost curve and beat the competition.

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