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2009.06.19 - Opportunities for UK Businesses in China's Regional Cities

WREAC partner, the Centre for International Business at the University of Leeds (CIBUL), in collaboration with the China-Britain Business Council (CBBC), conducted the research project "Second tier cities in China - What are the opportunities for British business" commissioned by UK Trade & Investment.

China's 1st tier cities such as Beijing, Guangzhou, Shanghai, and Shenzhen have received considerable media and academic interest over recent years. British firms are therefore well aware of these cities when it comes to establishing business links with mainland China. However, a growing number of so-called 2nd tier cities may provide equally attractive business opportunities for British firms considering investing in, sourcing from, or exporting to China. This research assesses the strengths of thirty-five cities in comparison to the benchmark city Shanghai. The research results obtained shall support British businesses in making an informed decision when considering conducting business in and with China for the first time, or when they are evaluating expansion within the Chinese market.

Of the 274 municipalities in China with a population in excess of one million, 35 were identified by this study as being ‘regional' cities on the basis of their economic size, economic growth rate and population. These cities were then ranked and grouped on the basis of a number of indices calculated using data published by China's National Statistics Bureau, the World Bank and other sources. These rankings and groupings capture the relative attractiveness of the short-listed cities as business locations for UK companies in terms of the general business environment they offer, an their attractiveness for four different types of business activities, namely local sales, production to supply domestic markets, production to supply export markets, and research and development activity. A further set of groups was devised to provide an indication of the opportunities presented by each regional city in each priority sector. Finally, an overall city-attractiveness index was calculated.

To augment the quantitative analysis, the research team also collected primary data using an online questionnaire survey (completed by more than 80 companies) and through more |than 60 interviews conducted with UK and international companies and trade promotion organisations (TPOs) with extensive experience of operating in China. The key findings of this research are as follows:

  • Collectively, the rapid rate of urbanisation, expansion and economic growth of regional cities in China offer considerable opportunities across a range of industrial sectors and business activities for UK companies.

  • The key characteristics shared by the regional cities include rapid economic growth, low input costs, large and developing consumer and industrial markets, and strong local government support and policy momentum in regional economic development. Combined, the short-listed 35 regional cities account for around 16 per cent of China's population and 36 per cent of China's Gross Domestic Product (GDP).

  • The majority of regional cities are concentrated in the economically advanced regions of the Bohai Rim (and, in particular, the Shandong Peninsula), the Yangtze River Delta and the Pearl River Delta. The remaining short-listed cities are distributed more widely in the Northeast, Central, Northwest and Southwest regions, where strong government policy and infrastructure investments are helping to promote economic growth.

  • In the coastal provinces of China, a number of economically inter-connected ‘city clusters' are developing, where several regional cities can be found in relatively close proximity to an established city and/or each other. For instance, the cities of Suzhou, Hangzhou, Nanjing and Wuxi now provide clusters of manufacturing and services activities to complement the industrial structure of nearby Shanghai.

  • UK companies locate in China's regional cities in order to follow existing clients, explore new markets (gaining earlymover advantage) and reduce costs. Cities such as Dalian, Dongguan, Hangzhou, Qingdao, Shenyang, Suzhou, Tianjin, Weifang, Weihai, Wuhan and Yantai offer the best overall business environment, although, because of their heterogeneity, the location attractiveness of each city varies somewhat depending upon the business activity and industry sectors concerned.

  • Although wide-ranging business opportunities exist, UK companies face a variety of challenges arising from government policies, market forces and operational barriers.

  • The full report "Opportunities for UK Businesses in China's Regional Cities" and further information are accessible to the business community via the UK Trade and Investment webpages (login required).  The report can also be accessed here.

Roadshows were also held in the UK and China to disseminate the research findings and inform British businesses. The CIBUL research team comprised Peter J. Buckley, Jeremy Clegg, Adam R. Cross and Hinrich Voss, postdoctoral Research Fellow at WREAC/NICS. Contact person for further information is Peter J. Buckley.