In the 1950s, under the direction of Chairman Mao Zedong, for security reasons China began clustering its industries in order to limit the national impact of any given attack on a particular city. The legacy of this planning can still be felt today. Accordingly, modern China is not homogeneous. Understanding differences between city clusters is key to understanding modern China. Governmental plans are setting these main clusters up to compose of 80% of the GDP. In terms of populations and GDP, these clusters can be thought of as a single country within the European Union.
Many companies merely rely on a tiered city approach when entering China (e.g. Tier 1, Tier 2, or Tier 3 cities). However, the tiered approach greatly misjudges a city’s composition. For instance, Guangzhou and Shenzhen are both considered Tier 1 cities and are only about 30 minutes apart when riding the high-speed train. However, the feel and the composition of the people living there are greatly different. Shenzhen’s recent rise in technological prowess has attracted a large number of young migrant workers who speak Mandarin. The headquarters of a number of Chinese tech companies, such as Tencent, have attracted determined entrepreneurs. Guangzhou, also a wealthy city, has an older population that prefers to speak Cantonese. Although its economic rise has been more gradual, Guangzhou has historically been the economic horsepower for southern China.
Depending on your company’s products, looking inwards when entering China may better suit your company’s portfolio. While China’s coastal regions are anticipated to experience slower growth in the upcoming years, China’s central areas are still heating up. Clusters such as Chengdu-Chongqing are looking towards becoming more competitive in high-tech industries. Chengdu, in particular, has its eyes set on pharmaceutical excellence. Chengdu-Chongqing may very well become a future “mega cluster” in China.
By leveraging China’s excellent high-speed railway, these clusters are becoming well connected. The Beijing-Tianjin cluster is shaping up to be essentially a 100M+ megacity by interconnecting cities with subways and high-speed rail.
If you are entering China or looking to expand your current operations, it’s important to consider the differences among different clusters. Doing so will allow for greater market penetration and more efficient development.