Big Companies Finds Opportunities In Smaller Chinese Cities

Chinese City
FILE PHOTO - A man looks at a government poster of Yanan becoming a model city, next to a building under construction in downtown Yanan, Shaanxi province, China January 5, 2019. Picture taken January 5, 2019. (Photo: REUTERS/Yawen Chen/File Photo)

Some big companies found revenue opportunities in smaller cities outside of Beijing and Shanghai as the Chinese economy slows down. According to earnings and analysts report released recently, there are still many areas in China that have the unexploited potential for investments.

The report said the smaller cities in China shows potential for growth for the internet, autos, healthcare, education and tourism industries. The analysts reported that much of the growth in the five industries were contributed by smaller cities and country districts. The reports said that 70 percent of China's population lives in these areas.

Robin Xing, the chief China economist at Morgan Stanley, said in an interview on Thursday that in their big picture now, these so-called lower-tier cities, they will be basically the major driver of growth in China in the next 10 to 15 years.

The cities in China were separated into tiers that are based on population and economic size. Beijing, Shanghai, Shenzhen, and Guangzhou, for example, are considered tier-one-cities. Cities that are in the lower-tier are smaller than the four cities.

Xing also said that he expects that the growth in less developed parts of China is based on the effort of the government in developing city clusters and by bringing the services and productivity levels of the large cities into the rural areas where more or less 600 million people are living in. he also said that his predictions are based on his assumption that the Chinese government will continue its reforms regarding the benefits from residency permits and the granting of greater access to foreign firms.

According to official data provided by the Wind Information database, the growth in consumer goods sales slowed to 2.7 percent in Beijing and 7.9 percent in Shanghai last year. The growth, however, increases by more than 10 percent in less developed areas that include Anhui, Yunnan, Hubei, Fujian, and Shaanxi.

Credit Suisse analysts said in a report titled "China's Unicorns: Preparing to gallop" released on March 18, despite a high base of internet users in China, rural areas are creating incremental growth opportunities. The report also said that it is worth noting that mobile payment penetration rose from 50.3% to 65.5% over 2017, with most new users coming from rural areas. It also added that people are spending close to five hours a day on the mobile internet.

They also said that the cross-regional flow of used vehicles certainly boosted circulation, especially when most of them are owned by residents in tier 1 and 2 cities, but demand largely comes from people in small cities.

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