ettore canaveral: Special report: China's secondary cities

They may still be under the radar for many westerners but China's second and third-level cities will rise in profile over the next few years. Gary Noakes reports

COMMENTATORS ARE SPLIT on exactly when China will overtake the US as the world?s largest economy, with some saying as early as 2017, but all agree it will be by the end of the decade. China?s time at the top of the economic tree will, according to Douglas McWilliams, chief executive of the Centre for Economics and Business Research, be around 40 years, after which it will be superseded by India. Any buyer entering the industry now will surely find China part of their remit at some point in their career.

Ironically, China is reaching the top spot as its expansion slows. Its economy has been growing by more than 10 per cent a year for the last 30 years, and only now have the brakes come on as worldwide demand for its exports falls. Nevertheless, it is still expanding at about 7.5 per cent a year, a rate western countries can only envy.

Even discounting the interests western companies now have there, the next few decades will see greater ties between China and the outside world as demand for western goods from China?s increasingly affluent population grows. Its 1.3 billion people now includes a middle class that outweighs the whole of the US, as well as around 600 dollar billionaires, so there will be more of a two-way flow of goods, services and business travel.

According to the US-based Global Business Travel Association, the corporate travel market to China will outstrip that of the US in 2013. The organisation estimates business travel spending in China increased by 17 per cent in 2012 and will go up by 21 per cent in 2013 ? from US$202 billion to US$245 billion. Spend in the US is expected to reach only US$233 billion in 2013.

All this has not gone unnoticed in the UK, but China has a smaller profile in travel terms than it deserves. Thanks to the absence of slots at Heathrow, direct air connections are limited to Beijing, Shanghai, Hong Kong and, only since last year, Guangzhou.

This is all the more astonishing when you consider that, according to Wendy Huang, Starwood?s vice-president for China, the country has 170 cities with populations above one million. Management consultancy McKinsey estimates China will have 221 cities with more than a million people by 2025, compared with only 35 in Europe today.

The hotel sector has been quick to capitalise. US forecasting company Lodging Econometrics estimates that following a building boom in 2011, when almost 450 properties were constructed, China led the world in hotel openings. Lodging Econometrics forecasts another 290 by the end of 2012, compared with only 91 in India, the world?s other economic hotspot.

Many of these will be in cities less than familiar to UK buyers. Here, we feature some that will soon have a higher profile. McWilliams, chief executive of the Centre for Economics and Business Research, be around 40 years, after which it will be superseded byIndia. Any buyer entering the industry now will surely find China part of their remit at some point in their career.

Many of these will be in cities less than familiar to UK buyers. Here, we feature some that will soon have a higher profile.

GUANGZHOU
Formerly known as Canton, this city can no longer really be regarded as secondary, but it does still live in the shadow of near neighbour Hong Kong, around 90 minutes by train. Guangzhou?s hi-tech airport, the home hub of China Southern and the country?s second busiest, with 45 million passengers, is a clue to the city?s importance ? as are the scores of factories that line the roads and railway lines into it.

Guangzhou is home to the twice-yearly China Import and Export Fair, commonly know as the Canton trade fair. It is the world?s biggest and where Chinese manufacturers meet buyers from around the globe. During the event, 22,000 exhibitors and 165,000 visitors swell the city?s 11 million urban population, which explains western hotel brands? appetite for Guangzhou. Among those now present are Ritz-Carlton, W and Four Seasons.

CHONGQING
Lying on the Yangtze River and powered by the Three Gorges dam, Chongqing boasts that it is the megalopolis you?ve never heard of. The debate over the size of the Chongqing area?s population, which some put as high as 33 million, gives an idea of the power of this financial, trading and industrial centre. However, the actual city itself is a fraction of this size.

Since 1997, Chongqing has had preferential tax rates for investors, which has fuelled its enormous growth. The city has taken the twin-town concept to extremes, launching a business partnership with the whole of Wales, which has a government office there.

As a massive iron and steel centre surrounded by vast mineral wealth, vehicle manufacturing is of great importance, with Ford breaking ground on its third plant in the area in summer 2012. Chongqing is now the company?s biggest producer outside Michigan.

Links with the west are improving, with Finnair launching flights in May. A Hyatt Regency opened in August 2012 near the new Expo International Centre, China?s second largest.

CHENGDU
Volkswagen opened a plant in Chengdu, the capital of Sichuan province, in September, and it will produce 450,000 cars annually. It joins Volvo, which chose Chengdu for its first Chinese venture in 2011. The city is also known for communications and pharmaceutical industries and, in 2011, was the country?s top investment location.

Chengdu?s airport, the biggest in south-west China, is already on a KLM route due to recent growth of other industries such as electronics and IT, with Sony, Intel and Motorola among those having plants there. Another big employer is the Chengdu Aircraft Company, a major manufacturer of military aviation technology. All these industries are serviced by the city?s urban population of around 7 million and by a surrounding area rich in minerals, including titanium, gold and copper.

One of China?s five largest exhibition centres, the city has attracted investment from Reed Exhibitions. British Airways is starting flights from Heathrow to Chengdu in September.

WUHAN
Air France opened a route to Wuhan, arguably the most populous city in the central region, in spring 2012. Wuhan, with 10 million people, sits at the confluence of the Yangtse and Hanshui Rivers and is sometimes dubbed the Detroit of China, as it has been a vehicle manufacturing centre since the 1950s. Unlike its US counterpart, it is not in decline, with thriving joint ventures with companies including Honda and Citroen. Wuhan?s diversification includes three national development zones, four scientific and technological development parks, over 350 research institutes and 1,500 hi-tech enterprises. Among them is the Chemical Industry Institute, which has investigated new sources of silicon.

HANGZHOU
On the Yangtse river delta in eastern China just over 100 miles from Shanghai, Hangzhou?s reputation as one of the country?s most scenic cities belies its importance as a vehicle manufacturing centre. This was underlined by Ford when it announced in April the building of a US$760 million plant that will double its China capacity to 1.2 million cars by 2015. Hangzhou is also a key base for software and telecommunications, textiles, medicine and the food industry.

SHENZHEN
This southern Chinese city was the first to be designated a special economic zone due to its closeness to Hong Kong. In three decades, it grew from 30,000 people to an urban area of 10.5million people and is now the south?s main financial centre and a major container port. It has also become a hub for design, with more than 6,000 creative companies. The Shenzhen Virtual University Park has fostered more than 600 start-up companies. Shenzen Airlines is Star Alliance?s latest member.

TIANJIN

Airbus chose Tianjin, 70 miles south-east of Beijing, as the site of its first factory outside Europe, where it recently completed its 100th aircraft. Manufacturing is big here, with textiles, cars and petrochemical industries. The city is also the largest free port in northwest China.

ZHENGZHOU
A major textiles city about 400 miles south west of Beijing, whose airport now has its own budget terminal serving a catchment of 8 million people. The area is a major centre for coal mining and electricity generation, and for food production, including flour and instant noodles from farms around the Yellow River Valley. Foxconn, which makes Apple products, is also based here and Nissan has an SUV factory.

DALIAN
This city, on the tip of the peninsula roughly 250 miles across the Bohai Gulf from Beijing, is perhaps most famous for the 2010 oil spill that contaminated an estimated 50,000sq km of the Yellow Sea. The offshore oil reserves mean the city is a centre for petrochemicals and refining, as well as being the northern region?s leading shipping centre. Heavy industries such as ballbearing manufacturing are also found here.

HARBIN
This north-eastern city is renowned for its ice sculpture festival, but is also a key trading centre and its hinterland is an especially fertile agricultural region, with brands like Nestl? and Coca-Cola present. Hydro- and thermal-power equipment is also manufactured here, and vehicle and motor parts manufacturing are key following the establishment of a dedicated zone. Perhaps its most famous brand is Hafei, a producer of mainly small cars and vans.

SUZHOU
A few miles west of the Shanghai conurbation but not quite consumed by it, Suzhou Industrial Park houses factories producing brands like Samsung at a fraction of the labour costs found in their home countries. Seagate has just produced its one billionth Chinese-made hard-drive there.

NANJING
Roughly 200 miles north-west of Shanghai, Nanjing is a major producer of TVs, electrical items, computers and trucks, the latter via a joint venture with Iveco. Building materials, including cement and plate glass, are also made here. Lufthansa serves the city.

XIAMEN
This port on the Taiwan Strait is a KLM route thanks to its IT, plastics, chemicals and heavy machinery manufacturing sectors. Dell has a major plant here, as do Panasonic, TDK and NEC. The city is the world?s largest producer of energy-saving lightbulbs. It is also home to Xiamen Airlines, Skyteam?s latest member in the region.

SHENYANG AND QINGDAO
Shenyang and Qingdao, both in eastern China, became Lufthansa destinations in March 2012. Shenyang is a heavy industry centre, particularly for machine tools which power China?s manufacturing industries. Aerospace and vehicles are also important. In contrast, Qingdao is best known for Tsingtao beer, a result of the city being under German control until 1914. Qingdao also makes a fifth of all China?s refrigerators.

THE INSIDER?S VIEW

Yates Fei, director of sales and account management, HRG China, Shanghai
?Lots of secondary cities are hoping to attract flights from Europe or North America, particularly western China, because they want to drive the economy in that area. Chengdu and Chongqing are seeing a lot of businesses open there. Labour costs are cheaper and it is closer to Europe.

?The biggest growth among our client base is in pharmaceuticals ? each year they need to hire 1,000-2,000 sales staff ? and IT industries, too, because they are changing daily life here. There are many mergers and acquisitions among Chinese companies.

?In big cities like Beijing and Shanghai there are probably too many five-star hotels, and the chains now plan to open more boutique-style properties. Because of this, it can pay to use a local travel management company to book accommodation, and the same goes for domestic flights because there are a lot of discounted tickets sold locally.??

Benson Tang, regional director, Asia, Association of Corporate Travel Executives (ACTE), Hong Kong; Tang was formerly Asia travel buyer for Goldman Sachs
?There are so many secondary cities with a population of more than 10 million ? at least 20-30. The one everyone talks about is Chongqing, one of the municipalities that reports directly to central government. The size and population are huge ? Chongqing?s entire area is bigger than Hainan province.

?There are a lot of cities that could benefit from direct air links to Europe, but there are no existing rights and the government?s view is that direct flights sometimes affect political stability in some areas by bringing in foreign visitors.

?Doing business in China is all about trust and relationship management. Business etiquette, like how to react and what not to say, is really important. Here, business is not just about money, it?s about respect and how to get to the heart of the other party.?

CHINA: QUIRKS AND TIPS

Global online booking tools are not available in China ? the standard system is the government-owned GDS Travelsky.
An over-supply of quality hotels means some good rates in certain cities, but check the location ? you can drive for an hour and still be in the same city, so make sure the hotel is where you need to be.
Hire cars need a chauffeur, as foreigners are generally not permitted to drive. Rail travel presents challenges due to a lack of English signage.
Remember etiquette. Carlson Wagonlit Travel recommends reading guidebooks such as Terri Morrison and Wayne Conaway?s Kiss, Bow or Shake Hands to avoid blunders.

Source: http://buyingbusinesstravel.com/feature/0220306-special-report-chinas-secondary-cities

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