Hello, welcome to Roundtable, where we serve up piping hot debates on the issues that sizzle in China and beyond.
I'm Nianhe Lin. For years, China's consumer power was synonyms with big cities like Beijing and Shanghai.
But the new frontier is elsewhere.
In 2025, smaller cities are growing faster, spending more, and attracting global brands.
Is it time to say that China's economic engine is increasingly running on small -city horsepower?
For today's show, I am joined by Yuxian and Lai Ming.
Now grab your virtual compass and follow us to the heart of the discussion.
The divide between big cities and small towns is increasingly blurred when it comes to consumption.
The growth in spending in China's smaller cities is outpacing growth in the largest. Meanwhile, many of the bodice consumer trends, from new food brands to first -time air travel, are starting in smaller markets.
What's behind this search and what does it say about where innovation and aspiration really live?
To answer these big questions, let's check whether or not my statement previously was actually true.
What is exactly happening in these smaller cities and smaller markets?
Well, sixth term, one of China's most influential news portals, is here to testify.
According to their recent report, growth in spending in China's smaller cities is outpacing growth in the largest. Lisa Hu, partner and managing director at consulting firm, ALIX Partners, said that China's consumption market is gradually transitioning from being primarily driven by top tier cities to a model of dual engine growth.
And the shift appears to be fueled by the greater potential for economic catch up growth in smaller cities, as well as the development of transport links and e -commerce, allowing products and consumer tastes to spread more easily.
I guess to some extent, we already know this.
A few years back, we on the round table talk about the surge in consumption, fueled by people traveling from first -year cities to smaller cities during major holidays like the spring festival.
And also on some level, we notice the trend of smaller cities catching up.
This is, in fact, like we mentioned earlier the potential being released for small cities and the result of building a universal market across the country, some effort that China has been pushing.
So that's for sure, but then the reason why we're talking about this is because there are a few new trends that that we need to highlight.
Yeah indeed, and Leiming you mentioned something really interesting here.
You mentioned the larger tiers and the smaller tiers, So for our global listeners, who are not necessarily familiar with the term, the tiers of cities that we're using in today's discussion is more like an unofficial classification of the over seven cities in China because, wow, we have over 700 cities and certainly not all of them are of the same size or say speed of growth so that's how we are, say, unofficially naming them or putting them in different sizes and call them into multiple tiers.
That's arranged in a pyramid structure based on their population and economic size and a few mega cities such as Shanghai the city of Shanghai in Eastern China with its nearly 25 million of population sit in the first tier while most provincial capitals are classified as second tier and so on so you mentioned as well, because some official statistics would suggest that nationwide consumer spending per person grew about 5 % last year.
But as a matter of fact, a survey of Shanghai based news portal, the paper reviewed that dozens of third and fourth tier cities grew significantly faster than that rate.
So some of them are going beyond 5 % and some even reaching 6%.
by contrast the first -tier cities saw actually a lower growth rate with Shanghai recording a 0 .4 % increase and Beijing only 4 .5 % so data are suggesting that indeed there are this variation of growth in smaller cities in comparison with bigger cities and if you let's not just take one survey as at all there are also independent surveys finding similar trends.
So this is a report from consultancy Bain Group that also suggests third - and fourth -tier cities seeing stronger growth in spending on consumer goods like food and cosmetics in 2024, while sales fell in the first - and second -tier cities.
And that decrease is more about 4 .4 % and not 0 .9 % in some first -tier cities.
So, yeah, from the superficial level or outside of the question, when you're standing from the outside of the issue, you think it's easy to explain, I mean, the faster growth of the bigger cities has to slow down a little bit at a certain point.
Because it's already the volume is already very huge.
Right. It's just like countries, right?
Countries and the GDP growths.
For a country as economically advanced as China and the US, people often compare these two countries, the US on the one hand, being a first world country for that many decades, has a very sizeable economy And for it to achieve 3 % growth in GDP is significant.
Yeah, the sheer number of growth would be significant.
Whereas for developing countries like China and some Southeast Asian countries, then we're seeing 5%, or if not, more than 10 % growth, then that's quite normal.
Yes. So from the outside of the issue, we find it easy to understand.
Yet, when you come closer, it's kind of like peeling an onion.
There are different layers of reasons.
There are different types of drivers.
I'm saying about the consumption growth drivers for each and every different little towns, different cities.
And they all have their distinctive and very interesting, let's say feature and sometimes reasons and sometimes industries.
And they're finding their own way to grow and they're seeing good results.
And these are fun examples we'd like to present on Roundtable.
A recent report by Huanchu .com examined hotpot chain restaurant Haidilao's 2024 average sales revenue per store and found that the country's sales performance in third -tier and even smaller cities are almost on par with those in first and second -tier cities.
And per capita consumption there is also close to the level of first -tier cities.
some more evidence to suggest that these smaller -tier cities are actually proving to be rather strong in propelling economic growth.
But like Nihonglin said earlier, there are regional differences in Z concert in eastern China's Shandong province.
Apparently, a barbecue is the thing that's pushing consumption growth in the city, according to online travel agency Chunar, a one meal of ZBorg BBQ costing about 50 yuan per capita is likely to encourage spending of 750 yuan in transportation and accommodation.
So we'd love to go and enjoy a bargain yet really high quality BBQ.
And another example that I found very interesting would be the city of Yanzhi, which is just a county level city in the East of China's Jilin Province, and is in the seat of the Yanbian Korean autonomous prefecture, which means that the local history and geographical locations determines the fact that there's a lot of a deep Korean influence a Korean culture there.
Oh, the Koreans don't sleep.
I know, right? I'm just about to say that actually locally speaking, YENJI is known to be the...
Sleepless city? No, it tops the national ranking of coffee consumption.
and it has a big coffee, and the coffee made products have a big popularity in this county level city.
Which is quite surprising.
And it was reported by XunhanNews .com that with a permanent population of fewer than 690 ,000 people, Yanji is home to over 800 coffee shops and dub the coffee king of county towns.
Also Yanji has nearly four times as many coffee shops per 10 ,000 residents as that in Shanghai.
Coffee has somehow become a defining feature of the city, the city itself is known for its tourism as well, so much that it's seen as a symbol for Yanji people to just grab a cup of coffee, even in the afternoon times, even in the late -evening times, according to some delivery platform statistics.
Unlike the first -tier cities where demand peaks during weekday mornings, Yanji actually sees a coffee rush between 4pm and 8pm, with nearly 20 % of coffee orders occurring at night.
yes, they don't sleep.
That explains my earlier reference to the claim that the Koreans don't sleep.
This is getting, it's really interesting because come to think of it, when I first came to Beijing, like 20 years ago or even a little longer, a little further, a little further away from that, I remember that was my first visit to Pizza Hut, and I enjoyed it and I found it very fancy teenage girls, and after around two years one or two years, I enjoyed the first Pizza Hut meal in my hometown in shanxi province in Taiwan.
During that period of time around 20 years ago, my feeling was that every time when I visit Beijing or Shanghai, when I visit major cities, I get to be exposed to some big brands, and some fancy, interesting even international and global stuff that opened my eyes and broaden my horizon.
That's the language I would use 20 years ago.
And around ten years ago or even five years ago when I just traveled to different smaller cities and different smaller towns, the first thing is that I find local brands and local shops very interesting with local characteristics and with local specialties that it cannot really find elsewhere.
And the second thing is these big brands are no longer that focusedly populated or allocated in larger cities.
I see them in smaller cities as well.
So is this my personal observation or is it really happening all around the country?
Well, this is obviously something that's taken place almost everywhere.
We don't only just see it for international brands or multinational brands like McDonald's and Pizza Hut.
We're also seeing brands that have grown domestically like Bao An Cha Ji, the cheese brand and Xi Cha Hey Tea.
So not only are they opening stores everywhere across the country, they're also going overseas.
So from this standpoint, I guess I can stand behind you and say that this is happening across the country.
One, say, evidence I noticed while traveling through high speed trains.
When you're on the high -speed train, it goes all the way to different major cities or smaller cities in different provinces.
And each stop, on the official app for ordering seats, you can also order the local food to be delivered on your seat during your journey.
So at each stop there's going to be food deliverers packing up with local food and give it to different passengers who made the orders and each stop has its own brand.
Something very interesting I noticed in recent years before the service was open, it was not that obvious, but nowadays, as you travel, you can just observe oh this chicken brand I've never heard about before in Beijing is actually very popular in Shandong.
So that's something that's very lively and so closely related to our daily life whether you're just traveling to grab a bite on the train or just to notice yeah here is the the dining or cultural nuance nowadays on how these local brands are thriving in different parts of China.
Now let's ask the million dollar question.
Why are these smaller cities, all of a sudden, getting attention for growing faster in consumption.
We see that, of course, they are developing and we've touched upon it a little bit, that they are not the same level with the bigger cities just yet, which gives them the possibility of growing a bit faster than the smaller cities, like the comparison, Laming drill between China and the United States.
What are some other reasons we're seeing here?
Well, the reason is a multi faceted, and on top of the gap between developed and developing cities, but there's also the effect of marginal benefits being decreasing as we go.
And so one interesting data that I'd like to list is comparison between the big city of Shanghai and the relatively smaller city of Linyi.
According to the data from the Statistics Bureau of Shanghai Municipality, in the year 2024, For the urban dwellers in the city, they spend per capita around 55 ,000 yuan.
In comparison, in the city of Lingyi, the urban dwellers, on average, spend about 21 ,000 yuan.
Excuse me, I think I messed up with the data here.
This is the disposable income here.
So, that a relatively smaller disposable income might suggest that they may not have that much of money to spend from their pocket, but as the city's residence income grow faster, the fundamental reason why consumer spending is increasing faster in many smaller cities is that residents' earnings are growing faster.
And analysis of official data by state media revealed that, in the first half of 2024, per capita disposable income in third and fourth tier cities expanded to nearly 5 .8%, which is a full percentage point higher than the growth in first and second tier cities.
And another factor is, well of course, the marginal benefit decrease effect is that when you reach a certain point, in your consumption patterns and in your disposable income, you can say that you may already have the things that you need in your home — air conditioners, TV, color TV, giant screens, a hundred -inch screen, or all kinds of utilities and stuff you might already have — whereas for smaller cities they're still in the process of urbanization.
So residents who have what have you.
Or even projectors.
So there's need when people move around, there's need being created when they look at advertising and they say, I haven't had this, I haven't had this international brand of vacuum cleaner, how about I save up and just buy some more.
Yeah, so we are calling it the catch up effect.
It's a theory that the per capita income of all economies will eventually converge.
And this theory is based on the observation That underdeveloped economies tend to grow more rapidly than wealthier economies.
And this is not only happening here in China in a lot of different countries, they are looking at this, or they have seen this phenomenon in the United States, for instance, Austin, Nashville and Boise.
These places, these cities have significant growth in consumer spending, real estate and lifestyle services compared to traditional giants like New York City or Los Angeles.
And in Brazil, we see relatively smaller cities, including Campanese, Sao Jose, real Pareto.
And I think these cities are also outgrowing Sao Paulo and Rio de Janeiro, as well in Indonesia, in Eastern Europe, in India.
All these places have seen examples of such, but here in China in the relatively smaller Chinese cities, Chinese towns, we also have some distinctive reasons behind the growth rate.
And one very interesting one would be different counties have found their ways of connecting with the bigger market or enjoying their share of the bigger market because of the infrastructure construction in the country.
Yeah sure, yeah. And I was just about to say that some smaller cities and smaller regions here in China, they really know how to utilize their local benefits and maximum that into something that they can profit from such as what you mentioned, the strong foundations and specific industrial sectors that actually serve as a key economic driver for local operation.
For instance, there's the city of Yantai in East China's Shandong Province.
It's known for its robust development in electronic information and high -end equipment manufacturing, and also, there's new materials in fueling its economic momentum as well.
And also, in I think that's Eastern China's Zhejiang Province, there's a city named Wenzhou.
And that city has strengths in electrical machinery and apparel, and also in Dalian, the city of Dalian is known for its petrol chemical industry.
There are all kinds of just local industries that's being used nowadays and that's being maximized into local say pillar industries That's helping the local economy to boom apart from receiving You know external funds and investments in you know Helping it to get better connected with a with a better developed area, let's say so that's all factors That's helping the local economy Right.
We managed to find data on In our previous comparison between Shanghai and Lin Yi, for Shanghai we mentioned earlier the average per capita consumption is around 55 ,000 yuan, whereas in comparison for the smaller city of Lin Yi, the average per capita consumption is about 19 ,000 yuan, so there's a huge gap in between and as such the latecomer when it enjoys the advantage of added industry it's likely to see a stronger growth in terms of consumption, that's for sure.
Well, earlier just now I mentioned how high -speed rail demonstrates a good example of how local brands, local food brands can be served on the train.
But actually here in China, we are very much benefited from the huge expansion of the high -speed rail and highway network, especially for the smaller cities over the past decade or so, which means that the products, The people and say the bigger plans, projects, good ideas on how to develop local economy.
They're all flowing more in a faster speed and is more readily between cities of different size to communicate and to grow together.
And across China a growing trend is that the businesses in third and the fourth tier cities, they are tapping into national transport networks to sell their own products locally and sell from the local region across the whole country and this is all creating a blended economy model that combines services with specialized manufacturing as well.
We said the reasons can be multifaceted and in many cases these facets they work together for instance the growth and development in China's high speed rail and highway network really facilitate transportation between different cities.
Meanwhile as bigger cities find it hard to accommodate and meet the needs of that many number of people in the city, for instance mentioned earlier, Shanghai is about 25 million, Beijing, last time I checked, is around 22 million.
So the city planners already have somehow placed a a proverbial cap on the development, on the size of the population.
The cities might feel unwelcome, to some extent, especially young people, when they feel like the competition is too intense.
Perhaps the accommodation and the housing environment might be too hostile of them.
As such, when industries are booming because of the infrastructure and transportation elsewhere in smaller cities, they might find it more welcome to settle down in relatively smaller cities.
And these smaller cities, in fact, are being accommodated as well.
A lot of them have dismantled their household registration systems, which can be a hurdle in sending the kids to to school, if young people settle down in bigger cities, which can be a hurdle for people to claim local benefits like transportation benefits public transportation benefits and medical insurance that kind of thing or even in big cities like Beijing, even the privileged to buy your car can be dependent on whether or not you have a proper residence permit or household registration here.
So these facets work together to create an environment where smaller cities become more inviting, not only to businesses but also to the general population who might want to settle down there.
Meanwhile for those who still want to stay in big cities like us we're still enjoying the products of smaller towns and smaller cities as well, thanks to again, the real estate, the railway system, the transportation system, the shipping logistics, and of course, the internet.
My feeling is that in the initial stage of internet dominating our lives, we're open to all sorts of information, we started to learn from all these things and people outside of our lives previously.
Yet with the development of technology, we are using or we are enjoying information much more detailed and much more direct from a seller in, for instance when I was visiting Fuzhou in Fujian province, it's not a small city but it's definitely not as developed as Beijing or Shanghai yet I went into this clothes shop.
It's a local brand it was very nice.
I enjoyed the clothes there and I got the WeChat information of the store owner and I'm still here in Beijing and I still talk to her.
I still see her new new product and I still buy the new product with a very cheap shipping price and that is how I get to enjoy products from outside of my city that I live in.
This kind of phenomenon is happening everywhere in China, enjoy lychee from Yunnan, you would buy mango from Hainan and these people you started to become internet friends with and you connect with each other on this very basic and very real level thanks to the internet, thanks to infrastructure and I think these would also contribute to local economic growth.
information is faster flow it's also easy to flow and it's also the first flow because this is so easy but again other things will have to follow up in order for people to do enjoy stuff and i think the years of if not decades of infrastructure building really count for something because we could see that like i said earlier beginning with information you can you get information very quickly and then the next step is perhaps commodities.
And commodities, even in the category commodities, there are different layers and levels.
First, will be stuff that are easy to store.
Sometimes we talk about how e -commerce or transportation, modern transportation, has shaped the species of vegetables and fruits that we get to consume is somehow the restriction or limitation of transportation technology that has somehow shaped our taste as well.
But now with advanced code -link transportation, we are talking about Lichi Fresh, Lichi and even Durian from Southeast Asia.
So this is the physical improvement that will have to be made in order for physical changes to be seen.
And these things come in steps, in fact.
Yeah, well, at least with, we know, with 70 percent of China's population living in third tier cities and below, they are to start with, considerable block of spenders, but also, more importantly, they are entitled to enjoy a lifestyle or a living standard higher and higher every day, just like each one of us living in this country.
And we'd like to observe these kind of trends and this kind of new phenomenon happening in all around places, all around China, so that, you know, Roundtable can be your observer telling you all of the new trends and new stories happening here in this country.
