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Chuangtouquan (ctquan), a startup investing network, released a report that shows second-tier Chinese cities are hosting more startups in terms of percentage. In 2011, 84% of Chinese startups were located in first-tier cities including Beijing, shanghai and Guangzhou. The rate decreased to 77% in 2012. Second-tier cities including Chengdu, Hangzhou, Nanjing and Wuhan became the new startup scenes.

It’s driven by no more than cost and talent, according to the report.

1 Costs. The average office space rental rate in the first-tier is 3.5 to 4 times of that in the second-tier and is increasing at 30% to 40%.

67% of engineers who earn 10,000 yuan or more a monthly salary are in first-tier cities. The monthly salary range for an engineer in second-tier cities is 2000 to 5000 yuan.

2 No shortage of talents. Some second-tier cities such as Nanjing, Wuhan, Xi’an and Chengdu are full of colleges that can meet the talent needs.

3 Governments of some second-tier cities, like what some big cities began doing ealier, have set up funds to support entrepreneurship.

Earlier this year, Quwan, a social shopping site, moved its headquarter from Beijing to Chengdu. In an interview on it, Zhou Pin, founder of Quwan, says the major reason is his team cannot see a better life in Beijing; for instance, some of them cannot afford an apartment, “I want them to have a better life so that they can do a better job”. Also he wants his team to “settle down” in the next three to five years developing products and services. (in Chinese)

Some employees didn’t want to move. But what to his surprise is all the senior managers and most mid-level managers agreed to move. It turns out that young people would like to stay in Beijing where they think is full of opportunities and future returns will be high. But those middle aged managers know that only a small percentage of people in big companies like Baidu and Tencent can afford a home in cities like Beijing.

Average office rental rate is 1/3 or even 1/6 of that in Beijing. Average apartment price is 1/3. Local senior engineers earn 80% of the monthly salary of their Beijing-based peers’, but average local employees earn much lower a salary. Now Quwan is headquartered at Chengdu tech park, which is established by the local government, who offers them free office space for a three-year period.

But, Zhou Pin said, marketing and business development divisions must still be in Beijing.  Fu Sheng, CEO of Kingsoft ijinshan, doesn’t think a Beijing-based Internet company should leave at all. He thinks that Internet technologies are changing too fast that you’d be easily lag behind if you leave an environment that everyone is exciting about and talking about tech, and pushed forward by it.

image credit: spencerinsurance.com