First-Tier Or Second-Tier: Where To Base Your Startup In China And Why

Beijing or Shanghai have long been the top picks for those looking to startup in China, bolstered by the communities of existing tech companies that call them home. However as housing prices soar and big-city pitfalls including pollution make starting a business increasingly complex in these centers, second tier cities begin to look more attractive.

As a startup founder, saving cost is a big issue, and that’s where second tier cities excel. Multiple second-tier cities are now forming startup hubs in China, including Alibaba HQ Hangzhou, and the central city of Chengdu.

The cost of living is much lower in second-tier cities, as well as lower cost talent, including engineers. All of China’s second-tier cities are still large enough to hold a university, often multiple universities, meaning that human capital is quite often abundant. It is reported that 67% of engineers in first-tier cities earn 10,000 RMB ($1,570 USD) in monthly salary, when the engineer in second-tier city can cost 2000 to 5000 RMB. 

There’s also abundant support for tech from government in many second-tier cities who are hoping to boost their tech profile. They often incentivize new startups by setting up funds to support them or giving away free office spaces. 

We’ve put together a list of eight first and second-tier cities to help you decide where to startup in China.

First-Tier cities

Beijing

Beijing is the home of China’s most vibrant startup scene. There are a big number of events held in the area throughout the year. Internet technology is changing fast, and those who want to keep up with up-to-date news about happenings in tech gather in conferences, which easily attract thousands in Beijing. Zhongguancun is a must-visit centre, hosting some of the country’s biggest tech brands including Baidu, Xiaomi and Lenovo. You might want to either visit startup cafes like Cheku cafe or 3W cafe to talk to budding entrepreneurs there. 

A lot of VC firms headquarter in Beijing, which makes Beijing an attractive prospect for new companies. In fact, Beijing has received more than two times the total VC investment of Shanghai in the past, according to a 2012 Cyzone report. 

Shanghai

Shanghai is probably the most international city in China, attracting a lot of foreign capital. For that reason, there are a lot of foreign startups here. Multiple accelerators attract expat entrepreneurs to set down roots in the city and supports them in building up the networks needed for their business. Shanghai Free Trade Zone is another attractive feature of the city, facilitating economic transactions and import/export operations which are restricted in other areas. Foreign companies do not need to register a company in order to sell products in China if they work within the Free Trade Zone.

The city is HQ for some of the country’s biggest startups including Dianping & Ele.me. To check out young startup scene in the area, head to Daxue Road in front of Fudan University, where you can meet young Chinese entrepreneurs with interesting projects like Kickstarter-funded skateboard maker Stary and website creator Strikingly. It’s like a little village for young entrepreneurs, where they gather to exchange ideas. Shanghai embraces software companies, finance, retail, media, advertising companies and more. Office space and housing remain costly however, as the country’s most expensive city for expats.

Shenzhen

If you’re a maker, Shenzhen is the best destination to build your business. You might want to take a look at Huaqiangbei, the world’s biggest electronics market. HAX, the hardware focused accelerator, sits one block away from there. The city also closely neighbors with Hong Kong, which gives an advantage to entrepreneurs looking for business support. 

In 1979, the previous fishing village was named China’s first Special Economic Zone, to attract a flood of investment into the region and newly constructed factories. Since then, Shenzhen has become home of Tencent, Huawei, ZTE, Lenovo, Oppo, TCL, OnePlus and with the current boom of hardware, the cost is constantly rising. The local and national government have been strong supporters of the region, while crowdfunding websites such as Kickstarter and Indigogo are also helping out the makers to start their business in Shenzhen. E-commerce and gaming companies are also particularly prevalent here. 

Guangzhou

Guangzhou, also known as Canton, is just one hour’s train ride from Shenzhen and two hours from Hong Kong. Guangzhou is the center of global trade in China and ensures immediate access to manufacturers. The city serves as an important national trading port, and hosts the country’s largest trade shows like Canton Fair, a trade show that is held twice a year in April and October. 

Given their geographic and historical role as a trade hub, Guangzhou is now the home of fintech startups and an expat community focused on trade. There are co-working spaces like Yi-gather and Innovalley, and incubator programs like 6cit.com are helping out entrepreneurs in the city. 

Second-Tier cities

Chengdu

“Chengdu is the optimal place for a testbed for B2C targeted startups,” says Shanghai-based entrepreneur Max Henry. Well-known for pandas and spicy food, Chengdu has become a popular spot for cheaper manufacturing. More than one-third of iPads sold around the world are assembled here.

The city also offers a lower relative labor cost and is now a home for game companies like Ubisoft, ATTA game and Meet Studio as well as popular photo app Camera360. Sino-Singapore Innovation Park (SSCIP) is reaching out into the biomedicine industry as well as other high-tech and emerging industries. The Go West program also offering startups one-year interest free loans, giving them incentive to settle down in the city. 

Hangzhou

Hangzhou, where e-commerce giant Alibaba was born, is only two hours away from Shanghai. Aiming to be an e-commerce hub, the Hangzhou Cross Border eCommerce pilot zone was launched in March to attract effective and qualified e-commerce platforms and curb the problem of counterfeit products. Hangzhou is also trying to adjust taxes on products sold online in order to reduce transaction costs, which will help both customers and the companies. 

In addition to Alibaba, other e-commerce companies and logistic firms are located in the city, such as online retailer JD.com and Shenzhen-based logistics company SF Express. 

Chongqing

Chongqing, a major city in Southwest China, is now positioned itself as a cloud computing city. As part of “cloud computing plan” at the end of  2010, the city is trying to build an industrial base for cloud providers. After Tencent set up a cloud computing center in 2013, the internet giant is also looking to establish an incubator for tech startups in Chongqing in partnership with the government.

Liangjiang New Area is now leading startup incubation in Chongqing. The Internet Industry Park in Liangjiang is base for web-based financial startups while the Mobile Game Incubator Park is base for mobile game business starters. China’s largest crowdsourcing platform Zhubajie.com is based Chongqing, meaning a new O2O internet industry cluster is also forming in the area.

Xiamen

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