Young workers in China’s sprawling metropolises peck at their computers, worm through ugly commutes, and sometimes come home to find that their overpriced, run-down apartments are soon to be torn down. Many have moved to smaller cities where they can have a more comfortable life with more leisure time. These young souls are not as tempted by the urban glamor as many would expect, and part of it might be because the country’s tech giants have kept them well entertained and contented.

“Life in small cities is much simpler,” says Xiao Ye, a 25-year-old mother of one. She runs a beauty shop in a small coastal city in south China. “The young people here like to hang out at bubble tea shops. The girls watch dramas and reality TV shows on their phones, and the guys play Honor of Kings on their phones.”

Unlike their parents’ generation, many young people in China’s lower-tier cities, which include prefecture- and county-level urban areas, have a college degree and a decent job. They stay in affordable and spacious homes, with plenty of disposable income.

Instead of spending on gyms or in bars as the urbanites would do in their spare time, China’s small-town youngsters (小镇青年) are pouring money into various forms of online entertainment: Videos, games, music, literature, and anime. The rapid development of broadband connection has made consuming digital content ever easier. According to media company GroupM, internet penetration in China reached 89% in Tier 3 and Tier 4 cities in 2016, closing in on 93% and 98% in Tier 2 and Tier 1 cities respectively.

Small-town leisure: Games, videos, and literature

Penguin Intelligence, the independent research unit of China’s online entertainment giant Tencent, recently released a white paper on how small-town youngsters aged 15~24 spend their leisure time. The report finds that 34.2% of the respondents spend over two hours on online video games. Online literature, along with online movies and TV shows, follows at around 19%.

small town chinese

Forms of online entertainment which small-town young Chinese spend over two hours on every day (Data source: Penguin Intelligence; graph by TechNode)

“I used to be on iQIYI for almost three hours a day,” says 21-year-old Xian Yu who left her small city to attend university in Guangzhou. “Now I rarely watch these shows because there’s a lot to do in the city.”

China’s appetite for mobile games is voracious. In 2017, revenue from the sector is booked at around RMB 110 billion ($16.62 billion), taking up 28% of the global revenue and almost on a par with the worldwide box office in 2016, says a recent report (in Chinese) by the China Culture & Entertainment Industry Association.

With its aggressive mergers and acquisitions as well as licensing deals, Tencent has gained a firm grip on the gaming industry domestically—and even globally. Its house-made Honor of Kings overtook Monster Strike in May to become the world’s top-grossing game, and the giant has set its sights on another potential winner, PlayerUnknown’s Battleground. Tencent has also made a mark in online literature through the impressive IPO of China Literature in Hong Kong this November.

Competition in the video market is fierce as consumer tastes get pickier and licensing fees surge. All major video platforms have started to bring production in-house to make dramas and reality shows. Baidu’s iQIYI, which is set to go for an IPO next year, has shown the commercial possibility of an internet-made show by reaping huge advertising revenues and generating month-long buzz on the Chinese social media.

Willingness to pay

Over the past two years, the hottest topic for China’s media business is the growing willingness to pay for digital content. According to the Penguin Intelligence report, movies and TV shows streamed online have the highest conversion rate—60% of free users will become paid subscribers. Online video games trail behind at 54.9%; online literature, anime, music, and live streaming hover around the 20% percentile.

This willingness to pay is matched by that of the urban youngsters, among whom 62.5% are willing to pay for online movies and TV shows, and 54.3% for games. The numbers signal the narrowing gap in consumer power between China’s big and small cities as a result of diminishing income divide. A decade ago, per capita disposable income for families in China’s smaller cities was 55% lower than those in top-tier cities; the difference has slipped to 45% today, notes Robin Xing, Chief China Economist at Morgan Stanley, in a June report.

“While much attention is paid to China’s largest cities, the country’s smaller urban centers could become the larger driver of growth and consumer spending in the coming decade,” says the Morgan Stanley report.

Converging tastes

Small-town young Chinese are not just becoming more like their urban counterparts in spending power, but also in tastes. This is reflected in the types of movies they watch online: Imported movies from the US and Europe are top picks in both demographics, domestic big productions come next, followed by internet-made ones. The small towns are no longer reliant on what is shown at the local cinemas as the internet provides a level playing field to see the outside world.

One exception in taste is anime, a field investors believe is primed for an explosive growth. Government officials also see the subculture as a component to their national plan to invigorate the country’s cultural industry. Anime, however, is still largely an urban phenomenon. Bilibili and AcFun, the top anime streaming sites in China,  have a combined 19.8% penetration rate among urban youngsters, compared to 14.8% in smaller cities.

“Due to different cultures and environments, the 2D culture [referring to anime, comics, and games] is more popular in Tier 1 and Tier 2 cities,” says the Penguin Intelligence report. “As more anime enter video streaming sites, however, the 2D culture will expect increasing penetration rates among small-town young people.”