China Trend #2 – Expect More Growth in China’s of Second-Tier Cities
China’s next phase of economic growth will be driven by domestic demand rather than exports — and the majority of this momentum will be driven by second-, third- and fourth-tier cities. When you consider that there are 170 cities in China with population of more than one million but only four of these cities — Shanghai, Beijing, Guangzhou and Shenzhen — are considered first tier in both size and per capita GDP, it’s easy to see why China’s economic growth next year will be driven by the other 166 cities.
Many of these cities are located in central China and actually posted GDP growth of 10% or more in the first half of the year due to robust domestic demand. And we can thank China’s big stimulus package for this growth, given that one of its main goals is to better connect Chinese coastal cities and these second-tier cities with faster trains and better highways.
This infrastructure build-out is just getting under way, so you can bet that there will be a lot more growth from companies building out these second-tier cities in 2010. And one of the best bets along these lines is Xinyuan Real Estate (XIN), a national
property developer that concentrates on China’s second-tier cities with populations between two million to 10 million.