If you’re involved in business dealings with China, you’ve likely heard about its “city tier system.”
In a nutshell, the city tier system supposedly sorts Chinese cities into different tiers based on their development and economic potential. For instance, Shanghai is a “first-tier” city, while smaller places like Nanchang and Yinchuan fall into the lower tiers.
But here’s the catch: it’s something of an urban myth — there’s no official classification from the Chinese government. Instead, various real estate firms, media outlets and think tanks regularly put out their own rankings, which can vary wildly in both usefulness and results.
Despite the absence of an official system, these tier classifications can still be incredibly useful for businesses.
Familiarity with the city tiers can assist you in pinpointing the best place to establish your business, which can lead to cost savings and an optimal choice of city. That said, keep in mind that not all guides offer the same level of insight; some are far more beneficial for businesses than others. Let’s take a closer look:
Why Chinese City Tier Rankings Matter to Businesses
- Costs Matter: Wages and rent are typically cheaper in lower-tier cities, but the talent pool may also be less robust. Depending on the complexity of your goods, this might be a compromise you’re willing to make.
- Social Insurance Contributions: In higher-tier cities, such as Beijing and Shanghai, social insurance policies are generally more comprehensive and strictly enforced. Employers are mostly required to make higher contributions to social insurance, which includes pension, medical, unemployment, work-related injury, and maternity insurance. This can lead to increased labor costs for businesses operating in these cities.
- Spotting Savings: The data and rankings out there are treasure troves of information that can help you cut costs. For instance, Ningbo ranks third in China for corporate innovation, following Shenzhen and Beijing, according to Yicai Global’s 2024 ranking. If research and development is your focus, setting up in Ningbo could be far more budget-friendly than in more expensive cities like Beijing or Shenzhen.
- Growth at a Lower Price: Many second-tier cities (you might also hear them called quasi-first tier or new first-tier) offer similar benefits to first-tier cities but often at a fraction of the cost.
Despite all of this information, specific social insurance rates and HR policies can vary significantly from one city to another, even within the same tier.
So Just How Many Cities Are We Counting? It’s Complicated!
When it comes to counting cities in China, things get a bit tricky. The term “city” can refer to various administrative levels, which means definitions can vary widely. For example, Ningbo is a major city that encompasses smaller cities like Yuyao and Cixi within its jurisdiction.
According to the National Bureau of Statistics (NBS), there are officially 694 cities in China. However, the South China Morning Post counted a total of 613 cities in its 2016 city ranking.
To add to the confusion, two frequently referenced indexes provide different counts:
- Yicai Global: Ranks 337 cities.
- Cloud River Urban Research Institute: Ranks 223 cities.
So, while the official count is high, the practical number you need to consider is smaller depending on the source you consult.
City-Tier Rankings: More Complicated Than You Think!
In common parlance, Chinese cities are typically sorted into four tiers, with the first tier including the wealthiest and most developed cities, while the fourth tier consists of smaller, less developed ones. But it’s not as straightforward as it sounds!
Since there’s no universally accepted list, tier classifications can vary wildly. Some people stick to a simple five tiers, while others complicate things with sub-tiers. And let’s not forget the company that went rogue and released an 18-city classification system.
But fear not — the two most common rankings are relatively straightforward.
The most popular rankings — Yicai Global’s Ranking of Cities’ Attractiveness and the Cloud River Urban Research Institute’s China Integrated City Index — both include tiers 1 to 3. However, they split tier 1 into two distinct categories.
- Yicai Global: This ranking includes six tiers: First-tier, new first-tier, second-tier, third-tier, fourth-tier and fifth-tier.
- Cloud River Urban Research Institute: This index takes a more straightforward approach by classifying cities into first-tier, quasi-first-tier, second-tier, and third-tier.
Tier | Yicai Global Classification | Yicai Global Description | Cloud River Urban Research Institute Classification | Cloud River Urban Research Institute Description |
---|---|---|---|---|
First-tier | 4 cities | Most developed cities with significant influence | 4 cities | Most developed cities with major economic impact |
New First-tier or quasi-first-tier | 15 cities | Emerging cities with growing economic significance | 9 cities | Fast-growing cities with increasing importance |
Second-tier | 30 cities | Well-developed cities with substantial markets | 43 cities | Strong cities with diverse economies |
Third-tier | 70 cities | Developing cities with potential for growth | 241 cities | All other developing cities |
Fourth-tier | 90 cities | Smaller cities with basic infrastructure | Not defined | Not applicable |
Fifth-tier | 128 cities | Less developed cities with limited resources | Not defined | Not applicable |
How Varying Criteria Affect Rankings in China
Both indexes evaluate Chinese cities using different criteria, which results in some interesting variations in their rankings. These differences also have important implications for businesses operating in China (more on that shortly).
- Cloud River Urban Research Institute: This index focuses on three main areas, the economy, environment and society. Cities are scored out of 300, and this total determines their category.
- Yicai Global’s Rising Lab Ranking: This ranking looks at five important factors that drive business activity and urban life, including the availability of commercial resources and how well a city competes in the new economy.
When we examine the top 10 cities in the latest rankings, we find plenty of similarities — but also some intriguing differences.
Rank | Yicai Global Ranking | Cloud River Urban Research Institute Ranking |
---|---|---|
1 | Shanghai | Beijing |
2 | Beijing | Shanghai |
3 | Shenzhen | Shenzhen |
4 | Guangzhou | Guangzhou |
5 | Chengdu | Chengdu |
6 | Hangzhou | Chongqing |
7 | Nanjing | Nanjing |
8 | Suzhou | Tianjin |
9 | Wuhan | Suzhou |
10 | Xi’an | Hangzhou |
Choosing the Right Ranking
So, which ranking should you consider to guide your operations in China? For supply chain businesses, Yicai’s Rising Lab Ranking of Cities’ Attractiveness in China is likely to be more beneficial than the China Integrated City Index 2023. Here’s why:
- Business Focus: Yicai’s ranking zeroes in on factors that really matter for businesses, such as a city’s appeal to companies and its ability to connect people and goods efficiently. It includes crucial metrics like the concentration of commercial resources, which gives you a clear picture of how strong a city’s business environment is.
- Future Potential: Yicai also evaluates a city’s capacity for innovation and its ability to attract talent – elements that are vital for long-term growth and success.
That said, while Yicai may be more relevant for supply chain operations, it’s wise to consult both rankings before making any decisions.
Each index offers valuable insights that can help you gauge different aspects of a city’s market potential. By comparing both, you can ensure that you’re making well-informed choices that align with your business goals.
However, keep in mind that the city tier ranking often doesn’t provide the full picture, especially regarding specific HR policies that could impact your business.
For example, tier 1 Shanghai grants only 10 days of paternity leave, while the tier 4 city of Gannan in Gansu offers a generous 30 days. So, while rankings are helpful, be sure to dig deeper into local regulations and benefits that could affect your operations.
![A view of Ningbo, Zhejiang Province. The city ranks third nationwide for corporate innovation in 2024, according to Yicai Global's city ranking. [Unsplash/Letian Zhang]](https://www.kinyu.co.uk/wp-content/uploads/2025/01/Ningbo-skyline.jpg)
Choosing the Right City for Your Supply Chain Hire
First-tier cities like Shanghai and Beijing might seem the obvious choice when establishing your presence in China. However, the optimal location for your supply chain operations isn’t quite so straightforward. Think of it like university rankings – just because Oxford and Cambridge top the league tables doesn’t mean they’re the best fit for every subject.
Take Ningbo, for instance. As we said above, it’s actually ranked third nationwide for corporate innovation in 2024 – right up there with Shenzhen and Beijing. However, maintaining an entity or operation in Ningbo is much generally cheaper. Similarly, cities like Suzhou and Wuhan mightn’t be first-tier, but they’ve developed brilliant manufacturing ecosystems and talent pools.
The key is to look beyond those tier classifications and consider what really matters:
- Whether the region has proper expertise in your sector
- Local labour costs and social insurance requirements
- How close you’ll be to key manufacturing hubs
- What perks the local government might offer
Success in China isn’t about picking the poshest postcode, but rather finding the perfect match between your specific supply chain needs and a city’s unique advantages – regardless of its tier classification.