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China’s Biggest Challenge for Developing the West

shanghai.jpeg

The Chinese government has done much to encourage the development of China’s west, particularly Sichuan province, which is the home to some 100 million people, making it larger in population than any single western European country, including Britain, France and even Germany.

From a business and consumers’ point of view, the region holds tremendous promise. Many large western companies, including Intel, Wal-Mart, MacDonald’s and KFC have all moved into the region in the hope of capturing some of the yuan which locals have to spend. From a consumer marketing point of view, and also from the manufacturing point of view, the region holds great promise.

However, this is still not enough. Compared to the east coast region’s of China, it is still far behind.

So what is holding the region behind in development?

In two words, it’s human talent. “Interesting places attract interesting people” is one of my favorite mantras. When I go to a place, I like to find interesting people, regardless of their profession, and listen to what they have to say. I look for different angles and insights from individuals which I cannot easily find elsewhere. Most of the time, I think of these people as very smart generalists.

My experience is that Shanghai and Beijing is full of interesting intelligent and very talented people, which is why I’m attracted to these two cities in China. They are evolving rapidly, which means that these cities have not yet congealed around certain professions in the way American or European cities, or even Hong Kong, have. They are full of surprises, and most of the time, these are pleasant surprises.

My theory is that these two cities draw the best Chinese talent away from the rest of China, leaving the other cities to struggle with the people they can convince to stay there, who usually are not as smart and talented. So, when Chinese or expats talk about Tier 1 cities (Beijing and Shanghai), they could just as easily be talking about quality human talent.

This creates a problem for western China: they have the consumers, and they can have good manufacturing up to the middle of the value-added chain, but they cannot catch up with Beijing and Shanghai at the top of the value chain.

Unless cities like Chongqing can figure out a way to keep the best human talent in Chongqing, the wealth and knowledge gap between the western part of China and the Tier 1 cities will continue to widen. Instead of climbing to the top, they will peak out around the middle and won’t make it into the ranks of world-class cities.

What the Chinese government, and most other governments, fail to understand is that it is not buildings, boulevards and museums which make cities world-class, it is very literally human talent. In spite of China’s huge population, I have only seen two cities, Beijing and Shanghai, which have the potential to make them world-class.

While some Chinese may take this as a slight, it’s worth remembering that the US, which has only 1/4 the population of China, but has a longer history as an economic superpower, has only three cities which can be classified as “Tier One”: New York, Los Angeles and Chicago.

There must be some undiscovered rule which makes this the case.




7 Responses to “China’s Biggest Challenge for Developing the West”

  1. danny says:

    Interesting post. I’m currently in the Shapingba district of Chongqing, and plan on launching a software startup here in the next few months. I would say that for an industry like ours, location can be important – but generally is less important than other industries. It’s possible to find examples of interesting software projects that have sprouted up out of random locations all over the world (WordPress, or Skype for instance).

    On the other hand – you can check this post by Mark Andreessen, and consider his career advice to smart fresh graduates.

    http://feeds.feedburner.com/~r/pmarca/~3/164867428/the-pmarca-gu-1.html

  2. Anonymous says:

    I’m not sure where you got your information on the population of Sichuan, but what I see on Wikipedia is it’s about 85 million people. I think you are counting Chongqing as still part of Sichuan, but it was split off a few years, thus making Henan the largest province in China.

  3. nicolasz says:

    Interesting post, but I think there is a counter argument. Shanghai Beijing look cosmopolitan now – but think about what they were like 10 years ago. In fact each time I go to these second tier cities I feel transported back to Shanghai of that period. And this is not only in regards to environment but also to the people. If large companies create opportunities in those cities, first of all more of the talented people may stay, rather than being forced to move to Shanghai, and second (and more importantly) those large companies will start training the workforce. Shanghai has taken ten years to reach where it is today – and many of my friends I now see as cosmopolitan and capable of working in any international environment are only able to because of their ten years in those international companies.

    But it is true that Shanghai Beijing will aways be ahead – but even if the US has only 3 top class cities, there are still San Fran, Austin, Dallas, Washington, Portland which are all pretty damn happening.

  4. Terry says:

    Shanghai’s original glory in the 20′s and 30′s was a result of this migration of top talents and the resulting melting pot led creativity and freedom from old rules. I quite honestly much prefer to hire “wai di” people in Beijing to those who are native to this city with all their social and family obligations. I have also had a fair amount of experience with recruiting people for 2nd tier cities (recruit laterally 2nd tier to 2nd tier is the strategy here, and preferably not from the same province – strong local prejudices in play!). One major draw about BJ and SH is children’s education as High School students from these cities have much better top college prospects than from elsewhere in China, and this is one area that has to be addressed in terms of talent retention/attraction in places like Chongqing.

    Having said all that, I have also noticed the slow trickle of professionals from Shanghai and Beijing back to home cities, to be closer to aging parents, to have a more relaxed pace of life etc., and I do believe that this reverse trend will accelerate in time. This brain gain phenomena also applies to the increasing number of inquiries I get from Chinese professionals overseas who are in their 40′s and 50′s and have aging parents to take care off.

    Great post Paul.

  5. [...] Yesterday I had the opportunity to watch Part 1 of Ted Koppel’s documentary series The People’s Republic of Capitalism on the Discovery Channel. Instead of going to Beijing and Shanghai, the normal stops for most first-time visitors to China, Koppel went to Chongqing, a city I have visited and written about. [...]

  6. Chris says:

    I continue to be amazed when expats refer to Beijing and Shanghai as “tier one” cities, but then leave out Shenzhen. Shenzhen is, in terms of GDP/capita, the richest city in China and is in many ways ahead of Beijing and Shanghai on the value chain (Shenzhen houses tech startups, not bulky SOEs).

    Then again, Shenzhen doesn’t have any tourists attractions or as many pretty buildings and has a much smaller expat community, so I suppose that makes it tier two.

  7. [...] but with seemingly not much planning. In 2008, I wrote an article which was somewhat critical of Chongqing’s chances for success. Like many fast-changing industries, it’s easy to overestimate the effects of change in the [...]