What type of Chinese cities has the best investment potential?

Economist Li Xunlei, following the figures on provincial migration, provided some clarification in an article entitled “The influence of population shift” and given some indications for investment. 

The decline in the floating population (流动人口)

In 2015, the number of the floating population fell for the first time. It lost 5 million people in 2015, then 2 million in 2016 to 247 million. This phenomenon is mainly linked to the hukou’s rigorous management, certificate of residence, in the largest cities. In the absence of a certificate, the aging working population prefers to return to their native country.

Shanghai, growth, and slowdown

When we compare the movements of Shanghai and Anhui province, we see that over the period 2000-2010, Anhui experienced a decline in population while Shanghai had a 40% growth. Still, since 2010, the city’s population has increased only by 4.9% and Anhui has abandoned the decline for a 4% increase. From 2014 onwards, the province’s growth exceeded that of the city, especially over the last three years. In the long term, this trend is expected to continue.

Beijing and Shanghai measures

Beijing’s population growth from 2012 onwards has slowed due to measures taken to limit population influxes. Beijing has made a name for itself by creating a “side center” with Xiong’an in Hebei’s neighboring province. This new city will make it possible to combat the capital’s congestion by “spreading” the population and means of production over larger areas. Real estate prices and business costs will be better contained in the capital. Low-end production industries, because of costs, are continually leaving the capital. Shanghai has set a target of 25 million inhabitants in 2040 (24.5 today) and Beijing 23 million (21.5 today). A strict residence permit system and migration flow measures limit the development potential of first-category* cities, to the delight of second-category cities.

Chinese cities

Accelerated growth of dynamic cities

In the centre, the provincial capitals in general, such as Wuhan and Hefei, have seen an acceleration in population growth from 2015 onwards. Hangzhou and Guangzhou have experienced very rapid growth, thanks to economic factors (see the previous article).

Growth concentrated in medium-sized cities

Since 2016, the cities of 2nd and 3rd categories, which have experienced the highest growth in price per square meter, have higher GDP growth than the national average, which still shows the link between real estate and economic dynamism. In the other direction, the weak economic growth of the North-Eastern regions has seen a decline in real estate.
In 2016 the ten cities with the highest growth in property prices were all in China. Hefei, Xiamen and Nanjing occupied the top three places, ahead of Wuxi, Hangzhou, Fuzhou, and Zhengzhou. The price explosion and the acceleration of population growth in second-tier cities are, of course, linked.


For the economist, an investor should study population structures, migration patterns, and second-class cities’ potential to invest in various sectors, including real estate. Population movements have changed direction so that the investor would have less potential in first-category cities. Migration flows have changed, so the approach needs to be adapted.

* Major Chinese cities are classified into five categories, mainly based on their size and various economic factors.
List of first-category cities (the list can be modified regularly): 
Beijing, Shanghai, Shenzhen, Canton, Chengdu, Nanjing, Wuhan, Tianjin, Xian, Chongqing, Qingdao, Shenyang, Suzhou, Zhengzhou, Tianjin, Hefei, Foshan, Dongguan, Hangzhou.
The 2nd category includes 30 cities, the 3rd 7O, the 4th 90, the 5th 128—337 cities in total.

Article on the average wealth per household in cities here.

Baidu’s article on cities (in Chinese)

9 June 2020

Posted on Categories Economy

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