How China’s Smaller Cities Can Be a Sweeter Deal for Startups

Chinaccelerator's funky offices in Dalian, Liaoning province - far from the usual startup hubs in pricey, overcrowded Beijing or Shanghai.

We’ve seen recently that Beijing, Shanghai, and Guangdong are the three main hubs for startups in China. But due to the rising costs of labour and office space, smaller cities – known as second-tier ones – are increasingly attractive to young tech companies. And so 2012 could see a trend in which startups scatter across China to places where rent, wages, and living costs are substantially lower – and yet which still offer plenty of talent to hire and relatively quick broadband speeds.

The Chinese site Techweb illustrates this today by highlighting the likes of Pan Shi-jian, who is based in Changsha, in central China’s Hunan province. Not normally an area associated with tech or startups, he has nonetheless set up a regional real-estate portal – at loupan.com – and now encourages other entrepreneurs to establish web companies in their own provinces, believing that they collectively have more potential than the likes of Beijing, Shanghai, and Shenzhen. Other second-tier cities which look destined for startup booms include Hangzhou, Nanjing, Chengdu, Chongqing, Dalian, Tianjin, and Yinchuan.

The report also points out that a startup’s costs will have increased by about five percent in 2011 compared to the previous year.

So what can second-tier cities quantifiably offer? Primarily, office rents or purchase prices will be about half of those in China’s top-most few cities, bringing down overheads considerably. Labour costs will be slightly lower, though certainly not by half. That creates a more attractive situation for startup entrepreneurs and employees to have a better quality of living in cheaper cities where they’ll be better able to afford to buy an apartment or run a car. And if the move involves departing Beijing, you’ll also get air that’s a lot more breathable.

The folks at Chinaccelerator seem to appreciate all this, and they do their startup accelerating from the coastal city of Dalian in north-eastern China. Here’s a slideshow of its office space – all that room would cost an insane fortune in Shanghai.

There’s publicly available government data, Techweb says, that about half of all employees in tech companies in Wuxi – a second tier city just outside of Shanghai – have had working experience in a first tier city, so people seem keen to move to wherever they get a better life deal. But note that that relates to all tech-oriented companies, not just startups.

Currently, by looking at the database of Chinese startups on 17startup.com, we see that only 15.7 percent are based outside of Beijing, Shanghai, and Guangdong provinces yet inside the mainland. But that figure could well rise by the end of 2012.

[Source: Techweb – article in Chinese]