SmallCity,BigSpenders:TheRiseofChina’sNewConsumerClass

As China’s economy matures, consumer spending growth in smaller cities is outpacing spending in larger ones, pulling in high-end brands.
Moving to Shanghai over a decade ago, Li Wei found consumer habits that seemed a world away from the small city where she grew up: from clothes, to cars and food, everything was more luxurious.
But in her most recent trips home, Li noticed that was changing.
She met relatives wearing Arc’teryx outdoor jackets — often referred to in China as one of the “Three Treasures of the Middle Class” alongside Lululemon yoga wear and Salomon sports shoes — both of which have also become a common sight in Yongkang, a city of about a million people in eastern China’s Zhejiang province.
“The divide between big cities and small towns is increasingly blurred when it comes to consumption,” Li, who is in her 30s, told Sixth Tone.
Li’s observation underscores a shift happening in China’s consumer sector: growth in spending in China’s smaller cities is outpacing growth in the largest. That’s attracting higher-end brands to expand, with smaller cities even starting to set trends for larger peers.
“China’s consumption market is gradually transitioning from being primarily driven by top-tier cities to a model of dual-engine growth,” said Lisa Hu, partner and managing director at consulting firm AlixPartners.
The shift appears to be fuelled by the greater potential for economic “catch-up” growth in smaller cities, as well as the development of transport links and e-commerce, allowing products and consumer tastes to spread more easily. In addition, China’s three-year property market slump seems to have dented household confidence less in smaller cities than in the largest ones.
China has around 700 cities, unofficially classified into multiple “tiers,” arranged in a pyramid structure based on their population and economic size. A few megacities, like 25 million-strong Shanghai, sit in the first tier, while most provincial capitals are classed as second-tier. Li’s home city of Yongkang is often placed in the fourth tier along with hundreds of others.
Nationwide consumer spending per person grew about 5% last year, according to official statistics, but dozens of third- and fourth-tier cities grew significantly faster than that rate, according to a survey of official data by The Paper. By contrast, first-tier cities saw lower growth rates, with Shanghai recording a 0.4% increase.
Independent surveys find similar trends. Third- and fourth-tier cities saw strong growth in spending on consumer goods like food and cosmetics last year, while sales fell in first- and second-tier cities, according to a report from consultancy Bain Group.
That faster growth is sucking in new businesses. While the likes of McDonald’s and KFC began expanding into third- and fourth-tier cities on a large scale around a decade ago, higher-end brands are following suit.
The consumer transformation in lower-tier cities is exemplified by “small-town noble ladies,” an online stereotype used to refer to luxury spenders in county-level cities who adopt luxury brands, take overseas vacations, and drink afternoon tea in premium hotels.
In 2022, a mall in Yongkang opened with a Starbucks, a Nike store, and a Uniqlo. Li said locals are hoping for an outlet of U.S. retail brand Sam’s Club to arrive next.
“Big-city staples like Starbucks, (hot pot chain) Haidilao, Hilton Hotels, and Sam’s Club are now cropping up in lower-tier cities,” said Li.
Growth
The fundamental reason why consumer spending is increasing faster in many smaller cities is that residents’ earnings are growing faster.
In the first half of 2024, per capita disposable income in third- and fourth-tier cities expanded nearly 5.8%, a full percentage point higher than growth in first- and second-tier cities, according to analysis of official data by state media.
Li’s hometown of Yongkang reported a 5.8% income growth among urban residents, with service sectors like retail and hospitality seeing the fastest growth in output.
This can be seen as an example of the economic phenomenon of “catch-up” growth, where poorer areas develop more quickly than richer ones once they receive the right kinds of investment.
In smaller cities, where wages and land costs are generally lower than the biggest metropolises, businesses can boom by importing ideas and practices from China’s more developed regions, said Wang Qiang, an investor at venture capital firm Ruwu Ventures.
Aiding the growth of smaller cities is the huge expansion of China’s high-speed rail and highway network over the past decade, which means products, people and ideas are flowing more readily between cities of different sizes.
At an EV expo in Dongying, Shandong province, Sept. 5, 2025. VCG
Small cities have, over the last decade, mostly dismantled their “household registration” systems, which limited access of internal migrants to services like education and healthcare, helping them attract new residents.
That’s a contrast with China’s largest cities, where strict restrictions on internal migration remain, with the population of Beijing and Shanghai shrinking as a result.
“As migration from rural areas to cities continues, third-tier cities have experienced a rise in the return of millions of workers who had previously worked in larger urban centers,” said Zhang Bochao, an associate researcher at the Shanghai Academy of Social Sciences’ Institute of Economics.
“These returnees bring with them the spending habits they developed while living in big cities,” he added.
Because there are hundreds of lower-tier cities, it’s hard to generalize what is driving their economies.
One trend is the regional restructuring of China’s manufacturing industry, with companies moving production to smaller cities due to their lower wages, and to be closer to these burgeoning consumption markets.
That includes Yongkang — known as China’s “door city” for its firms specializing in metal doors — where industrial output grew nearly 10% last year.
Like Yongkang, many cities benefiting from the relocation of manufacturing are officially classified as “county-level” — the lowest city-tier in China’s official hierarchy.
Such cities include large rural areas within their jurisdiction, meaning urbanization is another source of growth as people move to city centers from surrounding rural towns and villages, and from farming into higher-earning urban jobs. Yongkang, for example, was only 67% urbanized, according to the most recent census in 2020.
“Growing purchasing power in these regions is elevating the importance of county-level economies,” said Zhang. “As a result, these areas are expected to become key destinations for investments in emerging industries.”
Not all small cities are doing well, with large variation across the country. For example, the Northeast is home to several small cities with large population outflows due to relatively weak economic prospects.
One nationwide trend is that companies in third- and fourth-tier cities are taking advantage of transport networks to increase their incomes by selling products in nationwide markets, creating a mixed economic structure where the service industry is combined with specialized manufacturing, experts say.
A prominent case is the city of Heze, in the eastern Shandong province, where the growth of e-commerce livestreaming has stimulated the local flower industry, with sophisticated technology used to grow and package plants more efficiently.
Local economies are creating their own brands, allowing them to capture more value from agricultural production. In Liuzhou, a smaller city in the southern Guangxi Zhuang Autonomous Region, the nationwide success of its trademark “snail noodles” has spurred investment in processing related products like pickled bamboo shoots and dried tofu.
Inside a pickled bamboo shoot factory in Liuzhou, Guangxi, where booming demand is driving new investment. March 23, 2024. VCG
The new 80 percenters
Another trend is that households in smaller cities are dedicating a higher share of their incomes toward consumption than their bigger-city peers.
For instance, in Shanghai, households spend 60% of their disposable income on consumer goods. In the fourth-tier city of Yongzhou in the central Hunan province, the ratio is 80%, according to official data.
That’s partly about confidence in future income growth: 75% of millennials in lower-tier cities expressed confidence in China’s economy in a McKinsey China consumer survey conducted last year, 10 percentage points higher than the rate of their peers in higher-tier cities.
Economists also point to housing expenses. Housing costs — whether mortgage or rent — tend to be lower in smaller cities relative to incomes, freeing up more cash for consumption.
The situation has become even more polarized since China’s housing price downturn began in 2021. Due to a larger oversupply of apartments, many lower-tier cities have seen bigger drops in house prices than big cities.
Conventional economic wisdom says that falling house prices should slow consumer spending, as households feel a negative “wealth effect.” That appears to be the case in first-tier cities, where falling prices have hit confidence among the wealthiest.
Eric Zhang, a 46-year-old Beijing resident, has been carefully managing his expenses in response to economic uncertainties over the past few years. In addition, he sold an apartment in the suburbs last year to reduce his mortgage pressure.
A decreased appetite for material comforts among city dwellers like Zhang has been referred to in China as “consumption downgrading,” a reference to households switching to more affordable alternatives to branded products.
That has hit luxury brands particularly hard.
Shanghai has seen a wave of high-end restaurant closures. Residents of first-tier cities cut their spending on luxury goods in 2024, according to a survey by consultancy MDRi. But spending grew in second- and third-tier cities, it found.
A high-end shopping center in Nanjing, a second-tier city and capital of China’s eastern Jiangsu province, claimed the top spot as the world’s highest-grossing single-store shopping mall last year, recording more than 24 billion yuan ($3.4 billion) in sales and surpassing previous number one Beijing SKP.
In lower-tier cities, the wealth effect caused by lower house prices appears to be counteracted by a more substantial “income effect” — with lower prices meaning households need to save less to buy property or pay mortgages.
Analysts also point to a more relaxed outlook among lower-tier residents, with competition for resources like jobs and school admissions seeming less fierce.
Lower-tier markets have also become the key drivers of sales for pricy fruits like durians, blueberries and cherries, said Zhang Yujing, market operation manager at Benlai, an online fresh food delivery platform.
Blueberries, previously seen as a premium product as they had to be imported, are increasingly affordable thanks to the rise of domestic production. “Even small-town fruit vendors commonly stock them in standardized 125-gram packs,” Zhang added.
When it was founded in 2012, Benlai focused on top-tier cities such as Shanghai, Guangzhou, and Beijing. The company has been expanding its self-built warehouses and logistics in second- and third-tier cities, especially those in western China, and now says non-first-tier cities account for more than a third of its revenue.
That growth is possible because of investment in logistics, which lowers the delivery cost of sending fresh fruit to more remote regions, Zhang said. Consumers in lower-tier markets tend to rely on social e-commerce platforms for inspiration, so promotion through livestreaming and social media is key, she added.
Shaping trends
With 70% of China’s population living in third-tier cities and below, they are a considerable bloc of spenders.
Rather than upgrading consumption in categories that they already consume, small-town consumers are more likely to embrace entirely new consumption sectors, said Hu from AlixPartners.
“New opportunities are emerging in areas driven by brand-new lifestyle trends, such as the rise of the pet economy or the growing popularity of electric toothbrushes,” she said.
For decades, China’s biggest cities set business and consumption trends. Now, lower-tier markets’ rising economic clout means they are having a more important role in shaping national business tactics as well as tastes.
At Pangdonglai Times Plaza in Xuchang, Henan province, 2025. VCG
Some of China’s successful consumer businesses — from shared bike service Hellobike to e-commerce platform Pinduoduo — adopted the approach of expanding in smaller cities before entering the largest ones, a tactic known as “encircling the city from the countryside,” in reference to a military strategy adopted by Mao Zedong.
Such business battles are “unfolding every day,” said Wang, the venture capital investor. In recent years, venture investors flocked to “hard technology” startups in areas like AI, but interest in consumer companies is ticking up again, he added.
“Consumption brands that cater to everyday essentials are always in demand, no matter the circumstances,” he said.
Pioneering supermarket Pangdonglai, sometimes described as China’s equivalent of Trader Joe’s, is from the small city of Xuchang, in the central Henan province.
Some of China’s most successful brands are emerging from lower-tier cities — beverage chain Mixue, the ice-cream and tea shop, also began life in Henan’s smaller cities before spreading worldwide. Chinese hamburger brand Tastien started out in cities in the eastern Jiangxi province and now has dozens of outlets in Beijing and Shanghai.
“These companies first understood the consumer demands in lower-tier markets, which represents the most common and widespread group in China,” Wang said. “It’s likely that first- and second-tier cities will be their final destination, not the starting point.”
Additional reporting: Li Miaoran; editor: Tom Hancock.
(Header image: Visuals from VCG, reedited by Sixth Tone and The Paper)
Download the new Sixth Tone app at the App Store or Google Play
APK file for Android:
https://image4.sixthtone.com/pkg/sixthtone.apk(Copy URL and open in browser)

相關文章