China’s Smaller Cities Emerge as a Powerful New Engine for Growth

Before Sam’s Club the American membership-only retailer with status appeal among China’s urban middle class opened in the lesser-known city of Jingshan in Hubei province, Zhang Liang decided to “bring it there” himself.

The former truck driver invested about 600,000 yuan (US$88,969) in May to open a Sam’s Club reseller shop, sourcing goods from authorised Sam’s stores to sell locally. He was betting that consumers in Jingshan, despite its modest population of fewer than 600,000, would pay a premium for better-known brands and higher-quality products.

While Jingshan is hardly among China’s most prosperous areas, its appetite for Sam’s Club-style retail is a sign of growing consumer enthusiasm in many smaller, traditionally not-so-wealthy cities, in contrast to generally dampened sentiment nationwide.

Zhang found that several resellers of Sam’s Club goods already operated in the industrial county, but he believed there was room for more in the market.

China’s smaller cities increasingly have the means and eagerness to rival their first-tier counterparts in demand for premium goods and services, said Peng Peng, executive chairman of the Guangdong Society of Reform. The think tank is affiliated with the Guangdong provincial government, which has been studying regional economic development.

Per capita consumer spending among urban residents of five counties in eastern China’s Zhejiang province – Leqing, Yuhuan, Yiwu, Wenling and Haiyan – surpassed that of Beijing and Shanghai in 2025, according to data from local authorities.

Beijing’s per capita consumer spending was 50,667 yuan last year, while Shanghai’s was 54,765 yuan, according to data from the cities’ statistical bureaus. China’s first-tier markets remain far larger and richer, but some smaller cities have stronger household purchasing power, helped by lower debt burdens, lower living costs and emerging local supply chains that allow more income to flow into everyday consumption, Peng said.

He expects more counties to eventually match or surpass first-tier cities in per capita spending. That trend, he said, would be driven by satellite counties benefiting from improved transport links and economic spillovers from major cities, as well as migrant-exporting counties that benefit when workers return with capital, business experience and supply chain networks.

Peng said the central government had channelled more fiscal resources directly to county governments, giving them greater flexibility to develop the local economy.

The trend matters as China looks beyond its major cities for new sources of domestic demanda persistent weakness in the national economy. County and township markets accounted for 39.2 per cent of China’s retail sales in the first half of this year, according to Ministry of Commerce data.

Consumer research firm Mintel said in a July 29 report that future consumption growth would increasingly come from smaller cities and county-level markets thanks to opportunities created by changing spending patterns and growing demand.

The change is already influencing business decisions. Sam’s Club has announced new stores in the city of Yiwu in Zhejiang province and Jiangyin city in Jiangsu province, while international hotel groups such as Hilton and Marriott are expanding into lower-tier markets. Luo Zhaoliu has built his business around these emerging consumers.

After leaving an engineering job in Shenzhen in 2017, Luo returned to his hometown in Jiangxi province to produce fermented bean curd.

Rather than compete with traditional jarred bean curd – typically sold at just 15 yuan (US$2) for a 12-piece jar – Luo repositioned the everyday food as a premium product.

He repackaged it as individually wrapped, mahjong-tile-sized bites at five yuan each, quadrupling the per-piece price, and sold elegant gift boxes in county-level markets across China.

“County-level consumers are no longer solely driven by low price points,” Luo said. “As Chinese products move up the value chain, people in smaller cities are becoming willing to spend more on quality, convenience and better experiences.”