Talent flow in China beyond tier 1 cities

December 16, 2019 / By

For decades, talent in China has flowed primarily in one direction – from lower-tier cities to higher ones. Much like the root system of a plant, the capillary action of preferential policies, economic opportunities, and improved quality of life have traditionally directed the moves of college graduates, high-performers, and subject experts. First, they move from smaller cities and towns to regional hubs, then to provincial capitals, and finally to Tier 1 cities such as Beijing and Shanghai.

More localized examples may include something like the following: College graduates from smaller cities in Jiangsu seek work in the provincial capital, Nanjing, while top graduates from Nanjing look to work in Shanghai, and high performers from Shanghai wish to work in high-powered positions, either in their home city or else in Beijing or abroad.

An unfortunate consequence of this pattern of movement is brain drain from smaller cities, as well as intense competition for jobs and residency permits in major cities. However, there are indications that this trend may be reversing, or rather balancing out, as China’s economy reorients towards services and innovation, providing opportunities for local residents who prefer to stay.

Several cities in China have instituted incentives to attract skilled workers to settle down and acquire local registration, or hukou.

Such policies may include a combination of the following:

  • Relaxed hukou application requirements and home-purchase restrictions (HPRs)
  • Removed or relaxed social security minimum requirements
  • Housing subsidies and rent-free periods
  • Decreased mortgage rates and reduced down payments for targeted groups
  • Funds and subsidies for new companies in innovative fields

Contrastingly, Tier 1 cities are saturated to their capacity – a reality represented by tight hukou issuance policies to control the population. Under such policies, non-hukou holders do not have convenient access to an array of public services, including healthcare and education.

While many talent attraction policies remain at an early stage, there are indications that some cities are already beginning to see benefits in the form of registered (hukou) population growth. See the chart below.

Figure 1: Population increase over 2017-2018

Source: CEIC

To what extent does this growth in cities like Xi’an represent controlled efforts to redraw the maps of national talent? What role does private enterprise play in this migration?

One answer can be found in the trend of large corporations, often in the tech sector, relocating to or opening new back offices in cities outside Tier 1 as a cost-saving measure. Finance and insurance-related companies have been rapidly expanding in smaller cities over the past several years, absorbing tens of thousands of square meters of office space and likely hiring thousands of office workers per year. Tech companies, such as Bytedance, have continued to solidify the strategy of establishing offices in relatively inexpensive cities near university campuses to attract local talent, effectively preventing the outflow of educated workers, as seen in cities like Xi’an, Wuhan, and Chengdu.

The combination of rapidly-expanding office demand from tech companies outside Tier 1 cities, economic incentives, and preferential policies shows a potential path forward for smaller cities with large supply and high vacancy. This is all good news – as China’s economy continues to shift away from infrastructure and export-led manufacturing, smaller cities stand to benefit by virtue of tech firms, local talent pools, and emerging office and retail markets growing and maturing together.


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