tier one = tier No 1
tier two = tier No 2
etc

So someone, somewhere, has classified different markets/areas to invest in, into different 'tiers'.

Tier 2 Cities:
38 million households, 2 trillion income value

Tier 3 Cities:
75 million households, 3 trilllion income value

Tier 4 Cities:
86 million households, 3 trilllion income value
Tier 5 Cities:
169 million households, 4 trilllion income value
Based on this breakdown, it is easy to see the market potential of lower tier cities, but keep in mind that these are spread out across China, making them more difficult to access than the Tier 1 megacities that most people associate with China. Consumer habits, disposable income, and even lifestyles are very different across this spectrum, not to mention the costs of doing business locally, including labor costs, land, rent, operating costs of a retail store, etc. Among foreign firms with a retail presence in China, many subscribe to a philosophy of “Look pretty in Tier 1, make money in Tier 2 and 3”.

Without further ado, here’s the rundown by tier:

Tier 1 Cities:
Large densely populated urban metropolises with huge economic, cultural and political influence in China. Tier 1 cities attract great attention from foreign enterprises due to income levels much higher than the national average, and larger middle class representation and increasing consumption habits. Cities that fall within this category represent China’s most developed markets in terms of consumer behavior.

Shanghai
Beijing
Guangzhou
Shenzhen*
Tianjin*
Chongqing*
* Due to their size and government classification, many will also include these in the Tier 1 category, although it is up for debate.