Forget Shanghai and other eastern seaboard cities as the competition there is too intense.

Andrew Grant, a director in McKinsey's Shanghai office, advises foreign firms to look to growing second-tier cities in China's interior, which he sees as the new business frontier.

advice is aimed at New Zealand firms as he was interviewed by NZTV, New
Zealand's public broadcaster. But it applies equally well to other
small developed nations which have been slow to wake up to the
potential of China's new economy.

New Zealand exports to China
and Hong Kong for the year to April 2005 were worth NZ$2.2bn with the
largest sectors being food and beverage, and wood. It has high hopes
that a proposed Free Trade Agreement with China will increase trading

nzfocus-cr.gifTo better promote kiwi exports in China, New Zealand Trade and Enterprise, the trade promotion body, last year opened New Zealand Focus,
a combined retail and business centre, in one of Hong Kong's busiest
thoroughfares. It includes a retail store featuring more than 500

NZTE argues that HK offers exposure to China through
the growing numbers of middle-class Chinese that travel there and is “a
less risky gateway to the mainland.”

The trade body also recently opened a centre in Shanghai showcasing NZ's value-added wood products.

HK and Shanghai are a long way from China's interior, both physically
and culturally. Western firms that want to truly exploit the growth
potential of China must be prepared to go further than the
well-travelled roads to HK and Shanghai.

The more prescient have already started. HSBC, for example, has just received approval to open a branch in Xian, northwestern China.

The government is also keen to encourage investment away from the developed coast and has earmarked $21bn to accelerate growth in the west.

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