Favorable tax, other policies help draw overseas competitors to set up shop

Zhou Yue says local governments are often prepared to slash the taxes of European and other foreign retailers to lure them into second- and third-tier cities. The 31-year-old general manager of the Chengdu branch of the European Union Chamber of Commerce in China says retailers can sometimes pay half the taxes of local Chinese retailers.

"There are a lot of favorable policies. In Chengdu, for example, foreign brands pay tax of around 15 percent, whereas for Chinese retail companies it is often as high as 30 percent or more," she says.

Zhou Yue, general manager of the Chengdu branch of the EU Chamber of Commerce in China, feels people in Chengdu are more willing to spend and enjoy life, compared to those in other Chinese cities. Wu Chuanming / for China Daily

Zhou was speaking in The Bookworm, a bookstore and restaurant favored by the relatively few European expats in Chengdu, the capital of Sichuan province in Southwest China.

The city, which has a population of around 11 million, is categorized as second tier, although it is remote from China's prosperous eastern seaboard.

It has seen a major influx of foreign retailers, many of them European, in recent years.

The checkout tills are certainly busy. Retail sales hit 240 billion yuan (26.5 billion euros) in the city last year, an increase of 15 percent on 2009.

The number of members of the European Chamber alone has doubled to around 100 in the last two years.

"The commerce in Chengdu is outstanding compared to many other second-tier cities," says Zhou.

French jeweler Cartier's store in Chengdu was reportedly No 1 in the world in terms of sales in 2007, ahead of even Paris, New York and Tokyo.

Louis Vuitton recently opened its third biggest store in China on Renmin Road, one of the city's main shopping streets. Many other top European brands, luxury and otherwise, have stores in the city's many shopping malls.

Zhou says Chengdu people just love to shop and this may be related to deep-seated cultural reasons dating back 2,000 years.

This now translates into selling 1,000 cars a day, making car ownership in the city the third largest in China.

"I think compared to other cities people are more willing to spend money and enjoy life," she says.

"People are not too worried about savings and I think that is for historical and cultural reasons. Agriculture has always been well developed here compared to the north and people have had enough food and vegetables."

Zhou says the Sichuan government wants to attract European retailers not just to Chengdu but to third-tier cities within the province to drive up standards.

"They recognize the European retailers have more than 100 years experience, they have the global management capability and they want to bring this experience to the province. They see it as a way of developing the retail sector as a whole in the province and that it will also benefit Chinese retailers," she says.