When looking at China’s startup hubs, the first names that pop up in our minds would be Beijing, Shanghai and Shenzhen. The advantages are obvious. They are China’s first-tier metropolises, both in terms of startup community and economy, offering easy access to investors and mature startup communities.

However, the skyrocketing housing fees and human resource costs, as well as big-city pitfalls such as pollution, have forced entrepreneurs to weigh the pros and cons of these cities more carefully before calling them home.

The fact is that more and more entrepreneurs nowadays lean towards second-tier cities, thanks to lower operational costs, nicer environments and better local government support. The change is so fast that one of the rising tech hubs, Hangzhou, might overtake its sluggish peers as the new ‘Silicon Valley’ of China, a recent report from Vision Plus Capital pointed out.

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Alibaba IPO triggered startup frenzy

Apart from being a scenic spot, Hangzhou is more commonly known in the startup community as the city where Alibaba started its legend more than one decade ago. Alibaba’s jaw-dropping IPO has inspired millions of Hangzhou entrepreneurs, a great portion of whom are former employees of the e-commerce behemoth, to follow Jack Ma’s footstep in starting their own companies.

The report shows that the number of new startups in Hangzhou surged 107 per cent year-on-year (YoY) in the second half of 2014 due in no small part to the big boost from Alibaba’s IPO, which was finalised in September of the same year. To put this number into some perspectives, the growth rate for Beijing and Shanghai in the same period was 64 per cent and 53 per cent. The city maintained its growth momentum straight to the first half of 2015 with a 38 per cent YOY jump as compared with nine per cent and eight per cent for Beijing and Shanghai, respectively.

Since 2013, the funding raised by Hangzhou-based startups rocketed 160 per cent, higher than Beijing (121 per cent), Shanghai (119 per cent) and Shenzhen (143 per cent), the report showed. To date, more than RMB58 billion (US$8.6 billion) of capital has flowed into Hangzhou.

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As the startup craze cooled down in the second half of 2015 through 2016, Hangzhou’s startup environment perseveres, partially because e-commerce still dominates the city. E-commerce companies have more practical goals in generating revenue, so they are more tenacious when winter season arrives, according to Chen Hongliang, partner at Vision Plus Capital.

e-Commerce still dominates, but enterprise-faced businesses are catching up quickly, too

Given that Hangzhou is the hometown of Alibaba, it’s no wonder that e-commerce takes the lead in all startup verticals. The sector has no equal in the city’s startup landscape, with around 20 per cent of all the companies in the city falling into the category. But it’s far from the only option. The percentage of enterprise-facing services, fintech, local lifestyle and social networking startups is rising over the years.


Image Credit: Vision Plus Capital

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“This shows the entrepreneurial environment of Hangzhou is diversifying and maturing,” commented Chen. “In the period of economic restructuring, companies face challenges from business upgrading to cutting costs. These needs will foster enterprise-faced services, of which cloud and data service might form the next booming market.”

Chen believes that Alibaba, Ant Financial and Zhejiang University have produced abundant technological talent for the prosperity of local startup scene, which is particularly important for cloud and data services. “The first generation of entrepreneurs has their expertise in business operation and entrepreneurs with technological backgrounds are going to take the helm starting this year.”

Hangzhou is just among a plethora of rising cities that’s ready to replace the current tech hubs such as Beijing. Other top alternative startup hubs in China worth looking into include Chongqing, Chengdu and Xiamen.


The article Hangzhou Outrunning Beijing and Shanghai To Mint A Top Tech Hub first appeared on Technode.

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