Tianjin's Binhai

The rapid rise of Tianjin, which neighbors Beijing, could help increase the appeal of the Chinese capital city, says Zhao of BASS. Tianjin has the largest port in North China and is the manufacturing hub for multinationals such as Motorola.

But in the long run, Tianjin might also seek to challenge Beijing as a regional business hub. The central government has launched a national pilot reform base in Tianjin's Binhai New Area, aiming to make it the country's third economic engine, alongside Shenzhen and Shanghai's Pudong New Area.

"Binhai New Area could soon become a hot spot for multinationals to set up regional headquarters," says Zhao.

A lot of smaller cities are also putting much faith on the "Headquarters Economy."

But their primary targets are Chinese companies which have sprawling operations across the country.

Gulou District in Nanjing, capital of East China's Jiangsu Province, is now home to a number of leading Chinese companies such as Suning Appliance, one of the country's top appliance chains. Multinationals such as Siemens and Epson have also set up their regional offices in the district.

Su Zheng, deputy head of the district, says the "Headquarters Economy" is on the upswing. "Companies' operating costs in Beijing and Shanghai are rising rapidly, and those with strategic foresight are looking at second-tier cities such as Nanjing," he says. "That is creating a niche market."

Nanjing is 3-hour ride from Shanghai, and the city hopes its developed logistics and financial sector can help increase its appeal.

Zhang Jingan, secretary-general of the Ministry of Science and Technology, says the "Headquarters Economy" can help transform second-tier cities.

Government policies in the last two decades to set up special economic zones, economic development zones, high-tech economic zones and software parks have helped some cities transform into export-oriented cities or high-tech hubs.

The "Headquarters Economy" can help cities become more service-oriented.

"Ten years ago, Beijing's Chaoyang District used to be a hub for large manufacturers," says Cheng. "But now it is very service-oriented. About 70 percent of revenues from services in Chaoyang District are being generated from the CBD."

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