ANALYSIS - China's smaller cities; bargains for investors?

By Kevin Lim and Langi Chiang

SINGAPORE/BEIJING (Reuters) - Wuhan, Chongqing and Chengdu aren't exactly names that roll off the tongue for foreign investors in China's real estate, but these cities may offer more bang for the buck than their more-famous coastal cousins or capital Beijing.

Helped partly by the government's "Go West" policy and their less export-focused economies, Chinese cities in the country's interior have posted higher per-capita-income growth than Shanghai, Beijing, Guangzhou and Shenzhen in the past year.

Along the coast, the port city of Tianjin is fast becoming the business centre for northern China as authorities move to revitalise what was once the country's industrial heartland. Dalian and Shenyang are other northern cities growing rapidly.

Michael Klibaner, head of research at Jones Lang LaSalle in Shanghai, said burgeoning growth in these second-tier cities would push up local demand for real estate and raise the capital value of commercial and residential properties.

"From a property perspective, these cities derive more demand from domestic companies than many Tier-I and coastal cities," Klibaner said.

Nicole Wong, head of Hong Kong and China property research at CLSA, said the best way to tap the faster growth in Tier-2 and 3 cities would be to buy shares of major Chinese developers which have expanded there, such as China Vanke and China Overseas Land.

"Rather than buy physical property, it's much better to have exposure to the experienced developers. You'll have the best players mirroring the difference in growth rates by changing their geographical exposure to have a heavier presence in second-tier cities," she said.

China's 600-plus cities are divided into six different categories with a top tier comprising the most developed metropolises of Beijing, Shanghai, Guangzhou and Shenzhen.