July 13, 2007 -- Once an economic backwater, Western China is now quickly coming onto the global business world's radar. While most of the attention has been focused on larger cities such as Chengdu and Chongqing, the city of Kunming in Yunnan province has been quietly emerging as a promising market for imported goods from around the world as well as goods produced by foreign invested enterprises.

A stroll around downtown Kunming, known as China's 'Spring City' for its year-round mild weather, is usually characterized by warm sun, cool breezes - and a steady buzz of shopping. Long derided as a lazy, poor city by its cousins on the coast, Kunming is quickly becoming one of China's most promising second-tier retail markets.

In 2006, Kunming municipality's per capita disposable income broke the 10,000-yuan mark for the first time, reaching 10,070 yuan. Given the relatively low cost of living in Kunming, city residents are increasingly taking their extra cash and spending it on almost anything imaginable, from mobile phones to SUVs, from soaking in hot springs to weekend trips to Lijiang.

Looking a bit deeper into the numbers, residents of Kunming's suburbs and rural regions - whose disposable income averaged 3,587 yuan/person last year - are bringing the average down. If disposable income stats are altered to only include the city's four major urban districts, then last year's per capita disposable income becomes 11,759 yuan.

Kunming's government has begun to acknowledge the growing influence of consumer spending on local economic growth - hard to ignore considering that retail spending in 2006 totaled 39.12 billion yuan, an 18.8 percent increase over 2005.

Kunming was selected by real estate money management and services firm Jones Lang LaSalle as one of China's 30 second- or third-tier 'cities to watch' in the coming five years according to the company's white paper, China 30: China's Rising Urban Stars. The report focuses on the 26 mainland cities other than Shanghai, Beijing, Guangzhou and Shenzhen that Jones Lang LaSalle believes "will be on the radar screen of real estate occupiers, investors and developers" over the coming five years.

While lagging behind larger cities in categories such as concentration of high-technology, Kunming surprisingly tied for second with Shenyang among the 26 second- and third-tier cities in the survey in terms of concentration of foreign retailers. The ranking was based on a basket of international retailers including Carrefour, Ikea, B and Q, Metro and Wal-Mart. Kunming has no Ikea outlets but is already home to four Carrefours, one B and Q, one Metro and three Wal-Marts. Kunming also boasts three Watson's outlets and a growing number of international fast food outlets such as McDonald's, KFC and Pizza Hut.

One unique aspect of the retail scene in Kunming is that there are very few centralized shopping areas offering a wide variety of goods. This is primarily due to the city's loose zoning and lack of a relatively integrated development plan. Like everything in Kunming, this too is changing.

One year ago, Hong Kong-based property developer Shui On Land signed an agreement with the Kunming government in July related to a residential, business and cultural development covering 2.5 million square meters. Shui On is most famous in China for its higher-end commercial and residential developments, most notably Xintiandi and Corporate Avenue in Shanghai, as well as Xihu Tiandi in Hangzhou.

While details of Shui On's Kunming plans are still murky, it is confirmed that company Chairman and CEO Vincent Lo did give Kunming Mayor Wang Wentao a personal tour of Shui On's Knowledge and Innovation Community, Xintiandi, Corporate Avenue and Lakeville Regency, leading local observers in Kunming to wonder when and where Shui On will try to extend its success to Kunming.

The idea of a Xintiandi in Kunming would have seemed far-fetched just three years ago, which shows how much the higher end of the retail spectrum has grown in Kunming in recent years.

Louis Vuitton recently opened an outlet in Kunming, one of 16 nationwide, in the luxury-focused Gingko Shopping Center in the city's center. Gingko is also home to outlets flogging high-end goods by Salvatore Ferragamo, Chanel, Versace, Mont Blanc and Burberry. France-based luxury brand Hermes even chose Gingko in Kunming as the location for its first mainland retail outlet two years ago.

There's more to luxury than clothing, fragrances, pens and watches - luxury automobile companies are also making their presence felt in Kunming. Big names including Mercedes-Benz, Maserati, Lexus and Porsche have dealerships in Kunming, with more rumored to be considering setting up in the Spring City over the coming year or two.

Kunming Commerce Department's Wang stressed that serving Kunming's local market offers just as many opportunities.

"It's important to remember that Kunming is the only major city in a province of 48 million people," he said. "Real wealth has been generated in the last few years through pillar industries such as hydropower, pharmaceuticals, tobacco, tourism and the local property market, now you're starting to see luxury brands move in to cash in on the city's growing middle and upper classes."

Chris Horton is managing director of the Meridian Group of Hong Kong (www.meridiangrouphk.com), a Yunnan-focused consultancy with operations in Hong Kong and Kunming. The Meridian Group is focused on helping foreign companies enter the Yunnan market and helping Yunnan enterprises realize their global potential. Horton is also founder and editor of GoKunming (www.gokunming.com), a regularly updated English-language website serving residents of and visitors to Kunming.