"Considering factors

their population size,
development of services,
infrastructure
cosmopolitan nature.

Tier 1 represents the most developed areas, while Tier 5 is less-developed small cities. Rural areas are villages close to Tiers 2, 3, 4, and 5 cities.
1st Tier

1st tier cities represent the most developed areas of the country with the most affluent and sophisticated consumers. They are also considered to be the center of main economic activity.

Industries that are evolved to become driving forces of Chinese economy tend to cluster around 1st tier cities as those locations have the biggest potential to attract foreign and domestic investments.
2nd Tier

2nd tier cities have become increasingly attractive to investors as well and represent some of the fastest growing areas.

Consumer behavior is evolving very fast in 2nd tier cities and, in general, tends to mimic 1st tier’s trends.
3rd Tier

3rd tier cities generally lag behind 1st and 2nd tier ones in terms of economic growth and development, although many of them are still considered to be very significant economically and historically.

Many of 3rd tier cities are considered to be convenient and relatively inexpensive locations for a number of large industries and big companies.
4th and 5th Tier

Often lumped together, cities in those categories represent the majority of China’s urban population and combined income."
http://www.sinostep.com/all-you-need-to-know-about-china-cit...