BEIJING, China — U.S. mall-owner Taubman Centers Inc. is bypassing Beijing and Shanghai, instead building its first two Chinese shopping malls in the second-tier cities of Xian and Zhengzhou because the potential returns are higher, Asia President Rene Tremblay said.

Taubman is investing in cities where land costs are less than half those of the most prosperous tier-one cities, which have had an explosion in mall growth in the past decade, Tremblay said. There is more potential in smaller cities where a growing middle class is fueling sales of affordable luxury and fashion brands, he said.

"We knew that for tier one, prices were higher, competition was more fierce and we thought there were more opportunities in tier two," Tremblay said in an interview in Hong Kong Tuesday.

Taubman looked at more than 100 cities across China, he said.

In China, Taubman has jointly invested with both local developers as well as a local retailer, Beijing Wangfujing Department Store (Group) Co., rather than go it alone as it does in the U.S., where it is one of the largest owners and operators of shopping malls. Both projects are expected to open in the first half of next year at a cost of about $385 million each, he said.

"When you are a foreigner, you have to team up with a local partner and local talent, they bring us things we didn’t have, and intimate knowledge of the consumer," Tremblay said.

Bloomfield Hills, Michigan-based Taubman Centers was founded in 1950 by the late A. Alfred Taubman, who pioneered the development of regional malls in the U.S.

By Frederik Balfour; editors: Matthew G. Miller, Andreea Papuc, Sree Vidya Bhaktavatsalam.