It is now the Asia-Pacific century and China is very much the engine room of regional growth right across the Asia Pacific, Foreign Minister Kevin Rudd told the Australian Tourism Directions Conference in Canberra on Thursday.

Rudd said it was last year that for the first time in five thousand years, more people were living in cities in China than live in the countryside.

He noted that China's urban population has increased by 446 million people over the last 30 years and now dwarfs that of both the United States and Europe combined, and the gap will continue to grow.

He said Australia's tourism industry has to change the way it approaches the nation's most promising market.

"If I have one message for you today it's let's open our thinking about China to an entirely new paradigm, and that is newly-emerging urban China across 101 centers, each representing a dynamic market in itself," he told the conference in Canberra on Thursday.

"Don't assume that people sitting out in a city of five million people in the middle of Hunan Province know a whole lot about what (Australia) has to offer."

He told delegates the rise of China's second tier cities was a phenomenon which Australia's tourism industry needed to grasp.

"Right across China we now have 93 cities with a population in excess of five million and eight with a population in excess of 10 million.

"Each of these are discrete regional and sub-regional markets.

"My word of encouragement to this industry is to focus further and further on each of the markets which each of those principal cities represents, many of which you will never have heard of, but each of which is bigger than the city of Sydney."

China is emerging as Australia's leading tourism expenditure market, which worth around 3.3 billion U.S. dollars annually. Australian Bureau of Statistics (ABS) also showed more than 39,000 Chinese tourists came to Australia in May, ranking third behind the United Kingdom and Japan.

Thursday's conference brought together leaders from industry, business and government, and will deliver national and international research and insights on Australia's tourism performance. Challenges and opportunities facing the sector will also be discussed.

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