At China's huge malls, high prices and few shoppers
Empty malls are one indicator of the country's overheating economy.
For a closer look at China's sizzling economy, walk the marble floors of Beijing's latest luxury mall. From its Japanese-style food court selling $4 chocolate éclairs to its glittering floors of branded international fashion, Shin Kong Place is a palace of conspicuous consumption.Skip to next paragraph
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The only thing missing, on a sizzling summer afternoon, was customers. Sales staff idled at display racks as a trickle of young visitors looped around the frigid mall. Most were content to window-shop, dreaming of the day when they could afford to drop $100 on a tassled tote bag. "These prices are too expensive. People can't afford it," says Xu Tao, a car repairman who was visiting with his girlfriend.
As investors continue to pour money into malls, analysts say the signs of a real estate bubble are growing, as are predictions that some retailers may be heading for trouble. Empty malls are just one indicator of an overheating economy – growing at its fastest clip in over a decade – that is proving hard to cool.
To curb rising inflation, led by food prices, China's central bank raised interest rates last week for the fourth time this year. Real estate is also in the spotlight: Property companies were ordered in June not to borrow offshore. But the race to build goes on.
"The problems of overheating are already apparent," says Wang Yao, director of the information department for the China General Chamber of Commerce, an industry umbrella group. "The commercial real estate industry is facing problems. After some buildings are finished, nobody wants to rent space."
Too many malls in China
Since 2002, China has built hundreds of malls in towns and cities, each trying to get a slice of a retail pie worth $800 billion last year. Captivated by the promise of a vast consumer class itching to spend, foreign brands have jostled for space at the table only to find a scarcity of customers. As a result, retail vacancy rates in Beijing are currently 8 percent and rising as more malls enter a crowded market. [Editor's note: The original version misidentified the occupancy rate of Beijing's retail stores.]
Mr. Xu, who pulls in $266 a month – below Beijing's $400 average – is typical. He socks away one-fourth of his pay packet, as does Chen Ping, his girlfriend, who makes a similar wage as a store assistant. Asked if he isn't tempted to save less and spend more, he shakes his head.
"If we enjoy life now, what about the future? We need to think of our future," he says.
The rising cost of living is one reason why many here are reluctant to splurge in fancy malls. Unlike US consumers, many of whom use credit liberally, Chinese workers opt to save, knowing that a feeble welfare system is unlikely to provide for them.
As a result, consumption accounts for only 37 percent of China's economic output, about half the rate in the US.
Such stinginess bodes poorly for Beijing's mall developers.