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| Beijing: Shoppers search for coats in a mall in this August 2005 file photo. Andy Nelson - staff |
At China's huge malls, high prices and few shoppers
Empty malls are one indicator of the country's overheating economy.
from the August 28, 2007 edition
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When it opened in 2004, Golden Resources Shopping Mall was the world's largest shopping center, with 550,000 square meters of retail space (a new mall in southern China has since taken this title). But it has struggled to generate enough customer traffic and sales to justify an investment of nearly $500 million and is fast being overshadowed by newer, glitzier retailers. An additional 2 million square meters of new retail space will be added this year, according to Mall China Information Center, an industry association.
"The question is not whether people can afford [luxury] products, but how many big malls that a city like Beijing should have. That's the issue. If there's too many malls, some will fail," says Mr. Wang.
It's a common problem that points up the inexperience of mall operators and the readiness of China's state-run banks to lend to prestige projects with political backing, say analysts and industry sources.
"I think that the issue is not that we've misjudged consumption. It's just been too easy to borrow money and build these things," says Michael Pettis, a finance professor at Tsinghua University in Beijing.
Just as US home loan woes have left a nasty aftertaste, Mr. Pettis warns that a real estate downturn in China would saddle banks with dud loans to empty malls. In recent years, policymakers have cautioned banks against excessive lending to malls, to little avail.
Exports still rule China's roost
At the same time, authorities have long sought to lessen China's dependence on exports by stimulating domestic spending. But private consumption still lags far behind investment in real estate and factories, fueled by a hoard of savings in state-run banks.
New bank loans reached $364 billion in the first seven months of this year, exceeding last year's total lending, state media reported. Property remains a favorite bet: housing in Beijing is fetching 10 percent more than last year.
However, industry sources say that many first-time mall operators aren't borrowing money but reinvesting profits from their other businesses. That's one reason why they don't always make the smartest decisions, says Victor Guo, president of the Mall China Information Center.
"The developers aren't so professional in China; they don't know how to develop and market their product. The industry is at an early stage," he says.
Golden Resources has adjusted its mix of stores to increase sales turnover, says Fu Yuehong, general manager of New Yansha Group, which operates part of the mall. Weekend crowds swell to 100,000, she says, though it's much quieter on weekdays.
One blind spot in China's real estate sector is the focus on well-heeled elites who can afford to pay top dollar for imported luxuries, such as the $6,000 fur-trimmed leather jacket on sale last week at Shin Kong Place. Developers are neglecting the vast ranks of middle-income families in Beijing and provincial cities that aspire to a better lifestyle.
The reason may be less economics than vanity. "Every developer wants Louis Vuitton and Prada in their retail space. They don't want a mid-market project," says Anna Kalifa, head of research in Beijing for Jones Lang LaSalle, a real estate company.
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