Wednesday, April 18, 2007

Many Savers, Few Spenders Leave South China Mall Almost Empty

wow! no wonder china is trying to cool down investment (especially when it is speculative) activity. looks like they can´t control the local governments and lots of speculative building is going on. unfortunately i couldn´t find out who the investors are.

make sure you see the slideshow from the mall!

wow! kein wunder das china händeringend versucht die investitionstätigkiet (besonders wenn diese dazu noch spekulativ ist) einzudämmen. sieht immer mehr so aus als wenn das wohl auch wegen der lokalfürsten nicht gelingt. leider ist nicht ersichtlich wer die inestoren sind.

ihr solltet euch unbedingt die slideshow der mall ansehen!

April 17 (Bloomberg) -- The world's largest shopping center looks almost deserted on a recent afternoon. While schoolchildren ride the sidewinder and roller coaster, there are few shoppers and fewer tenants at South China Mall in central Dongguan, a city of 6 million north of Hong Kong.

``They did this mall all wrong,'' says Stephen Liu, a Hong Kong businessman visiting clients in Dongguan who came by to see the place for himself. ``They never found out if there were enough people to fill it. All the Chinese in this town are factory workers, they can't afford to shop here.''

That's a problem for more than just the mall's owners. South China Mall stands as a symbol of China's failure to stimulate more spending by its 1.3 billion people and to curb runaway investment in real-estate projects. The results: A record $232.5 billion trade gap with the U.S. and increasing concern about unsustainable growth at home.

``Until Chinese economic growth shifts from exports and building factories and real estate to consumer spending, China's trade surplus will only grow,'' says Nicholas Lardy of the Peterson Institute for International Economics in Washington. ``That will make trade frictions and a protectionist backlash even more likely.''

Artificial River
A walk around the mall's 220 palm-tree-lined acres takes a visitor past an indoor amusement park, replicas of seven cities including Venice, Milan and Amsterdam, an 85-foot model of the Arc de Triomphe and a 1.3-mile artificial river with gondolas for hire. There's retail space for 1,500 stores, only a handful of which are leased.

The mall's developers expected to attract 100,000 visitors a day, the number it would take to keep its vast shopping areas from looking deserted, ...., more than a year after it opened, the mall gets about 10,000 a day, says spokeswoman Joanne Zhu. That leaves its open- air pedestrian streets almost empty. ...

No Shopping
Huang Xiaoyan is treating herself to a burger and fries at McDonald's, but says she won't be spending money on anything else. ``I'm just here to meet friends, not to shop,'' says the 29-year-old.

Typical of many Chinese workers, Huang doesn't spend much of the 1,500 yuan (almost $200) she earns each month doing accounting work for a local factory. She lives in a company dorm, eats in its cafeteria, sends much of her income home to her parents and saves the rest.

Huang's frugality exemplifies the challenge facing Chinese officials as they seek to quicken the pace of consumer spending relative to investment and exports. China's economy now is ``unstable, imbalanced, uncoordinated and unsustainable,'' Premier Wen Jiabao said at a Beijing press conference March 16.

Private consumption in China, the world's most populous nation and the fourth-largest economy, accounts for just 35 percent of gross domestic product, about half the share in the U.S. and ``quite possibly the lowest consumption share of any major economy in modern history,'' according to a report by Morgan Stanley.
>here is another take from UBS that paints a different picture
> hier eine andere sichtweise der UBS
Before the national accounts were overhauled in 2005, China's GDP failed to reflect many unreported services. The recast figures showed a bigger share of services in the economy, but a smaller share of consumption.

Consumption figures also exclude spending on residential housing. This has surged since the late 1990s, when China's communists first allowed households to buy their homes. Mr Anderson adds investment in homes to the consumption tally, along with much of the extra spending on services discovered in the 2005 GDP revision. He finds consumption's share of the economy today is no lower than its average of the past two decades

Eroded Security
The Chinese save about half their income. Job-cutting at state-owned companies, which once provided lifetime employment and benefits, has eroded income security. An inadequate social safety net requires Chinese to save for retirement, health care and their children's education.
``I'm getting old and I need to save for security,'' says Huang. ``There are not a lot of places to shop here, anyway. It's mostly a place for kids to play.''

Chinese reluctance to spend and eagerness to save is the mirror image of attitudes in the U.S. While China's savings rate is the highest of all major economies, the U.S. rate is negative. Until spending and savings patterns in China and the U.S. change, trade imbalances will grow worse, officials say. ...

Hundreds of Malls
Over the last few years, hundreds of malls have popped up around China, which now claims seven of the world's 20 largest. Two of those, Oriental Plaza in Foshan and Grandview Mall in Guangzhou, are within 50 miles of South China Mall.

South China Mall's 9.6 million square feet makes it more than twice the size of the biggest U.S. shopping center, Mall of America in Bloomington, Minnesota.

``It's Disneyland and Las Vegas come to China,'' says Thomas, chairman of Thomas Consultants. After his firm signed on in 2004 to assist with the mall's marketing, he realized that even this manufacturing hub, one of China's richest cities, couldn't support such a retailing behemoth.

``They rushed to build and open it,'' says Thomas. ``They honestly thought that by building it, they would come.'' ....

Away from the few stores and restaurants near the entrance, the mall's three levels of retail space are a ghost town. Aluminum shutters cover most storefronts, which appear never to have been occupied. A few, now padlocked, show signs of former tenants, with dusty cardboard boxes inside full of unsold athletic equipment, t-shirts, handbags and shoes.

An Imax cinema, meant to be a key attraction, never opened, though posters still hail a grand opening. ....

Hopes to Save
``I only spend money on food and clothes at the supermarket,'' Li says. When she begins to earn more, she says, she hopes to save some and send the rest home to her parents.

The one store with customers spending money is a SPAR hypermarket, part of Amsterdam-based SPAR International, that sells groceries and inexpensive clothing and housewares. The store, opened in November, appears to account for the majority of actual shoppers at the mall. Most load up with groceries and leave, never venturing further to take in the sights of Paris, Milan or Hollywood.

The shoppers South China Mall needs to win over are people like Li Yugun, a fashionably dressed woman munching on French fries and chatting with a friend at McDonald's. A saleswoman for an agricultural firm, she earns as much as 8,000 yuan a month (about $1,035), making her part of China's small middle class. And she has a very American attitude toward shopping.

``I spend everything I make,'' she says, laughing. ``No amount is too much.''

Yet even she doesn't shop at South China Mall: ``The stuff here is too expensive.''
> 10 years down the road the credit card industry may have changed this view........
> in 10 jahren hat die kreditkartenindustrie diese sichtweise dann wohl geändert.....

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Anonymous Anonymous said...

I don't think you can chalk this one up just to Chinese frugality.

There is simply not enough income there to support a high-end mall.

3:52 AM  
Blogger jmf said...

i agree.

not enough income or the will to use credit/debt...... :-)

3:58 AM  
Anonymous Anonymous said...

The one worker spotlighted had extra money to spend. It's just that she sent it home to her family.

Even though the middle class is expanding there, the changes in that country are making things less secure for older or less educated Chinese citizens. The article mentioned their fear for their future.

Then there are the cultural differences of a much stronger responsibility toward your family of origin even into adulthood.
For the most part, in this country, monetary responsibility to family is more downward than upward.

As far as that particular mall, you'd think they would have grown the market with smaller stores first to test the demand. Perhaps its a great idea whose time is 10-20 years from now.

6:03 AM  
Anonymous Anonymous said...

They should have opened this mall in Shanghai or the surrounding cities such as HangZhou & WenZhou. Dongguan is just too much of a "manufacturing center" full of working class people to support this type of consumerism. Shanghai and the surrounding cities; however, have a much more commerical and consumer-oriented economies. This is not all that surprising as it reflects perfectly the shifting landscape of the regional Chinese economic fortunes. About 10 years ago almost all the wealth was generated primarily from the low-cost manufacturing sector which is concentrated in the Guangdong province. Over the last 5 years, the economic developments and prosperities have shifted largely to the Yangtze River Delta region lead by Shanghai.

The China of today is a study in constrast. While the middle-aged and the aging try to save like crazy for their younger progenies, the younger generation spends and lives like there's no tomorrow. In fact, given the relative purchasing power parities that exist between China and the U.S., the young Chinese people of today could be said to be a even more
"spend crazy" than their American counterparts. Young girls who made about 1,000 to 2,000 RMB (or about $125 to $250 USD) a month readily and without hesitation spend 3,000 to 5,000 RMB on the latest cell phones (imagine an average American girl who makes about $3,000 USD spend about $9,000 to $15,000 on ANY electronic device about once a year!) The "NEW" generation of China that I just mentioned are primarily those who are borned after 1980 and are the single child of the middle-class city residents. Where do all these "new" generation of young people get their money from? To start with, they have disposable incomes from 7 sources: self, mother, father, grandfather on the father side, grandmother on the father side, grandfather on the mother side, grandmother on the mother side. The generation that was born after 1980 has never known any difficulty like previous generations. Cultural revolution ended in 1976 and the economic reforms started in earnest soon after that. Speaking from personal experiences, I have many Mainland friends in their early to mid-20's who routinely spends up to 1,000+ RMB on a weekend's night out with friends when their salaries are only about 1,500 to 3,000 RMB a month. Imagine that you are making about $3,000 USD a month and yet you routinely spend $1,000 USD or more on a night out with friends.

China of today is really a fascinating place to be at. It's vibrant, energetic and full of hopes for the future. Its economy and society are advancing and growing at lightning fast and blinding speed, and yet the inequalities among its people has never been greater than all its previous 5000 years of history. The richest and the brightest of China could easily rival those in the U.S. (just look at companies such as Sina, Netease, Sohu...etc.) The poorest and the most destitude are still struggling among the world's worst (there are still many places where people make about 10 RMB or $1.25 USD a day!)

If there is ever a "GREAT SOCIAL EXPERIMENT" then China is IT! About one fifth of the people on the planet is Chinese. The Chinese government and its people are currently conducting and partaking in the largest social and economic "experiment" the world has ever seen. How would it turn out? No one knows. It will either be the greatest human triumph or the greatest human tragedy in history to date. Let's all wish them and us/US the best of luck, for the resulting impacts shall definitely affect the entire world for generations to come.

In the meantime, the smart moneys such as Jim Rogers et al seems to think that the ending will be a happy one (just like the name of his Chinese-speaking daughter? ;) How and what can we American Yankees do to profit from this mega-historical social and economic trend? As it turned out, not as easy and as much as you think.

Historically when China finally gets its acts "together" she traditionally needs very little from the outside world. It has always been the outside world that buys from China. That's also perhaps why Jim Rogers taut commodities so much because while China has a lot of many things (cheap labor, smart people, adaptive skills...etc), she does lack natural resources.

Will there be setbacks along the way? Of course! But if you think that you can stop the "re-awakening" social movement of 1.3+ billion people on a dime then you might be sorely disappointed. In fact, over the last 500 years China was asleep. Remember it was Napoleon who said, "let China sleep for when she awakes she'll shake the world."

China is waking up right now. In a broader and larger historical context. The Age of Asia is upon us again. They are those who said "won't China go the way of Japan?" Wasn't it just a couple of decades ago we thought that the Japanese was going to buy up all of America and one day most Americans would be speaking Japanese and work for a Japanese boss? And look where's Japan now? Well, while the Japanese economy had its share of its bubble-bursting pains, overall today, Japan is still standing. Japan is still the world's second largest economy and with great ambitions to cooperate with its one-time WWII bitter rival, China.

During the Renaissance, or the beginning of the Ascendancy of the Europeans, various states and nations rose and fell first. The Renaissance was first sparked in Italy then later spread first to Mediterranean & Central Europe then achieved its zenith by the Western European nations centuries later. So could Japan since the 60's and the "four tigers" (Singapore, Taiwan, South Korea & Hong Kong) just be the "sparks" that started the "Renaissance" of Asia? Is it any surprise that currently not only is China "re-awakening" but India, Vietnam, Thailand and numerous other East Asian nations are growing and developing as well?

The East Asian Continent is waking up. The price has broken up decidely from its long term trading range. If you were a trader, would you now buy, sell or hold? :)

8:02 AM  
Blogger jmf said...

thanks to all for the wonderful comments and "inside" information!

8:23 AM  
Blogger Sivaram V said...

This article clearly shows the real estate bubble that seems to be prevalent in China. If you thought there was a real estate bubble in USA, China is just as bad. Building such an extravagant mall is clearly a sign of a bubble. No rational investor would finance such an endeavour that is totally unproven and with very high risk (clearly competitors have moved into the big cities so investors are betting on massive malls in less popular cities).

China is facing a big problem and there is going to be some pain along the way. I don't think the capital markets are pricing the situation properly--but they never do (or else we wouldn't have bubbles and mini-bubbles)...

8:59 AM  
Blogger jmf said...

nobody would have financed it especially when

Over the last few years, hundreds of malls have popped up around China, which now claims seven of the world's 20 largest. Two of those, Oriental Plaza in Foshan and Grandview Mall in Guangzhou, are within 50 miles of South China Mall.

i have tried to digg the web to know "who is the investor"?.

but there is no data available.

9:05 AM  
Anonymous Anonymous said...

This topic is simply matchless :), it is very interesting to me.

3:28 AM  

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