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Chinese Shopper Shortage Means Trouble Ahead

Look east young shopper: China’s many malls are wide-aisled, well stocked and inexpensive. Oh, and they’re deserted. The FT reports:

As crowds shouted and pushed for the latest iPhone in Beijing on Friday, a glitzy mall across the street was bathed in silence, with just a handful of shoppers hunting for bargains.

[The] empty SOHO complex cast a different light on what is happening in the world’s second-largest economy: consumption is rising, but not nearly as fast as vast shopping centres are being built.

A boom in the number of malls without a matching increase in actual shopping gets to the heart of what analysts see as the fundamental problem of the Chinese economy: too much investment, too little consumption.

Trees do not grow to the sky, even in China. Years of double digit growth, state directed credit allocation, and go-go policies by growth and revenue hungry local officials have created conditions for a great and painful unwinding.  World markets were exuberant today on news that the much-feared Chinese slowdown seems tamer than some predicted; the Chinese government will do everything in its power to stave off a crash.

How it all will work out is a mystery; there has never been an economy quite like China before. But in no economic model or system yet devised have acres on acres of deserted shopping malls ever meant anything but big trouble ahead.

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  • Anthony

    Fear of hard landing for China’s economy may be overblown: the people’s Bank of China has plenty of scope for monetary easing should economic conditions deteriorate. China also has policy flexibility vis-a-vis fiscal deficits and % of GDP. Nevertheless, China must begin to shift its economic growth policies to greater internal demand (to better fill those shopping malls WRM referenced)).

  • Jim.

    Well, at least they’ll have the infrastrcture to support it once it takes off. How is FedEx’s service in China? They could just skip straight to an online economy, you know.

    I wonder what the problem is… could the “communist” government of China be exploiting (underpaying) its workers? Wouldn’t that be a rich irony.

  • JustMe

    China’s bigger problem is one of demographics. Too many bare branches on the family tree and combine that with brain drain and it looks like they have long term problems.

  • bpbatista

    Why would anyone trust the GDP statistics provided by the Chinese government? They have a very strong incentive to falsify them — and its not as if Communist governments have never lied before about economic performance.

  • He Wei Jin

    I don’t doubt that the Chinese economy is in for a hard landing, but empty shopping malls are not necessarily an indicator. Stores in high-end malls are status symbols and rarely profitable. Chinese consumers are more likely to buy in markets and shopping streets and more and more Walmart and Carrefour.
    There is a lot of wealth there, but not a consumer economy similar to the US or Europe. I have often wandered relatively empty malls in Beijing and Shenzhen.
    People have more money and consume more, but not to our standards and things are getting tighter. Still, their standards are on an upward trend and ours are declining.

  • JayDick

    In addition to the demographic problem mentioned by JustMe, a bigger problem is that most of the big resource allocation decisions in China are made by the state or companies controlled by the state. This centralized decision-making cannot be successful over the long term, and maybe not even in the short term.

  • Nancy

    Some time ago I read about the Chinese building numerous housing complexes which were sitting empty and deteriorating. Tie this to this article on malls and you can see a vast problem with their central planning in respect to the real needs of the people..

  • Rupert Fiennes

    Although I would hesitate to declare myself any sort of economist, I wonder if what we are seeing here are the rigidities and corruptions of the Chinese capital market (the reliance on guanxi for access) are resulting in oversupply for those “entrepreneurs” who have access to the right ears. It’s a small anecdote I know, but back in 97 I was near Xian on a back road adjacent to a brand new toll highway, and I noted that the three kilometres of approach road, half of which were dirt, had a total of 13 petrol stations. They all were covered with white tiles and had smoked blue glass as well, of course 🙂

  • Willis

    “China must begin to shift its economic growth policies to greater internal demand (to better fill those shopping malls WRM referenced)).”

    Commenter 1 seems to have bought into the Obama administration policy that centralized planning is a viable alternative to the massive number of individual decision makers that on a continous basis inform producers what to produce and how much. Centralized planning is not an alternative at all. It is a very crude, ineffective version of consumer/producer planning. As for commenter 5 believing China’s economy is not a consumer economy as is America’s, that’s simply bizarre. Just who does their economy produce for? With no consumers for their production, how will they recoup their cost? For that matter why would they produce anything at all?

  • Ulysses S. Rant

    Well said, Sir. People have been laughing at Jim Chanos for years, shaking their heads as he said much the same as you are. I’ve noticed that the laughing seems to be dying down now.

  • Jacksonian Libertarian

    The Government Monopoly can’t run a free enterprise system, it lacks the all important feedback of competition, that causes the continuous improvements in Quality, Service, and Price. It is because of this that whenever the heavy hand of Government interfers in the economy trying to pick winners and losers, it fails.

  • gsarcs

    Go to youtube and check out “China’s ghost cities and malls.” That will give you the full visual effect of the problem.

  • ameryx

    Why do we believe any numbers published by China? I was working in Asia in the late 90’s and early 00’s; one year, the PRC published its GDP growth number on 12/31 of the year in question. There is no way that this number was knowable at that point; the figure had to have been dictated by the powers that be.

  • MikeO

    They also have 65 MILLION empty apartments/homes; all too expensive for people to buy into.

  • Ulysses S. Rant

    @gsarcs – you were right. those visuals were worth a thousand words.

  • http://theAmericanInterest r charles

    i have wondered empty mall in bern also till saturday when it did get busy. i was in there every day for almost three weeks
    the weekend was only busy time
    they had great movie theatres and I got to watch movies in them alone.
    i think the tickets were about 26 usd

  • Pettifogger

    Willis said: “Commenter 1 seems to have bought into the Obama administration policy that centralized planning is a viable alternative . . . .”

    I took Commenter 1’s point differently. When he talks about China’s scope for monetary easing, that tells me that, as sorry as our finances are, the dollar may still nevertheless be comparatively stable. The Chinese may have to inflate themselves into oblivion to get out this. We’ll inflate ourselves only 2/3s of the way to oblivion.

  • teapartydoc

    Go pick up your 1976 edition of Samuelson’s Economics that you used in college. Check out the two most rapidly expanding economies of the world on the inside cover: Japan and the USSR. Look at them now. GDP is as good a predictor of future performance of an economy as Alan Greenspan was of ours. Worthless.

  • Luke Lea

    Are tourists allowed to roam free in the interior parts of China? What do they see?

  • ed

    “The Government Monopoly can’t run a free enterprise system, it lacks the all important feedback of competition,”

    The government also deliberately cuts off consumer feedback to the powers that be. “Anti-revolutionary activities” are still a punishable offense in China, albeit unofficially and under a different name.

  • Anthony

    China depends heavily on the broader global market (external demand). Yes, China is paying a price for aggressive stimulus initiated during U.S. subprime crisis but central planning is not issue – markets, exposure to crisis torn Europe and U.S. trade (and I don’t have the background to label them central planners or not). Chinese economic policy makers, given WRM’s quick take implication, may need to focus on domestic dimension of economic growth (my comment made sans ideology but macro economically).

  • John

    There is abundant evidence that China has been fueling both a real estate bubble (through excessive lending to both end buyers and developers) and an infrastructure investment bubble. Now, total Chinese GDP is roughly 40% or so that of the US (if their GDP figures are to be believed). Then Chinese GDP is roughly 12% or so of global GDP. Thus, the 8% or so growth rate in the Chinese economy contributed about one quarter of the total global GDP growth rate of 4% in 2010. Then, a slowdown in the Chinese growth rate to, say, 4% annually would reduce global GDP growth rates by about 0.5%. If Chinese GDP growth stagnates, then, all things being equal, global GDP growth declines by about 1% compared with 2010. I fully expect that the chickens will come home to roost in China over the next several years. However, global GDP growth rates will still be reasonable, if lower, as a result of a Chinese slowdown.

  • stonedome

    but according to obama the chinese model seems to work best…wonder if that will be brought up in the next prez debates, eh?

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