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Everyone Is Asking: "If Chinese Consumption Is Rising, Why Are Its Malls Empty?" - Here Is The Answer
With China's official headline GDP number printing at decade lows, the positive spin on the increasingly negative data out of China has been that this is all a part of China's transition from an export-oriented to a consumption economy. However, there is a problem with this narrative: malls and shopping centers in China have been, and remain, increasingly empty suggesting that the narrative of the resurgent Chinese consumer - especially in the aftermath of the biggest stock market bubble burst since 2008 - is greatly exaggerated.
Case in point: Reuters asks this morning "why are malls closing if consumption is rising?"
Specifically, it looks at the Di Mei shopping center in downtown Shanghai which it finds "a surprisingly depressing place to shop."
The underground mall is located in one of the most shopping-mad cities in China, and yet it is run down and starved of customers."
"Sometimes I cannot sell even one dress in a day," said dress shop owner Ms Xu, who rents a space in Di Mei.
Rising vacancy rates and plummeting rents are increasingly common in Chinese malls and department stores, despite official data showing a sharp rebound in retail sales that helped the world's second-largest economy beat expectations in the third quarter.
It sure makes one wonder just how credible China's retail sales "data" are, especially since the government is far less willing to provide official commercial vacancy rates: "As growth in retail sales slows because of the country's lower GDP growth, and in cities where mall space is abundant, vacancy rates have risen substantially," said Moody's analyst Marie Lam in a research note.
One possible answer to this seeming conundrum is a well-known one: the transition to online shopping which however does not explain all the recent bearish commentary from China's premier online vendor Ali Baba, which recently tumbled below its IPO price after announcing the slowest revenue growth in three years.
There is another twist: the government is goosing retail sales by acting as a direct end-purchaser:
The answer to that apparent contradiction lies in the rising competition from online shopping and government purchases possibly boosting retail statistics. Add poorly managed properties into the equation and the empty malls aren't much of a surprise.
More importantly, the struggles of Chinese brick-and-mortar retailers amplify a policy conundrum; these malls, built to reap gains from rising consumption, are instead adding to China’s corporate debt problem, currently at 160 percent of GDP - twice as high as the United States.
Less foot traffic means cash flow of mall owners and developers are getting squeezed - a potential hazard for an economy growing at its slowest pace in decades.
Di Mei's owners are trying to refurbish, but it's unclear whether it will pay off, and others are just closing down. The Sunlight Store in Beijing, for example, is located in another prime pedestrian hub, but it closed its blinds this month, with manager Ni Guifang telling Reuters they are seeking greener pastures online.
"The sales were just OK, but the overall sales were on the downward trend," Ni said.
* * *
On the other hand, e-commerce sites continue to post double-digit growth rates, even as some moderation is evident. E-commerce leader Alibaba (BABA.N) is expected to report that sales growth slowed sharply in the second quarter - albeit to around 27 percent on-year, still a ripping pace.
There is another, potentially benign explanation: overcapacity - after all China's "ghost shopping malls" have been well-known for years.
China is currently the site of more than half the world's shopping mall construction, according to CBRE, a real estate firm, even though it appears that many of these malls will not produce good returns for their investors. A joint report by the China Chain Store Association and Deloitte showed that by the end of this year, the total number of China's new malls is projected to reach 4,000, a jump of over 40 percent from 2011.
This brings up two follow up problems: one is that this overcapacity will remain in place for years, leading to much less construction and expansion in the coming years: "Real estate analysts note that much of the surge in retail space construction came at the behest of local governments, who were rushing to push real estate development as part of attempts to stimulate the economy. The result has been malls built in haste and managed poorly."
An even bigger problem is that sooner or later, all these bad debt that was used to fund this construction scramble and which currently generates no cash flow, will have to be reclassified as non-performing sooner or later: "If you build it and they're not coming, that's a non-performing loan," said Tim Condon of ING.
As a reminder, China's non-performing debt is the one elephant in the room which nobody dares to touch, yet which CLSA briefly touched upon two weeks ago when it calculated that the real bad debt ratio in China is not 1.5% as per official "data" but really 8.1%. Needless to say, on $30 trillion in bank assets, this is a big problem.
But the one explanation that had not been provided, also happens to be the simplest one: Chinese consumers are simply not consuming! Luckily, we have insight into that as well, courtesy of the FT's Martin Sandbu:
As if on cue, the programmed slowdown in manufacturing, investment, and export growth is perfectly matched by a rise in domestic consumption, retail and services that leaves the total economy growth number just where the government said it would be. For example, industrial output is now reported to increase at 5.8 per cent, while the growth of the services share of GDP remains stable at 8.4 per cent.
The real sceptics go much further — and they have good arguments on their side which the optimists do not convincingly address. As the FT’s new EM Squared service pointed out last week, there are important holes in the shift-to-services story. One is that too much of the services growth is accounted for by finance, which is tricky to measure at the best of times, and whose reported robustness after the third-quarter market mayhem is outright unbelievable. Another is that income and wage growth, which presumably should be powering the supposed consumption and services boom, is slowing.
And the chart which hammers China's hard landing home:
There is simply no way to spin the above data in a favorable light, which we hope also answers Reuters' original question on China's empty malls.
In fact, the only question after reading the above should be: "how long before China's consumption dysfunction leads to empty malls in the middle of the United States itself?"
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WelL, at least your.Russian probably as tits and an ass....
When is China coming going global with their version of BIS?
Until they do, the BRICS+ will keep bleeding Ebola-like from all orifices. Call it Financial Ebola -- DNA engineered by 'Club Fed & Friends'. [ROR - Raughing Out Roud from Captain's chair on the deck]
p.s. US Malls --certainly the ones on the West Coast -- are doing just fine. Thanks to the combo of The Fed + Wall St + MSM + Made In China.
That one girl in the mall looks fairly zombic. Maybe she's buying that 24k neckless online from that special guy that couldn't be bothered to go the mall with her.
Escalator Deaths
I think the ivy-league educated Chinese ecomonics grads. are getting govt. reporting jobs in china, and maybe they started using their 2010 census data.
love the headline,"everyone", I've pounded into my children, and grand-children, never use the words everyone, everytime, always, never in a conversation, and beware of people who do.
this is a sales pitch for hedge-funds to use as advertisement, and for the usa,is #1, propagandist.
4000 malls, ghost-cities, it's going to be a miracle when a pipe-line, refinery, and auto plant pop-up somewhere near, just a miracle.
I know a Gen X female attorney, who is a liberal vegetarian, TDI Jetta driving, Feel the Bern sticker-sporting woman.
I noted that she possess a CWP, and has 3: 1 in that TDI, 1 in the office drawer, and 1 at home.
I point this out because there is a whole hell of a lot of cognitive dissonance going on amongst white democrats and progressives, if they're paying attention to anything outside the FB/MSM bubble.
This individual does criminal defense, has lived in New Orleans, and is well acquainted with dindunuffins. Hence the firearms and permit.
But she's still a liberal. Very smart, good looking, and a head full of rocks, evidently.
Even knowing how important the right to bear arms is in her daily life, she will still vote for somebody who'd support taking that away.
Because he's not a Republican. Or some bullshit hamsterized response.
She bought three, so she would not have to "Feel the Bern"
I bet she wants illegals to get social security benefits and fucks niggers.
Anyone really care?
Obviously the consumer needs more consumer debt to finance this shift to "domestic consumption". Where are the debt sellers at??!!
this is going to be interesting. the chinese are still on the edge of developing a society from scratch with all the advantages(and disadvantages) of modern technology expressed as current thinking/philosophy. i remember the mall wars in south florida in the 80s. american consumers would abandon a mall just because a new one opened 5 miles away. brick and mortar stores don't have a chance in a really crowded space where it takes more time at checkout than ordering online and washing the dishes. according to this article the stores don't even serve the purpose of a showroom for an online purchase. so jack ma becomes the world's first retail/wholesale trillionaire merchant. i wonder what china is doing to develope its package delivery distribution system?
Oh c'mon!
Are you sayin' the Chia Knees gummint is a pack 'o' liars? Hmmmm???
That they would intentionally falsify this stuff?
That would insinuate they've got big balls, and as we all know, they've only got little marbles compared to Putin's pair of 24LB bowling balls....
I'll tell you the big problem in China:
THEY HAVE BEEN HAVING INFLATION FOR DECADES WHEN THEIR GDP WAS GROWING AT 10% !!
How can you have inflation when economy is growing so strong? You should have had deflation! Now it is time to deleverage.
By the way, with that inflation and such high growth, central bankers in China and their friends must already be billionaires.
Look for the shelters. It's going to be fireworks, It's going to be brutal!
WASHINGTON (Reuters) - The U.S. Navy plans to send the USS Lassen destroyer within 12 nautical miles of artificial islands built by China in the South China Sea within 24 hours, the first of more regular challenges to China's territorial claims, a U.S. defense official said on Monday.
http://news.yahoo.com/u-navy-send-destroyer-within-12-miles-chinese-1758...
Chinese as well as western economic statistics are simple lies.
Look at empty and abandoned shopping malls in the declining US, partially taken over by local governments or SS administration.
Over the weekend desperate moves by PBOC to lower interest rates for 6th time in a year, removal of bank deposit rate ceiling as well as bank reserves proves dire economic situation of no growth just at a time of thirteen plenum, all done to push up the stocks owned by party apparatchiks and devaluate yuan to save exports, signs of open currency war as acknowledged already by Boomberg.
China joined the world in misguided effort to stem deflationary spiral of global demand collapse, global trade collapse and global production collapse papered over with financial gimmicks and statistical lies.
China joined world oligarchs on the same path to destruction by attacking savers and people who work for living and promoting rentiers and speculators while betting on aggressive imperial expansion of capital investment abroad challenging western financial dominance.
More on China and global economy can be found here:
https://contrarianopinion.wordpress.com/economy-update/
http://nukeprofessional.blogspot.com/2015/10/nuclear-dump-fire-epa-shuts...
Nuke Dump "Fire" Can Kill 61,000,000 Americans -- EPA Shuts off the Beta and the Gamma Radiation Detection Last week was a nuclear dump fire, in which the startling an amazing caught video of the explosions and volcanic ejections was just recently making the rounds.ENENEWS caught some Gamma 5 Radiation data from Las Vegas and published it, here.
http://enenews.com/epa-data-shows-radiation-spike-major-city-after-explosions-nuclear-waste-facility-ap-drums-buried-waste-blasted-sites-fence-large-crater-reported-emergency-official-govt-brought-resources-ive-ne
Let me post the punchline at the front, how many people could be killed by what is KNOWN to be a Beatty, and they did have documented sloppy practices. 61,000,000 People Can Be Killed!
- See more at: http://nukeprofessional.blogspot.com/2015/10/nuclear-dump-fire-epa-shuts... Nuke Dump "Fire" Can Kill 61,000,000 Americans -- EPA Shuts off the Beta and the Gamma Radiation Detection Last week was a nuclear dump fire, in which the startling an amazing caught video of the explosions and volcanic ejections was just recently making the rounds.
ENENEWS caught some Gamma 5 Radiation data from Las Vegas and published it, here.
http://enenews.com/epa-data-shows-radiation-spike-major-city-after-explosions-nuclear-waste-facility-ap-drums-buried-waste-blasted-sites-fence-large-crater-reported-emergency-official-govt-brought-resources-ive-ne
Let me post the punchline at the front, how many people could be killed by what is KNOWN to be a Beatty, and they did have documented sloppy practices. 61,000,000 People Can Be Killed!
- See more at: http://nukeprofessional.blogspot.com/2015/10/nuclear-dump-fire-epa-shuts...
That's low level radiation, just a bit above background.
High level nuclear waste is stored a couple thousand feet underground, not in shallow trenches.
I'll send an Alberta Clipper to blow that shit the other way.
Another example of the exceptional hubris.
Kinda like a yellow river.
Fuck
Shopping malls:
Where ghetto people walk around and pretend to buy stuff so they can pretend to be rich.
I guess the reason is the same as in the US. The US propaganda says that economy is getting better, but the malls keep closing. Nobody asks for an explanation. Maybe Chinese are increasing consumption of gold, silver and other assets.
I've been living in China for 7 years, and I haven't seen any empty malls in any of the major cities. And online shopping is huge these days with the popularity of ZhiFuBao and Wechat pay (sort of like paypal). that could cause some of the smaller city malls to lose traffic. But from where I'm standing, everything is fine here in China.
What do you get when you give North Korea a printing press and no sanctions? Modern China.
Soon no doubt we will hear about the Chinese going to the moon and how the middle class of China is literally running around in bentleys
There is a difference btw the rhetoric (transition to a consumer economy) and the realities. Billionaire Li Ka Shin, the real estate mogul has been out of real estates in Greater China for close to 5 years. Stealthy pare downs to crony capitalists who can still oppress through rent seeking. This glitzy Asian Miracle Game now need more spins.