Many Savers, Few Spenders Leave South China Mall Almost Empty

Many Savers, Few Spenders Leave South China Mall Almost Empty

By Matthew Benjamin and Nipa Piboontanasawat

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, according to Ian Thomas, whose Vancouver- based firm was retained to help with leasing and marketing. Instead, 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.

``The mall is going through a development stage now,'' says Grace Liu, a public-relations officer. ``Its current performance doesn't mean it won't do well later.''

The crowd today seems to consist primarily of teenagers here for the rides or to socialize. There are a few workers on lunch break at the McDonald's and KFC restaurants.

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.

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.

``Narrowing the trade deficit without harming our economy requires a reversal in the underlying causes,'' U.S. Treasury Secretary Henry Paulson said last month. ``The United States has to save more and be able to fund our own investment, and other countries have to grow faster and rely to a greater extent on domestic demand.''

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.''

No Gap

South China Mall has no Gap, Banana Republic, H&M or other staples of a typical American or European mall. The few stores open are primarily from Asian chains.

Colour Eighteen, owned by Hong Kong's Toppy Group, is offering a 70 percent discount on all items, mainly clothes and accessories for young women. Four salespeople stand waiting almost desperately to serve customers, though there are none.

``It's a weekday, everyone's at work,'' explains a saleswoman who won't give her name. But a return trip on a Saturday finds the shop just as empty.

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.

It's hard to imagine Li Yun buying an Imax ticket. The 18- year-old electronics factory worker walked to the mall on her day off to sit by the fountain. Li left her home on a farm three months ago to find a job in Dongguan. Her 900 yuan ($116) monthly salary doesn't allow her to shop or eat at the mall, or even save much.

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.''