Thursday, January 12, 2006

The Great Malls of China: Take Two

The earlier entry on this blog led to writing an oped piece that was published in the Los Angeles Times. The following entry uses material from that oped before editing at the Times, plus other pertinent material. So this will be the definitive "free" Internet version.

The news that China is now more popular around the world than the U.S., according to a Pew Research Center survey, is just the latest Chinese challenge to the American ego. The Chinese are buying U.S. businesses with hallowed American brand names, like Maytag and IBM's PC unit, and they're fighting the U.S. for control of Unocal oil. They're making a great deal of what Americans wear, use and buy. They hold a big chunk of the U.S. national debt. And they've even gone ahead in the most characteristic icon of American life: the shopping mall.

The West Edmonton Mall in Canada has been the largest shopping mall in the world since it opened in 1985. But this year the largest mall in the world is the Golden Resources Mall in Beijing. It will soon be eclipsed by the South China Mall, complete with a replica of the Arch de Triomphe.

The Mall of America outside the Twin Cities of Minnesota has been the biggest in the U.S. for more than a decade. There are now four malls in China that are bigger. South China Mall will be three times its size.

By the end of the decade, China is expected to have at least seven of the world's ten largest shopping malls. With some 400 malls now, shopping center construction in China is booming, while mall-building has been steadily declining in the U.S. (from 35 major mall projects at the turn of the century, to 13 from 2001-03 to 8 projected for 2004-06, "significantly fewer new mall projects and significantly less" leasable area, according to the International Council of Shopping Centers).

Of course, the U.S. has a half century start while China's vastness is mostly unmalled. But this trend does suggest a few things. China has become one of the world's primary producers of retail goods, based partly on its ability to undercut prices with cheaper labor. Yet there is so much money flowing into China now that a consumption economy is growing fast. The customer potential in China and the far east is one reason that the Simon Property Group, by far the largest U.S. shopping mall developer(including Mall of America)opened an office in Hong Kong in May.

Chinese producers are supplying cheap consumer goods sold in the U.S., mostly at Wal-Mart and other low-end retailers, resulting in a huge trade imbalance. Nearly half of total U.S. imports arrive by sea through the Port of Los Angeles and Port of Long Beach. As Long Beach communications director Yvonne Smith told Frontline, "China is doing the manufacturing, the United States is buying it." Much of the $3 billion in U.S. exports to China consisted of raw material---cotton,scrap metal,waste paper-- for the $36 billion of mostly manufactured goods and the boxes they arrive in from China.

“Wal-Mart has a very close relationship with China," Duke University Professor Gary Gereffi told Frontline. "China is the largest exporter to the U.S. economy in virtually all consumer goods categories. Wal-Mart is the leading retailer in the U.S. economy in virtually all consumer goods categories. Wal-Mart and China are a joint venture."

Frontline continues: "No one can compete with China. Such efficiency, such manpower," said Frank Yuan, the former middleman who did business with Wal-Mart, and who now heads an international apparel trade show. "If you look at [Wal-Mart's] shoes or housewares, 80 or 90 percent is coming out of China. And apparel is not as big as it should be." After U.S. quotas on textile imports expire on Jan. 1, 2005, Yuan expects imports from China to rise to 80 percent of the apparel market.

But while all that income helps create a new consumer class in China, the middle class that once filled America's malls is declining. The U.S. mall industry anticipated a splintering middle class in the 1980s, responding with fashion malls for the better off and emphasizing entertainment to attract what was left of the mass market. Then Wal-Mart came along and stole the growing "low-end" consumer market, becoming the world's largest retailer in the process, as well as China's best customer.

With health care costs still rising, and fewer employers offering good benefits, the increasingly insecure middle class has less money (and with more women working and more people struggling with several low-wage jobs, much less time) for recreational shopping at the mall. What was once unheard of is now fairly common: U.S. shopping malls closing.

The opposite situation seems to be occurring in China. To some, the spectre of an officially Communist country spawning so much business enterprise so successfully seems ironic at best. Others point to all this commerce as the final if unacknowledged triumph of capitalism over Marxism.

But the lessons learned may be a little different. The U.S. has so far managed to avoid widespread conflict over economic inequities by making sure that though many people can no longer afford health care, retirement or higher education, with an extra job or two they can still afford to shop---at least at Wal-Mart.

Especially with all the new and less controllable sources of information becoming available as a result of supplying the West, the Chinese may be learning as well that pacifying the population is not such a bad idea. They may also realize that shopping is the opiate of the people.

In the U.S., even with the wealthy few continuing to get wealthier, the days of the malling of America may be numbered. But those high-end shoppers with the wherewithal to travel can still find the goods and the mall experience they may crave. Because there are some really great malls in China.

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