A bus drives past people lighting fireworks on a street during the Eve of Chinese New Year in Beijing, Sunday, 7th February 2016. ©Andy Wong/AP/Press Association Images

China's dead supermarkets

Young Chinese businesses, free of government control, are the future
February 18, 2016
Read more: China's economic leaders know they can't go on like this 

The streets of Beijing are just as bustling as ever. People are lining up at the restaurants in the city centre’s shopping malls, even though it’s way past lunchtime. On the surface, there is little sign that China’s economy is in trouble, or that daily life and jobs here are affected. Home prices are still high—way beyond what the average Beijing salary could afford.

But many industries affected by the economic slowdown have moved out of the capital, which explains why the impact is less keenly felt here.

I recently visited relatives in the city of Langfang, a 20-minute ride on the bullet train from south Beijing with a population of around four million. Arriving at the station, I told the driver to take me “across the road from the Renren Le supermarket.” At the crossroads, however, the entire corner once lit up in neon letters (Renren Le means “everyone happy”) was pitch black. The supermarket had shut down and all lights were off.

Days before, disgruntled employees had stood outside holding red banners reading: “Langfang Renren Le return our blood and tears money.” Newly opened in 2011, the building is just another example of the government-driven real-estate bubble that developed after the 2008 recession. The demand for places like this never existed.

Just a 15-minute walk away is a Wal-Mart; in the other direction, a Carrefour had opened in the same year. Langfang’s City leadership clearly embraced the idea of “the more the merrier” with little consideration for the spending power of its inhabitants. The closure of Renren Le also has knock-on consequences: stores and restaurants that once serviced the local neighbourhood have also gone.

Spanking new supermarkets and shopping malls popping up in China’s smaller cities became a regular phenomenon a few years ago. Shiny buildings that looked transposed from somewhere much glitzier would appear in shabby town centres, bearing the emblem of major property developers. In many cases, after some initial excitement, many locals found these new places just too expensive—and disconcertingly large—for daily use, especially when a cheap local vegetable market could be found nearby.

There have been success stories too, and many supermarkets have become bustling additions to city life. But as the darkened corpse of Renren Le reminds us, switching from foreign-led consumption to domestic led consumption in China is a mighty challenge and one that cannot be forced by simply creating more opportunities to spend money. Huge efforts are needed for the “deep-seated structural reforms” that China’s leadership have been talking about. As well as the fundamental market reforms, social reforms are just as critical, so families don’t just squirrel away all their savings for future uncertainties like medical bills. These include overhauls in the structure and management of the healthcare system, pension and insurance schemes, as well as changes to the hukou, a cumbersome household registration system for the workforce, which greatly impacts their mobility.

A family friend, Mr Zhang, who deals in the import and export of high-tech products, thinks these trends should come as no surprise, and that they are straight-forward consequences of China’s move towards a more competition-led model—he also thinks this is a good thing.

His own business is “thriving,” he says, and has not felt the economic pinch, unlike the more traditional “Made in China”-style mass-production businesses of the last decade. What survives, in his view, are the profitable businesses that continue to adapt and drive economic growth.

China’s new markets hold huge promise. E-commerce, for example, is booming—the market is expected to grow beyond $1 trillion by 2018. You just have to see the delivery carts zooming about in every Chinese city, town and village (77m rural Chinese shopped online last year —a 40 per cent increase from 2014) to get an idea of how significant online consumption has become in people’s lives. The leading force of online consumers is the younger generation, of which a significant proportion are only children who have more disposable income and are less afraid to spend it than their parents’ and grandparents.

For the time being anyway, there is fear but also plenty of hope.

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