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article imageThe world's biggest mall in China is now a Ghost Town

By Eko Armunanto     Mar 5, 2013 in Business
Having an estimated population of 10 million, the Chinese Dongguan are unable to sustain a 5 million square feet shopping mall, despite many of them are migrant workers from other parts of the country.
The shopping mall was opened in 2005, containing 2,350 stores which make it the largest in the world in terms of leasable space. It was expected to attract an upwards of 100,000 visitors a day but practically no people come for shopping.
Most of its storefronts remain unoccupied within eight years after it first opened, a desolate monument to Chinese real estate ambitions and the stimulus credit boom that followed the financial crisis. It also sits on the outskirts of town, making it difficult to access. Only a handful of stores are occupied despite the bombastic design and grand plans. The mall is virtually deserted.
The mall project is indicative of a greater trend in China, said Victor Teo, an assistant professor at the University of Hong Kong, to CNN. “To me, many of these projects are a result of easy access to capital and a combination of wishful thinking and speculative behavior rather than rational business decisions,” he said.
Some speculate that the nation’s housing bubble, as Teo noted, has been on the brink of bursting for years. Ghost towns are increasingly common in China. "China's economy has become the second largest in the world, but its rapid growth may have created the largest housing bubble in history", Lesley Stahl reported for CBS News.
The deserted mall is a symbol of China's rapid urbanization and runaway investment in real estate projects, where massive development projects have been given the go ahead without proper marketing and business research. A Hong Kong based financial analyst Gillem Tulloch told CBS that people in the emerging middle class of China are having enough money to invest but few ways to do it.
"They're not allowed to invest abroad, banks offer paltry returns, and the stock market is a rollercoaster. But 15 years ago, the government changed its policy and allowed people to buy their own homes and the flood gates opened", he said.
Tulloch noted further that middle class in China were investing in property because property prices have always gone up by more than inflation, and they believe it will always go up.
"Actually, property values have doubled and tripled and more, so people in the middle class have sunk every last penny into buying five, even 10 apartments, fueling a building bonanza unprecedented in human history. No nation has ever built so much so fast", he added.
China is said to have built the equivalent of Rome every two months in the past decade. Kevin Doran, a senior investment fund manager at Brown Shipley in the UK, told BBC that investment in infrastructure accounts for much of China's GDP, but with such a large pool of labour it's harder to put the brakes on when growth slows and supply outstrips demand.
"You have got seven to eight million people entering the workforce in China every single year, so you have to give them something to do in order to retain the legitimacy of the government", said Doran.
Real estate is the main driver of growth in China. Some estimates have it as high as 20 or 30 percent of the whole economy so that China was not only building houses, in fact, but the whole city. Assuming people will come, the government has spent some $2 trillion to get these cities built — somewhere between 12 and 24 new cities every single year, but no one's coming. Ye Jining, the head of New South China Mall’s investment unit, said the mall has a 20% occupancy rate, and the aim was to increase it to 80% by the end of 2013 — a big challenge for the world’s biggest ghost mall.
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