A vendor counts Chinese Yuan notes at her stall in Wuhan, China. (Tomohiro Ohsumi / Bloomberg )
There are few things the good people of Shanghai love more than shopping. And there were few shopping centers as luxurious as the city's Jinjiang Dickson Center. When it opened in 1994, the Jinjiang was China's first luxury retail mall, well situated among the leafy London plane trees of the former French Concession along the auspiciously named Changle Lu, the Street of Eternal Happiness. Across the street from the mall stood the hotel where, in 1972, President Nixon and Chinese Premier Chou En-lai signed the treaty that would formally open trade between what are now the two largest economies on the planet. The Street of Eternal Happiness always seemed to be at the center of China's capitalist ambitions.
On a recent morning, the Jinjiang Dickson Center hosted a demolition crew of cigarette-smoking laborers wearing orange hard hats. They heaved sledgehammers through the walls of stores recently vacated by Gucci, Ralph Lauren, Coach and Giorgio Armani, among other high-end global brands. According to a Jinjiang Dickson representative, they're not coming back.
After years of soaring double-digit growth, China's economy is slowly coming in for a landing. And the first order of business for Xi Jinping when he became president this year was to give a stern dressing-down to fellow Communist Party officials. They were instructed to cut back on lavish banquets, remove the Rolexes from their wrists and stop bribing one another with Coach bags. Within weeks, luxury goods dealers experienced a 20% to 30% decrease in sales.
Two blocks down the street from Shanghai's luxury goods graveyard sits a ramshackle row of shops that cater to the rest of China. They're managed by the nation's most reliable economists: small-business owners. An unscientific door-to-door survey finds it's not just Prada and Louis Vuitton that are losing business. Among the blunt valuations of China's economy from this end of the street:
"Worse than last year, and last year was worse than the year before."
"I've never seen it this bad."
One shop owner, unable to find words to describe the economic climate, simply answered with a sustained raspy groan.
On the face of it, China's latest economic data look pretty strong: GDP growth, exports, industrial output and electricity production have all rebounded in recent weeks. But the number that matters most for the long-term health of China's economy — urban household income growth — has slowed from 9.7% in the first half of last year to 6.5% during the same period this year.
The much-hyped Chinese consumer class — drooled over by American retailers as they scramble for sunny markets — may not be
as willing to part with their yuan as companies expect. Eight out of 10 workers in China are employed by the 42 million small businesses that help drive economic growth. These firms are desperate for economic reforms that will open official lines of credit to them. As it stands, an estimated 97% of these small businesses can't obtain a simple loan from a bank.
Despite calls for change from within the party's new leadership, China's economy seems to be falling back on what it knows best: opening lines of credit at government-run banks not for small businesses but for state-owned enterprises to build roads, high-speed rail and gleaming office towers. This formula ensures that the bulk of China's money supply flows between the Communist Party's network of state banks and state companies rather than into the pockets of everyday Chinese. Despite the economic slowdown, the party's sitting on a big pile of money. The question is whether it wants to share.
Figuring out how to tilt China's economic growth model toward Chinese consumers without throwing the economy into a tailspin will be at the center of discussions when China's leaders meet in November. Will the Communist Party sacrifice short-term growth for the long-term prosperity of individual Chinese? Will it spread the wealth beyond the ballooning state sector? Or will it continue the status quo until enough people demand meaningful change?
On the Street of Eternal Happiness, the answer, for now, seems clear. As workers slammed their sledgehammers into the stores at the Jinjiang Dickson Center, I asked a security guard what would take their place. A school? A hospital? A more modest mid-scale mall? The guard paused to clear his throat of the dust, spitting on the ground between us before raising his voice over the mayhem. "A bank!" he yelled.
Rob Schmitz is radio host and China correspondent for American Public Media's "Marketplace." Twitter: @rob_schmitz