This is the third in a series of guest entries on economics and life in Shanghai by Bill Dodson, director of Strategic Analysis at TrendsAsia Ltd and author of the upcoming book ‘China Inside Out: 10 Irreversible Trends Re-shaping China and Its Relationship with the World’. Bill normally blogs at This is China!
A couple of weeks ago, I went to a local Cantonese restaurant in Suzhou to buy some food to take home with me. Suzhou is a relatively small city by Chinese standards (about 1.5 million), and is 75 kilometres west of Shanghai.
But I almost walked straight past the establishment I was looking for because it had been ‘dis-established.’ The restaurant had been completely gutted some time after I had gone there two weeks earlier. I went back empty-handed to the pub I’d just been to and explained to my waiting friends that the restaurant was gone. They were as surprised as I was, noting it had only opened last year.
The same thing happened a few days later, with a different business: heading off to a regular lunch establishment for some Malaysian fried noodles and an iced tea, I was disappointed to find that old haunt had vanished too. A note on the door in English and Chinese said the cafe was permanently closed.
Perhaps the noodle shop closure shouldn’t have come as a surprise—the week before one of the owners had asked us what kind of business she should get involved with in Suzhou.
Businesses in China are structured to be obsoleted when they don’t provide the kind of pay off owners expect as quickly as they’d like. Businesses across the services and manufacturing sectors come and go in China with head-spinning rapidity. Restaurants, bars, clothing stores, entire malls and factories come and go with a speed difficult to match in Western countries.
Tens of thousands of factories along the eastern seaboard closed literally overnight in the winter of 2008, owners and bosses melting into the night with suitcases stuffed full of cash. Some of the factories sprouted up again in the interior of China, where salary levels were lower, while the proceeds of others were likely poured into industries completely different from the original business.
China now abounds with hundreds of thousands of empty apartments, concrete shells for which the owners await the most appropriate time to ‘flip’ the properties for profit. Urban centres are glutted with empty office space—also, in most instances, concrete shells—with few interested or able to pay the exorbitant fees property developers seek to recoup their investments.
I’m writing this blog entry in Suzhou in a complex of shops and restaurants called Times Square that opened two years ago. I’d say about half the establishments have been dis-established since the mall opened for business (although some big brands in the mall like Starbucks still bring in substantial custom).
So far, the business obsolescence model has worked well in China. The marketplace is still young and flush with easy cash. In a way, the economy and business climate is much like a Las Vegas casino: it’s all a numbers game, so try your luck and see what sticks. If you find a business model that actually makes money, then you, too, can be a fat cat.
But when the markets mature and the cash is flowing to other emerging markets, will the casino market still work for entrepreneurs in China? Will businesses, communities and the country be able to actually create genuine wealth at that time, instead of taking speculative flows and re-distributing them as the urge takes them?
Given that the past 30 years have been a boom time for the Chinese economy, with few rough patches, I think some of the less creative entrepreneurs will certainly be surprised when they've discovered their entire marketplace has been dis-established.
The newly-monied in China may have to decamp to Vegas to ply their investment ‘genius’.