DENG HONG’S AMBITION, according to a Chinese newspaper, was to build a city inside a single building; a "temperature-controlled paradise". Last September his dream edifice, the New Century Global Centre, formally opened in the south-western city of Chengdu. China’s official media call it the world’s largest building. Its centerpiece is a shopping mall of such arresting dimensions that many visitors pause on arrival to take souvenir photographs. It boasts a 300-meter indoor beach, a skating rink and an IMAX cinema. The Chinese often say that theirs is a country of too many people and too little land. The cavernous Global Centre building begs to differ.
Mr Deng did not attend the launch ceremony. He was in custody, suspected of being involved in a corruption scandal that has also ensnared a former mayor of Chengdu, who in turn may be linked to an even bigger case linked to a former member of the Politburo Standing Committee, Zhou Yongkang. Mr Deng’s troubles are an uncomfortable reminder of the perils of hubris.
Massive buildings help to boost local officials’ egos and brand their cities. According to the Council on Tall Buildings and Urban Habitat, an American industry association, China has about 200 skyscrapers over 250 metres tall, four times as many as America. Close to Mr Deng’s building is an office complex reminiscent of Beijing’s "bird’s nest" stadium that cost 1.2 billion yuan ($175m) to build. It was supposed to become the city government’s headquarters, but after a public outcry over its extravagance its leaders decided to move to more modest buildings nearby.
The Global Centre, though, is also a monument to an increasingly essential ingredient of China’s economic development: consumption on a scale that helps to lessen the country’s dependence on infrastructure investment as an engine of growth. China’s leaders want citizens to save less and spend more. Mr Deng’s brainchild is a proud declaration by a local government far inland that it wants a consumer culture like that in mega cities such as Beijing, Shanghai, Guangzhou and Shenzhen. The capital’s most iconic new structures are stadiums, office buildings and a colossal egg-shaped centre for the performing arts. Chengdu’s is a jaw-dropping shopping experience.
Chengdu, the capital of Sichuan province, is a "second-tier" city, a loosely defined category that includes most provincial capitals; yet it is rapidly gaining the "first-tier" status of Shanghai, 1,600km (1,000 miles) to the east. That suits China’s leaders, who are trying to boost consumption in regions that have fared less well in China’s almost uninterrupted boom of the past 35 years. Thanks to massive government investment since the turn of the 21st century, the gap between the wealthy east and the far less developed west of China has narrowed. According to the Economist Intelligence Unit, a sister organization of this newspaper, average GDP per person in China’s western provinces in the late 1990s had dropped to about one-third the figure in the nine eastern coastal provinces; but by 2012 it had recovered to more than half, the highest level since China launched its economic reforms in the late 1970s.
The Global Centre seems to be reckoning on a fair number of wealthy spenders in Chengdu: it provides 15,000 parking spaces. It is also readily accessible by the city’s first metro line, which opened in 2010 (there are now two lines, and plans for an underground network of more than 350km by 2020, close to the length of London’s). But Chengdu’s new middle classes much prefer to drive. The city has more than 3m private cars, second only to the number in Beijing. And at weekends the centre already seems to be packing visitors in.
Consuming passions, continued
Like the rest of the country, though, Chengdu is beginning to slow down. The city estimates that its GDP last year grew by about 10%, two percentage points less than it was aiming for and the lowest rate since 1999. Nationally the picture is much the same. This year’s overall growth target is for 7.5%, the same as last year’s and a far cry from the double-digit advances of most of the past decade. But that does not mean household spending will falter. Andy Rothman of Matthews Asia, an investment firm, calls China "hands down the best consumption story on the planet". Retail sales last year went up by 11.5% in real terms, after 12.1% in 2012 and 11.6% in 2011. China’s household spending over the past few years was holding up well, he argues. It was just that investment grew even faster.
A "rebalancing" may be under way. Except for a dip last year, the share of GDP growth contributed by households and the government has been rising (see chart 1). In 2011 and 2012 it exceeded that contributed by investment for the first time since the middle of the past decade. Last year China overtook Japan to become the world’s second-largest consumer economy.
However, there is a lot more that China’s leaders could do to achieve the goal set by the prime minister in March: that the country should "fully tap the enormous consumption potential of more than a billion people". The Global Centre was not built for the mass market, as attested by a display inviting shoppers to invest in luxury resort property in Thailand. A large group of people living in China’s cities is, in effect, "shut out of the urban consumer economy", says Tom Miller, author of "China’s Urban Billion": the one-third of urban residents who have migrated from the countryside. They make up about 40% of urban labour and the majority of China’s workforce in manufacturing and services, but they spend very little.
As Mr Miller notes, this is changing, thanks to a shift in China’s demography. In 2012 China’s working-age population (those between 15 and 59; most Chinese retire young) began to shrink. In response to shortages of young, unskilled labour, local governments have been raising minimum wages. This has been good for inland cities like Chengdu, which have benefited from production shifting westward in search of lower labour costs. It has also been great for migrants: their average wages doubled between 2005 and 2011, to about 2,050 yuan ($322) a month, and last year rose by nearly 14%. But a lot remains to be done to turn these migrants into big spenders.
A good start would be to change their official household registration, or hukou, to the city, entitling them to the welfare benefits and access to public services enjoyed by other city-dwellers and thus releasing some of their spending power. Migrants have an unusually high savings rate, far higher than that of either urbanites or rural dwellers, perhaps to compensate for the absence of welfare benefits. According to Chi Fulin of the China Institute for Reform and Development, rural migrants on average spend 2.7 times as much when they move to urban areas as they did at home. But they still need to save to make up for their lack of entitlement to housing and other benefits. If they also change their hukou, their expenditure more than triples.
Yet for most migrants changing hukou is next to impossible. They continue to be called mingong (peasant workers) no matter how long they have been living in the city, and so do their children, even if urban-born and raised. For reasons of equity as well as economic advantage, hukou reform has become urgent.
The Global Centre is a monument to consumption -- an increasingly essential ingredient of China’s economic development
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