Leonhardt on China

This David Leonhardt piece on efforts to build a consumer culture in China is just fantastic. There so much right here in these two grafs:

What’s striking about Wuqi is just how serious its officials are about making this transition happen — and yet how difficult it nonetheless will be. The Wuqi International Hotel was as comfortable as most Marriotts or Hiltons in the United States, but the surrounding streets had the dusty feel of a backwater. The hardware, liquor and food stores down the block were each the size of a storage closet and about as well lighted. In the evenings, when Wuqi residents gathered in a public square to talk or perform exercises together, many of the stores were closed. The parents I met were thrilled that high school was free but were still saving an enormous portion of their modest incomes to pay for college or a new home. Those savings create a self-reinforcing cycle, in which stores don’t flourish because people don’t shop much and people don’t shop much partly because there aren’t many good stores. As Feng Zhendong, Wuqi’s reform-minded Communist Party secretary, says, “There’s only so much to spend on.”

Then there was the hotel itself. During my first night there, I don’t think I saw a single other guest — in the lobby, the restaurant, the elevator or on the 19th floor. After I used the hotel gym, the front desk called to ask if I would be using it the next morning as well. In that case, someone would make sure it was unlocked.

There’s so much right in here. One thing is that not only is consumption a low share of Chinese GDP, the productivity of the retail sector is lousy. Of course parts of China have fancy international chain stores, but the more “authentic” streets I saw not only had these tiny stores but on average they had zero customers at any given time. Then you have in the empty hotels the problems of an economy that’s still heavily planned. Over-investment in certain kinds of prestige projects? Or maybe it’s over-investment in things that don’t compete with incumbent firms. Wuqi doesn’t have a pre-existing Western-style business hotel that’s averse to seeing a new one open up. The whole thing is moving at an unprecedented speed, and I don’t think anyone really understands how to keep it going.